Acquiring an abatement of curiosity jogs my memory of Paul Simon’s tune 50 Methods to Go away Your Lover. Positive, the “50 methods” within the tune title is deceptive. By my depend, Simon offers us solely 4. And a few are singularly unhelpful for actual life recommendation. I imply, “make a brand new plan, Stan”? Actually? However the hyperbole does it’s job: it attracts consideration to concept there are the a number of methods to interrupt off a relationship.
My Lesson title can be hyperbolic, however serves the identical objective. When a taxpayer needs the IRS to abate curiosity costs, there are many methods to lose. Jeremy Edwin Porter v. Commissioner, T.C. Memo 2022-23 (March 28, 2022)(Choose Greaves) offers us a pleasant evaluate of a few of them. There, the hapless taxpayer was making an attempt to get curiosity abated for, amongst different durations, a 34 month interval the place the Tax Courtroom didn’t rule on pending discovery motions. The Courtroom sustained the IRS rejection of the abatement request as a result of, even when the delay was unreasonable, and even when it was not attributable to Mr. Porter, it was attributable to the Tax Courtroom, not the IRS. Ouch.
This offers us a great excuse to evaluate the numerous methods the IRS can reject an curiosity abatement request. And maybe discover ways to be a diligent litigant in order to maintain your shopper’s case transferring alongside throughout Tax Courtroom litigation. I hope right now’s lesson is extra useful than Simon’s tune. At the very least it will not be an earworm. Particulars under the fold.
Legislation: Abating Curiosity
Solely underneath sure slender circumstances will the IRS abate an evaluation of curiosity on an earnings, property, or present tax legal responsibility. Part 6601(a) imposes an curiosity cost on underpayments of all tax liabilities, operating from the date the liabilities had been purported to have been paid till the date they’re truly paid. Part 6404(e) authorizes the abatement of curiosity on earnings, property, or present tax liabilities, however solely underneath sure slender circumstances. See typically, Taxpayers request curiosity abatement by submitting Kind 843. If the IRS denies the request, taxpayers can search judicial evaluate. §6404(h). That evaluate, nevertheless, is barely to see whether or not the IRS abused its discretion in rejecting the request.
Part 6404(e) offers 4 causes for the IRS to reject a request for abatement. First, taxpayers should present there was an “unreasonable” delay. §6404(e)(1)(A). Second, they need to present the delay occurred within the efficiency of a ministerial or managerial act. Id. Third, they need to present they didn’t materially contribute to the delay. §6404(e) flush language. Fourth, they need to present the delay occurred after the IRS first contacted the taxpayer “in writing with respect to the deficiency or the cost.” Id. For instance, the IRS shouldn’t be permitted to abate curiosity accrued between the date a taxpayer recordsdata a return and the date the IRS begins an audit, whatever the size of that point interval. See Krugman v. Commissioner, 112 T.C. 230 (1999).
Failing to clear any one of those 4 hurdles will finish the search for abatement. See description in IRM 20.2.7.5.1 (11-13-2018)(“Standards and Examples”). And every might be troublesome to fulfill. For instance, the laws inform us that ministerial acts are procedural or mechanical acts that don’t contain the train of judgment or discretion. Thus, a income agent’s misapplication of Federal tax legislation shouldn’t be a ministerial act. Urbano v. Commissioner, 122 T.C. 384 (2004). An instance within the regulation of a ministerial act is the act of issuing an NOD, however solely after all the correct sign-offs have been obtained. Treas. Reg. 301.6404-2(b)(2). So a delay through the evaluate and approval course of is not a ministerial act and thus does not qualify for abatement of the curiosity accruing throughout that course of, even when the proposed NOD simply sits within the supervisor’s inbox for what appears an unreasonably very long time.
However wait, there’s a fifth cause for rejection, albeit it is not within the statute. Taxpayers in search of abatement should additionally hyperlink their assertions of delay to particular durations of time. They can’t merely request abatement of all curiosity throughout a basic interval; they need to determine what a part of the whole interval is attributable to recognized delays by the federal government. That requirement was created by the Tax Courtroom. See Verghese v. Commissoner, T.C. Memo. 2021-70 at p. 33 (amassing instances).
If and when the IRS rejects the request, it will get an enormous thumb on the size of justice. Part 6404(h) says that the Tax Courtroom will evaluate the IRS rejection underneath a really lenient abuse-of-discretion normal of evaluate. Which means with a view to prevail, “the taxpayer should reveal that in not abating curiosity the Secretary exercised his discretion arbitrarily, capriciously, or with out sound foundation in actual fact or legislation.” Lee v. Commissioner, 113 T.C. 145, 149 (1999).
Whew! Whereas not 50 methods, these 5 methods to lose your curiosity abatement request, mixed with the lenient normal of evaluate, certain clarify why taxpayers have a troublesome time acquiring abatement of curiosity.
Right this moment’s lesson reveals us why. Let’s have a look.
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In October 2013, the IRS chosen Mr. Porter’s 2011 and 2012 returns for audit. He had filed these collectively together with his spouse. In November 2013, he and his spouse signed a Kind 2848 designating a Ms. Ogorek to be their consultant. Accordingly, the IRS worker interacted with Ms. Ogorek, making the standard ask for paperwork to assist the questionable positions underneath examination. After receiving some paperwork at a scheduled January assembly, the examiner requested for extra, setting a deadline of April 16. When Ms. Ogorek didn’t reply, the examiner gave it one other week, then closed her file, making ready an NOD to ship up the evaluate chain. It went up and out the door on Mary 13, 2014.
The Porters filed a petition in Tax Courtroom on July 31, 2014. It seems they had been now continuing professional se with Mr. Porter doing the illustration.
You may see the whole docket sheet right here. It evidences an ordinary adversarial course of. For instance, you will note that when the federal government requested to file an amended Reply out of time (apparently so as to add an allegation of fraud), the Porters objected, natch! That required either side to submit paper and required a Tax Courtroom ruling, which got here 4 weeks after the objection was filed. Fairly fast work. Additionally, you will see that either side filed numerous discovery motions the place they requested the Courtroom for assist or safety within the discovery course of. That’s regular stuff for federal district courtroom litigation, though it’s a bit uncommon in Tax Courtroom proceedings, the place the emphasis is on cooperative information-sharing. See Branerton Corp. v. Commissioner, 61 T.C. 691 (1974).
Typically, the Courtroom on this case was very attentive to developments within the case. We noticed one instance above. This is one other: Mr. Porter filed a movement to dismiss on Could 15, 2015 to assault the validity of the NOD. The federal government replied on June 1, and the Courtroom denied the movement in a 5-page Order on June 29, 2015. Fairly fast work.
Typically, too, the Courtroom was very attentive to the desires of the events. Thus, the primary scheduled trial date (April 27, 2015) was continued till March 14, 2016 at Mr. Porter’s request. Then that trial date was continued at request of the IRS on March 1, 2016. The second continuation was indefinite however required the events to submit a standing report back to the Courtroom in April 2016. Additionally in March, quickly after the continuance, the events filed a Stipulation of Settled Points which represented a partial decision of the case. Nevertheless, each events at the moment nonetheless had numerous excellent discovery motions that they apparently nonetheless wished the Courtroom to determine. At the very least they didn’t withdraw the motions.
On April 14, and 15, 2016 each events submitted separate standing experiences to the Courtroom reporting progress in direction of an entire decision of the case. Nevertheless, a number of discovery motions made by every get together nonetheless remained excellent. For instance, on the identical day in Could Mr. Porter withdrew one discovery movement however then additionally supplemented one other discovery movement.
That open-ended continuance appears to have created the chance for an issue.
Very long time handed….some 19 months.
In November 2017, the IRS filed a complement to its April 2016 Standing Report. In it, the IRS reported that the events had been near settlement, and that it not wished to implement its discovery motions.
Very long time handed….some 15 months.
In February 2019, the Tax Courtroom lastly dominated on the pending discovery motions with this Order. It wrote: “On the idea of those filings, it seems to the Courtroom that these discovery motions are pointless, moot, or with out benefit.” “These filings” refers back to the standing experiences from 2016 and 2017.
The Courtroom then calendared the case for a March 2019 trial, and the tempo picked again up. The events submitted extra stipulations in March and, on Could 29, 2019, the Courtroom entered a Stipulated Determination resolving the case. The agreed-upon legal responsibility was then assessed and Mr. Porter paid it, together with some $3,000 in curiosity operating from the due dates of the 2011 and 2012 returns till the dates of his funds (August 12, 2019 after which February 3, 2020).
Mr. Porter then requested the IRS to abate curiosity accrued through the interval November 2013 by way of June 28, 2019. The IRS stated no. Mr. Porter then petitioned the Tax Courtroom, which held trial in Salt Lake Metropolis on January 21, 2022. Choose Greaves issued this opinion on March 28th. Fairly fast work!
Let’s see what we will be taught.
Lesson: There Should Be 50 Methods to Lose Abatement Requests
(1) There Was No Delay, Ray. Mr. Porter by no means confirmed the place there was any delay within the audit course of. A variety for audit in October 2013 and NOD issued in Could 2014 is arguably not a delay in any respect. Neither Choose Greaves nor the IRS addressed this immediately, however I believe that’s as a result of they simply didn’t must, due to the following cause.
(2) It is Your Personal Fault, Walt. Right here, the IRS determined that Mr. Porter’s consultant’s failure to offer requested paperwork contributed to no matter delay there had been within the audit. Choose Greaves agreed: “Petitioners delayed the examination by failing to offer the information the examiner requested and didn’t present any such information within the letter petitioner claimed to have despatched the IRS on November 26, 2013.” Op. at 5.
(3) IRS Did not Do It, Hewitt. That is the largest cause for denying Mr. Porter’s abatement request. His greatest shot for curiosity abatement could be both (1) the 19 month interval between the events submitting their first Stipulation of Settled Points in March 2016 and IRS’s Supplemental Standing Report in November 2017 or (2) the 15 month interval between the IRS’s Supplemental Standing Report and the Courtroom’s February 2019 ruling on the pending discovery motions. Only for grins, let’s name each of these time durations “delay” (see Motive #1 above). Sadly for him, neither delay was attributable to the IRS.
First, as to that first 19 month delay, it’s troublesome to pin that on the IRS. It seems that Mr. Porter primarily based his argument on his declare that the IRS didn’t reply to a settlement supply he had transmitted in direction of the finish of that interval, on November 5, 2017. Hokay. However that doesn’t remodel the IRS’s prior silence right into a delay. Bear in mind, either side had pending discovery motions earlier than the Courtroom and, additional, they nonetheless had not totally stipulated to all of the details and points. Briefly, either side had been sitting on their palms for these 19 months. That’s not a delay attributable to IRS staff. And the IRS did reply to his supply. Simply to not him immediately. It filed its November 28, 2017 supplemental Standing Report back to the Courtroom the place it requested the Courtroom to dismiss its pending discovery motions as moot.
Second, as to the 15 month delay, Mr. Porter has a stronger argument. It’s attainable that there was a managerial act that will qualify as a delay, if it in actual fact created a delay. That’s, Mr. Porter claims that after he submitted his November 2016 supply, he discovered that his the lawyer on his case had been transferred and no new lawyer assigned. He was in Chief Counsel limbo. If that’s true, that may very well be the idea to attribute a delay to the IRS. Treas. Reg. 301.6404-2(c), Instance 3, illustrates what a managerial delay might seem like:
“A income agent is distributed to a coaching course for an prolonged time frame, and the agent’s supervisor decides to not reassign the agent’s instances. Through the coaching course, no work is finished on the instances assigned to the agent. The choice to ship the income agent to the coaching course and the choice to not reassign the agent’s instances are usually not ministerial acts; nevertheless, each choices are managerial acts. The Commissioner could (within the Commissioner’s discretion) abate curiosity attributable to any unreasonable delay ensuing from these choices.”
The issue once more, nevertheless, is causality. Even assuming Mr. Porter’s case remained unassigned, the decision of the case at that time was not within the palms of the IRS. Mr. Porter was in Tax Courtroom and determination of his case nonetheless required a Tax Courtroom choice on his personal discovery motions, which he had by no means withdrawn. With pending motions, the ball to maneuver the case ahead doesn’t relaxation solely with one get together or the opposite however with each, to both come to a stipulation or to immediate the Courtroom to go forward and rule on the pending motions. Neither facet did that though no less than the IRS filed its Supplemental Standing Report asking the Courtroom to deal with its discovery movement as moot in gentle of the events’ progress.
To win right here, Mr. Porter would wish to suit himself into the details of Mathia v. Commissioner, T.C. Memo 2009-120. There the IRS apparently acquired a completely ready “choice doc” from the taxpayers the place the one act to be executed earlier than the doc may very well be filed with the Tax Courtroom was for IRS counsel to counter-sign it. The IRS lawyer didn’t countersign the doc. 5 years later, the similar lawyer despatched the very same choice doc to the taxpayer lawyer for signature and, this time, the IRS lawyer promptly countersigned an filed the doc. In right now’s case, Mr. Porter didn’t ship a completely ready choice doc however as an alternative merely despatched a proposal. The IRS response was to inform the Tax Courtroom a couple of weeks later that the events had been engaged on coming to a decision.
(4) Tax Courtroom Delay Not Monitor, Mac. To the extent that the 15 and 19 month delays might be attributed to the Tax Courtroom itself, Mr. Porter’s request nonetheless will get rejected for the fundamental cause that the Tax Courtroom shouldn’t be the IRS. Which will appear harsh however Congress didn’t see match to offer aid to taxpayers for delays attributable to the Tax Courtroom. As Choose Greaves writes: “such delays [in ruling on pending motions] are usually not grounds for curiosity abatement as a result of both they aren’t attributable to an IRS officer or worker, or a big side of the delay might be attributed to the taxpayer.” Op. at 5-6.
The rule that Tax Courtroom delays are usually not a foundation for curiosity abatement shouldn’t be as harsh as it could appear. That final phrase in Choose Greave’s sentence (“the delay might be attributed to the taxpayer”) goes to the idea of “unreasonable” delay. Part 6404(e) permits abatement solely when the qualifying delay is unreasonable. Which means if the inaction has an inexpensive trigger, the ensuing delay shouldn’t be unreasonable.
When taxpayers are in litigation in Tax Courtroom, it’s not the Tax Courtroom’s job to jolly them alongside. The Tax Courtroom rightly depends upon events to pursue their instances and maintain the Courtroom appraised of developments. Whereas some federal district courts are extremely energetic managers of their dockets, such rocket dockets result in outcomes extra depending on process than deserves and probably obscure different values that we need to see in judicial decision of disputes. See e.g. Mark Spottswood, The Perils of Productiveness, 48 New Eng. L. Rev. 503 (2014).
The Tax Courtroom has a very sturdy choice for the events to succeed in agreed outcomes. So when the message the Courtroom receives from the events is that the events are working in direction of decision, it give the Courtroom good cause to present them area through which to do this. As greatest I can inform that’s what occurred right here. The Courtroom acquired phrase the events had been working it out and so had good cause to attend earlier than ruling on the pending motions.
One of many methods to make sure that each the IRS and the Tax Courtroom will give applicable consideration to their case is to ask for a trial date. Nothing like a trial date to get consideration! Discover that on this case, the Courtroom granted the second continuance with out setting a brand new trial date. That’s partly what allowed the case to take a seat. Taxpayers may take motion to press for decision of their motions by submitting a standing report back to sign a breakdown in cooperation and ask for judicial motion. And, after all, taxpayers who worry the accretion of curiosity throughout litigation can at all times make deposits to cease the operating of curiosity.
Thus, as is my behavior, I’ll lastly conclude
hoping that my that means will not be misplaced or misconstrued.
And I am going to repeat myself, on the danger of being crude …
There have to be 50 methods to lose your curiosity abatement request.
Bryan Camp is the George H. Mahon Professor of Legislation at Texas Tech College College of Legislation. He invitations readers to return every week for a brand new Lesson From The Tax Courtroom, which can or could not include dated or obscure pop cultural references.
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