When Can the IRS Abate Interest?

Interest on a federal tax liability generally begins accruing from the date the tax should have been paid, even when the additional tax is due to IRS examination changes. IRC Section 6404 allows the IRS to abate interest under some specific circumstances, primarily unreasonable delay by the IRS in determining the taxpayer’s tax liability.  Interest is rarely abated and the recent Tax Court case of Jon D. Adams v. Commissioner is a perfect example of why.  On August 12^th, the Tax Court granted the IRS’ motion for summary judgment in Adams, denying Mr. Adams request that the court find that the IRS abused its discretion in denying his request for abatement of interest on a tax liability he owed for 1999.  Mr. Adams was indicted and found guilty by a jury of making a false statement on his 1999 tax return.  The conviction was ultimately vacated by the 5^th Circuit in 2009, and after the government decided not to retry Mr. Adams, the IRS commenced a civil examination in 2011. In 2016, Mr. Adams agreed he owed additional tax of $91,762 and a civil fraud penalty of $68,822. In 2017, Mr. Adams filed a Form 843, asking the IRS to abate $207,044 of interest for his 1999 taxable year pursuant to Section 6404(e)(1) because the interest accrual was due to “arbitrary delays by the Commissioner”.

Section 6404(e)(1)(A) allows the IRS to abate an assessment of interest on “any deficiency attributable … to any unreasonable error or delay by an officer or employee of the Internal Revenue Service …in performing a ministerial or managerial act”.  “Ministerial act” means a procedural or mechanical act that does not involve the exercise of judgement or discretion and that occurs during the processing of a taxpayer’s case after all prerequisites to the act, such as conference and review by supervisors, have taken place.” Sec. 301-6404-2(b)(2).  “Managerial Act” is “an administrative act that occurs during the processing of a taxpayer’s case involving the temporary or permanent loss of records or the exercise of judgment or discretion relating to management of personnel”.  A taxpayer requesting abatement of interest faces a high standard of proof because a decision regarding the proper application of Federal tax law is neither a managerial nor a ministerial act. 

In granting the IRS’ motion for summary judgment, the Tax Court disagreed with Mr. Adams’ argument that the IRS choosing not to pursue a civil examination of his 1999 tax return until 2011 when the criminal investigation and prosecution were completed was unreasonable delay.  The court also disagreed with Mr. Adams that interest that accrued after the civil examination started should be abated because “[t]he undisputed facts show that the examining officer and the Appeals officer – in concert with the IRS Fraud Technical Advisor, managers and lawyers – worked to determine Mr. Adams’ correct tax liability and that lawyer from the IRS office of Chief Counsel then defended the IRS’ determination before this Court. ‘It is well settled that a decision concerning the proper application of Federal income tax law necessarily requires the exercise of judgment and discretion.’" (Citing Foote v. Commissioner).” 

For any questions on this or any other tax-related matters, please feel free to contact me at (214) 749-2456 or jcrouch@meadowscollier.com.