[Federal Register Volume 63, Number 5 (Thursday, January 8, 1998)]
[Proposed Rules]
[Pages 1086-1089]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-19]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 301
[REG-209276-87]
RIN 1545-AV32
Abatement of Interest
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: This document contains proposed regulations relating to the
abatement of interest attributable to unreasonable errors or delays by
an officer or employee of the IRS in performing a ministerial or
managerial act. The proposed regulations reflect changes to the law
made by the Tax Reform Act of 1986 and the Taxpayer Bill of Rights 2.
The proposed regulations affect both taxpayers requesting abatement of
certain interest and IRS personnel responsible for administering the
abatement provisions.
DATES: Written comments and requests for a hearing must be received by
April 8, 1998.
ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG-209276-87), room
5226, Internal Revenue Service, POB 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand delivered between the
hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (REG-209276-87), Courier's
Desk, Internal Revenue Service, 1111 Constitution Avenue NW, Washington
DC. Alternatively, taxpayers may submit comments electronically via the
INTERNET by selecting the ``Tax Regs'' option on the IRS Home Page, or
by submitting comments directly to the IRS Internet site at http://
www.irs.ustreas.gov/prod/tax__regs/comments.html.
FOR FURTHER INFORMATION CONTACT: Concerning the regulations, David
Auclair, (202) 622-4910 (not a toll-free number). Concerning
submissions, Michael Slaughter, (202) 622-7190 (not a toll-free
number).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed amendments to the Procedure and
Administration Regulations (26 CFR Part 301) relating to the abatement
of interest attributable to unreasonable errors or delays by an officer
or employee of the IRS under section 6404(e)(1) of the Internal Revenue
Code. Section 6404(e)(1) was enacted by section 1563(a) of the Tax
Reform Act of 1986 (Pub. L. 99-514, 100 Stat. 2762 (1986)) (1986 Act)
and amended by section 301 of the Taxpayer Bill of Rights 2 (Pub. L.
104-168, 110 Stat. 1452 (1996)) (TBOR2).
As enacted by the 1986 Act, section 6404(e)(l) provided that the
IRS may abate interest attributable to any error or delay by an officer
or employee of the IRS (acting in an official capacity) in performing a
ministerial act. The legislative history accompanying the Act provided,
The committee intends that the term ``ministerial act'' be
limited to nondiscretionary acts where all of the
[[Page 1087]]
preliminary prerequisites, such as conferencing and review by
supervisors, have taken place. Thus, a ministerial act is a
procedural action, not a decision in a substantive area of tax law.
H.R. Rep. No. 426, 99th Cong., 1st Sess. 845 (1985); S. Rep. No. 313,
99th Cong., 2d Sess. 209 (1986).
Further, Congress did not intend that the abatement of interest
provision ``be used routinely to avoid payment of interest.'' H.R. Rep.
No. 426, 99th Cong., 1st Sess. 844 (1985); S. Rep. No. 313, 99th Cong.,
2d Sess. 208 (1986). Rather, Congress intended abatement of interest to
be used in instances ``where failure to abate interest would be widely
perceived as grossly unfair.'' Id.
On August 13, 1987, the IRS published temporary regulations (TD
8150) in the Federal Register (52 FR 30162) relating to the definition
of ministerial act for purposes of abatement of interest. A notice of
proposed rulemaking (LR-34-87) cross-referencing the temporary
regulations was also published in the Federal Register for the same day
(52 FR 30177). No public hearing regarding these regulations was
requested or held. In this document, the IRS is reproposing a modified
version of the earlier notice of proposed rulemaking to incorporate
changes made by TBOR2. Therefore, the earlier notice of proposed
rulemaking is withdrawn.
The temporary regulations define ministerial act to mean a
procedural or mechanical act that does not involve the exercise of
judgment or discretion, and that occurs during the processing of a
taxpayer's case after all prerequisites to the act, such as conferences
and review by supervisors, have taken place. A decision concerning the
proper application of federal tax law (or other federal or state law)
is not a ministerial act. The temporary regulations also provide five
examples to illustrate the definition of ministerial act.
In TBOR2, Congress amended section 6404(e)(1) to permit the IRS to
abate interest attributable to any unreasonable error or delay by an
officer or employee of the IRS (acting in an official capacity) in
performing a managerial act as well as a ministerial act. Thus, as a
result of TBOR2, the IRS has the authority to abate interest in more
situations than under prior law.
Pursuant to the legislative history accompanying TBOR2, a
managerial act is a loss of records or a personnel management decision
such as the decision to approve a personnel transfer, extended leave,
or extended training. See H.R. Rep. No. 506, 104th Cong., 2d Sess. 27
(1996). TBOR2 distinguished a managerial act from a general
administrative decision, such as a decision on how to organize the
processing of tax returns or a decision regarding the implementation of
an improved computer system. Id. A general administrative decision is a
decision that impacts tax administration. The amendments to section
6404(e)(1) are effective for interest accruing with respect to
deficiencies or payments for taxable years beginning after July 30,
1996.
TBOR2 also added section 6404(g). Section 6404(g) grants the Tax
Court jurisdiction to determine whether the IRS's failure to abate
interest for an eligible taxpayer is an abuse of discretion. Tax Court
review is available for requests for abatement of interest that are
made after July 30, 1996, or that have not been denied prior to July
31, 1996. See Banat v. Commissioner, 109 T.C. 92 (1997); White v.
Commissioner, 109 T.C. 96 (1997).
Explanation of Provisions
TBOR2 expanded the scope of abatement relief under section
6404(e)(1). Consistent with congressional intent, the proposed
regulations permit abatement of interest in more situations than under
prior law. Nothing in the proposed regulations is intended to limit the
extent to which the IRS could abate interest before the effective date
of TBOR2.
The proposed regulations define managerial act and incorporate
other changes made by TBOR2. TBOR2 did not alter the definition of
ministerial act under prior law. Accordingly, the proposed regulations
retain the definition of ministerial act in the temporary regulations.
Managerial act is defined as 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 decision concerning the proper
application of federal tax law (or other federal or state law) is not a
managerial act. Further, interest attributable to a general
administrative decision, such as the IRS's decision on how to organize
the processing of tax returns or its delay in implementing an improved
computer system, cannot be abated under section 6404(e)(1).
In addition, the proposed regulations provide examples to
illustrate the definitions of ministerial act and managerial act.
Examples 1, 2, 3, 7, and 8 of the proposed regulations are
substantially similar to Examples 1 through 5 of the temporary
regulations. However, in Example 3 of the proposed regulations (Example
4 of the temporary regulations), a decision to approve extended
training is a managerial act, and in Example 8 of the proposed
regulations (Example 5 of the temporary regulations) the type of work
priority is specified.
The provisions of the regulations relating to a ministerial act
apply to interest accruing with respect to deficiencies or payments of
any tax described in section 6212(a) for taxable years beginning after
December 31, 1978, for which the applicable statute of limitations has
not expired. The provisions of the regulations relating to a managerial
act are proposed to apply to interest accruing with respect to
deficiencies or payments of any tax described in section 6212(a) for
taxable years beginning after July 30, 1996.
Special Analyses
It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in Executive Order
12866. Therefore, a regulatory assessment is not required. It also has
been determined that section 553(b) of the Administrative Procedure Act
(5 U.S.C. Chapter 5) does not apply to these regulations, and because
the regulations do not impose a collection of information on small
entities, the Regulatory Flexibility Act (5 U.S.C. Chapter 6) does not
apply. Pursuant to section 7805(f) of the Internal Revenue Code, this
notice of proposed rulemaking will be submitted to the Chief Counsel
for Advocacy of the Small Business Administration for comment on its
impact on small business.
Comments and Requests for a Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any written comments (a signed original
and eight (8) copies) or electronic comments that are submitted timely
to the IRS. All comments will be available for public inspection and
copying. A public hearing may be scheduled if requested in writing by
any person that timely submits written comments. If a public hearing is
scheduled, notice of the date, time, and place of the hearing will be
published in the Federal Register.
Drafting Information
The principal author of these regulations is David B. Auclair.
However, other personnel from the IRS and Treasury Department
participated in their development.
List of Subjects in 26 CFR Part 301
Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income
taxes,
[[Page 1088]]
Penalties, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 301 is proposed to be amended as follows:
PART 301--PROCEDURE AND ADMINISTRATION
Paragraph 1. The authority citation for part 301 continues to read
in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 301.6404-2 is added to read as follows:
Sec. 301.6404-2 Abatement of interest.
(a) In general. (1) Section 6404(e)(1) provides that the
Commissioner may (in the Commissioner's discretion) abate the
assessment of all or any part of interest on any--
(i) Deficiency (as defined in section 6211(a), relating to income,
estate, gift, generation-skipping, and certain excise taxes)
attributable in whole or in part to any unreasonable error or delay by
an officer or employee of the Internal Revenue Service (IRS) (acting in
an official capacity) in performing a ministerial or managerial act; or
(ii) Payment of any tax described in section 6212(a) (relating to
income, estate, gift, generation-skipping, and certain excise taxes) to
the extent that any error or delay in payment is attributable to an
officer or employee of the IRS (acting in an official capacity) being
unreasonably erroneous or dilatory in performing a ministerial or
managerial act.
(2) An error or delay in performing a ministerial or managerial act
will be taken into account only if no significant aspect of the error
or delay is attributable to the taxpayer involved or to a person
related to the taxpayer within the meaning of section 267(b) or section
707(b)(1). Moreover, an error or delay in performing a ministerial or
managerial act will be taken into account only if it occurs after the
IRS has contacted the taxpayer in writing with respect to the
deficiency or payment. For purposes of this paragraph (a)(2), no
significant aspect of the error or delay is attributable to the
taxpayer merely because the taxpayer consents to extend the period of
limitations.
(b) Definitions. (1) Managerial act means 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 decision concerning
the proper application of federal tax law (or other federal or state
law) is not a managerial act. Further, interest attributable to a
general administrative decision, such as the IRS's decision on how to
organize the processing of tax returns or the IRS's decision on the
implementation schedule for an improved computer system, cannot be
abated under paragraph (a) of this section.
(2) Ministerial act means a procedural or mechanical act that does
not involve the exercise of judgment or discretion, and that occurs
during the processing of a taxpayer's case after all prerequisites to
the act, such as conferences and review by supervisors, have taken
place. A decision concerning the proper application of federal tax law
(or other federal or state law) is not a ministerial act.
(c) Examples. The following examples illustrate the provisions of
paragraphs (b)(1) and (b)(2) of this section. For the purposes of the
examples, no significant aspect of any error or delay is attributable
to the taxpayer, and the IRS has contacted the taxpayer in writing with
respect to the deficiency.
Example 1. A taxpayer moves from one state to another before the
IRS selects the taxpayer's income tax return for examination. A
letter explaining that the return has been selected for examination
is sent to the taxpayer's old address and then forwarded to the new
address. The taxpayer timely responds, asking that the audit be
transferred to the IRS's district office that is nearest the new
address. The group manager approves the request. After the request
for transfer has been approved, the transfer of the case is a
ministerial act. The Commissioner may (in the Commissioner's
discretion) abate interest attributable to any unreasonable delay in
transferring the case.
Example 2. An examination of a taxpayer's income tax return
reveals a deficiency with respect to which a notice of deficiency
will be issued. The taxpayer and the IRS identify all agreed and
unagreed issues, the notice is prepared and reviewed (including
review by District Counsel, if necessary) and any other relevant
prerequisites are completed. The issuance of the notice of
deficiency is a ministerial act. The Commissioner may (in the
Commissioner's discretion) abate interest attributable to any
unreasonable delay in issuing the notice.
Example 3. A revenue agent is sent to a training course for an
extended period of time, and the agent's supervisor decides not to
reassign the agent's cases. During the training course, no work is
done on the cases assigned to the agent. The decision to send the
revenue agent to the training course and the decision not to
reassign the agent's cases are not ministerial acts; however, both
decisions are managerial acts. The Commissioner may (in the
Commissioner's discretion) abate interest attributable to any
unreasonable delay resulting from these decisions.
Example 4. A taxpayer appears for an office audit and submits
all necessary documentation and information. The auditor tells the
taxpayer that the taxpayer will receive a copy of the audit report.
However, before the report is prepared, the auditor is permanently
reassigned to another group. An extended period of time passes
before the auditor's cases are reassigned. The decision to reassign
the auditor and the decision not to reassign the auditor's cases are
not ministerial acts; however, they are managerial acts. The
Commissioner may (in the Commissioner's discretion) abate interest
attributable to any unreasonable delay resulting from these
decisions.
Example 5. A taxpayer is notified that the IRS intends to audit
the taxpayer's income tax return. The agent assigned to the case is
granted sick leave for an extended period of time and the taxpayer's
case is not reassigned. The decision to grant sick leave and the
decision not to reassign the taxpayer's case to another agent are
not ministerial acts; however, they are managerial acts. The
Commissioner may (in the Commissioner's discretion) abate interest
attributable to any unreasonable delay caused by these decisions.
Example 6. A revenue agent has completed an examination of the
income tax return of a taxpayer. There are issues that are not
agreed upon between the taxpayer and the IRS. Before the notice of
deficiency is prepared and reviewed, a clerical employee misplaces
the taxpayer's case file. The act of misplacing the case file is a
managerial act. The Commissioner may (in the Commissioner's
discretion) abate interest attributable to any unreasonable delay
resulting from the file being misplaced.
Example 7. A taxpayer invests in a tax shelter and reports a
loss from the tax shelter on the taxpayer's income tax return. IRS
personnel conduct an extensive examination of the tax shelter, and
the processing of the taxpayer's case is delayed because of that
examination. The decision to delay the processing of the taxpayer's
case until the completion of the examination of the tax shelter is a
decision on how to organize the processing of tax returns. This is a
general administrative decision. Consequently, interest attributable
to this decision cannot be abated under paragraph (a) of this
section.
Example 8. A taxpayer claims a loss on the taxpayer's income tax
return and is notified that the IRS intends to examine the return.
However, a decision is made not to commence the examination of the
taxpayer's return until the processing of another return, for which
the statute of limitations is about to expire, is completed. The
decision on how to prioritize the processing of returns based on the
expiration of the statute of limitations is a general administrative
decision. Consequently, interest attributable to this decision
cannot be abated under paragraph (a) of this section.
Example 9. During the examination of an income tax return, there
is disagreement between the taxpayer and the revenue agent regarding
certain itemized deductions claimed by the taxpayer on the return.
To resolve the issue, Examination requests advice from the Office of
Chief Counsel on
[[Page 1089]]
a substantive issue of federal tax law. The decision to request
advice is a decision concerning the proper application of federal
tax law; it is neither a ministerial nor a managerial act.
Consequently, interest attributable to a delay resulting from the
decision to request advice cannot be abated under paragraph (a) of
this section.
Example 10. The facts are the same as in Example 9 except the
attorney who is assigned to respond to the request for advice is
granted leave for an extended period of time. The case is not
reassigned during the attorney's absence. The decision to grant
leave and the decision not to reassign the taxpayer's case to
another attorney are not ministerial acts; however, they are
managerial acts. The Commissioner may (in the Commissioner's
discretion) abate interest attributable to any unreasonable delay
caused by these decisions.
Example 11. A taxpayer contacts an IRS employee and requests the
amount due to satisfy the taxpayer's income tax liability for a
particular taxable year. Because the employee fails to access the
most recent data, the employee gives the taxpayer an incorrect
amount due. As a result, the taxpayer pays less than the amount
required to satisfy the tax liability. Accessing the most recent
data is a ministerial act. The Commissioner may (in the
Commissioner's discretion) abate interest attributable to any
unreasonable error or delay arising from giving the taxpayer an
incorrect amount due to satisfy the taxpayer's income tax liability.
Example 12. A taxpayer contacts an IRS employee and requests the
amount due to satisfy the taxpayer's income tax liability for a
particular taxable year. To determine the current amount due, the
employee must interpret complex provisions of federal tax law
involving net operating loss carrybacks and foreign tax credits.
Because the employee incorrectly interprets these provisions, the
employee gives the taxpayer an incorrect amount due. As a result,
the taxpayer pays less than the amount required to satisfy the tax
liability. Interpreting federal tax law is neither a ministerial nor
a managerial act. Consequently, interest attributable to an error or
delay arising from giving the taxpayer an incorrect amount due to
satisfy the taxpayer's income tax liability cannot be abated under
paragraph (a) of this section.
(d) Effective date. The provisions of this section apply to
interest accruing with respect to deficiencies or payments of any tax
described in section 6212(a) for taxable years beginning after July 30,
1996.
Michael P. Dolan,
Deputy Commissioner of Internal Revenue.
[FR Doc. 98-19 Filed 1-7-98; 8:45 am]
BILLING CODE 4830-01-P
