James A. Matthews, Petitioner

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I RECORDS SERVICE CAL .

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S . JUDGE FILE S T .C . Memo . 2008-126 UNITED STATES TAX COUR T JAMES A . MATTHEWS , Peti ioner v . COMMISSIONER OF INTERNAL REVS E, Respondent SUPERIOR PRODUCTS SALES INC . v . COMMISSIONER OF INTERNAL REVENUE, Responden t Docket Nos . 19~7~-n5 - 19278 -05 . Filed May 5, 2008 .

Harris H . Barnes, III , for petitioners .

John F . Driscoll , for respondent .

MEMORANDUM OPINION

WELLS, Judge : These consolidated cases, hereinafter referred to as the instant case, are prelsently before the Cour t

SERVED MAY - 5 2008

on cross-motions for summary judgment pursuant to Rule 121 .1 The instant case arises from petitions for judicial review of failure to abate interest under section 6404 and Rule 280 . The principal issue for decision is whether respondent's disallowance o f interest abatement as to each petitioner represents an abuse of discretion .

Background The record consists primarily of the parties' pleadings ; their respective cross-motions for summary judgment ; various responses, declarations, and memoranda in support of or opposition to the motions, as applicable ; and the transcript of a hearing held on the motions . Additionally, at the hearing the parties filed a stipulation of facts and accompanying exhibits for purposes of deciding the instant motions . The stipulations of fact are incorporated in this opinion by reference .

Petitioner James A . Matthews (Mr . Matthews) resided in Mississippi, at the time of filing the petition . Petitioner Superior Products Sales, Inc . (Superior), is a corporation formed under the laws of Mississippi having an address in Tupelo, Mississippi, at the time of filing the petition herein .

For all tax periods ending in 1990 through 1996 , Mr . Matthews was the majority shareholder and controlling office r

of Superior, a C corporation under the C, de . Superior is a manufacturing enterprise engaged in the abrication o f polyurethane foam and related products f, r use in furniture .

During the early to mid 1990s, Mount Ver :

on Foam Sales, Inc .

(Mount Vernon), was a customer of Superi, r . Superior filed Forms 1120, U .S . Corporation Income Tax Return for the taxable years ended March 31, 1994 (TYE 1994), and Mar h 31, 1995 (TYE 1995), on or about December 19, 1994, and Decem:

er 18, 1995 , respectively . Mr . Matthews filed Forms 040, U .S . Individual Income Tax Return, for the taxable years 1990 and 1992 through 1995 on April 15 of each of the succeedi g years . Mr . Matthews likewise filed a Form 1040 for the taxab e year 1996, but the record is ambiguous as to whether that r turn was filed on Apri l 15 or August 18, 1997 .

Superior's TYE 1994 was selected by the Internal Revenue Service (IRS) for civil examination . On July 9, 1996, the revenue agent assigned to conduct the ex mination sent to Superior an initial appointment letter s heduling a meeting for July 22, 1996 . That meeting was conduct d as scheduled, and the revenue agent thereafter engaged in revi w of corporate records and additional discussions with represen atives throughout August and September 1996 . In early October 19 6, the examination was expanded to include Superior's TYE 1995, and on October 4, 1996 , written notice to that effect was sent t Superior . The revenue agent also began at that time to explore the possibility of extending the examination to include Mr . Matthews's 1994 and 1995 taxable years . After additional research, the revenue agent on January 28 , 1997, first contacted Mr . Matthews in writing regarding examination of his 1994 and 1995 tax years, scheduling an initial appointment for February 19, 1997, and requesting that various documents be produced .

During February 1997 the revenue agent conducted interviews and discussions with appropriate third parties, including representatives of Mount Vernon . During late February 1997, the IRS Examination Division formally made a referral for additional investigation to the IRS Criminal Investigation Division with respect to Superior ' s TYE 1994 and TYE 1995 and Mr . Matthews's 1994 and 1995 tax years . The referral report cited unreported cash sales to Mount Vernon from which Mr . Matthews diverted the funds for personal use .

The IRS Criminal Investigation Division accepted the referral , and a special agent from that division was assigned to conduct the investigation .

In accordance with IRS administrative procedures , the civil examination activity was generally suspended because of the criminal referral, although a revenue agent continued to provide a minor amount of supportive administrative activity in coordination with the special agent .

During its course, the criminal investigation was expanded to include Superior ' s taxable year ended March 31, 1996 ( TYE 1996), and Mr . Matthews ' s 1996 taxable year .

Criminal prosecution referrals were made by the IRS to the U .S . Department of Justice during late Aigust or early Septembe r of 2001 . The IRS recommended the prosec 4tion of multiple count s under section 7206 ( 1) and ( 2), as well a

During February 2002 Mr . Matthews p Leaded guilty to on e count charging him with violation of section 7206(1) in regard to filing Superior ' s income tax return for YE 1995 .

The criminal fraud charge was premised on the unreported cash sales by Superior to Mount Vernon . Mr . Matthews ' 3 sentencing was scheduled for May 2002 . During February 2002 Mr . Matthews also expressed a desire to resolve before his scheduled sentencing certain civil aspects arising from the c iminal prosecution . In response to Mr . Matthews ' s expressed wis es, an assigned IRS revenue agent was authorized to work with Superior and Mr .

Matthews in an attempt to resolve relevant civil aspects relating to the taxable years of each ending in 1994 through 1996, even though the criminal aspects of those years were not yet formally resolved .

On March 1, 2002, the revenue agent met with representatives for petitioners and provided them with an information document request (IDR) asking for additional information necessary to conduct the examination . The IDR set a response date o f March 18, 2002 . On or about April 23, 2002, the revenue agent formally requested approval from appropriate IRS Examination Division personnel to expand the examination to include Superior's taxable years ending March 31, 1991 through 1993 (TYE 1991, TYE 1992, and TYE 1993, respectively), and Mr .

Matthews's 1990 through 1993 taxable years . On the basis of information developed by the revenue agent, the extension was approved .

On April 29, 2002, the revenue agent faxed to petitioners' representatives proposed computations reflecting the impact of pertinent unreported income on Superior's TYE 1991 through 1996 .

Contemporaneously, the revenue agent discussed with the representatives the fact that the unreported income amounts would flow through to Mr . Matthews as dividends . The facsimile transmission was the first written contact by the IRS with either Superior or Mr . Matthews that dealt withltheir 1990 through 199 3 periods . In response , petitioners ' repr sentatives called on May 3, 2003 , to advise the revenue agent that petitioners disagreed with certain of the computatio s, did not wish to discuss years prior to 1994 , and would not be providing any further information .

Similarly , on May 3, 2002, the representatives advised the revenue agent that no further information would be provided in complia ice with IDRs .

During the week of May 23, 2002 , the revenue agent made several telephone calls to petitioners ' representatives in an attempt to arrange a meeting that was ev ntually held on May 31, 2002 . At that time, the revenue agent s rved a summons or summonses for additional information wit a response date of June 19, 2002 .

Petitioners responded to the summons(es) with a letter dated June 28, 2002 , communicatin an intent to supply only a portion of the materials requestel and claiming that a significant percentage were protected by privilege doctrines or were no longer available .

Meanwhile , Mr . Matthews was sentenc d on May 8, 2002 . By letter dated May 28, 2002 , the U .S . Department of Justice advised the IRS that it was closing its files on the criminal aspects of the Superior and Matthews cases .

Throughout July and August 2002 the revenue agent and representatives of petitioners continued to communicate with respect to the summoned information and possible enforcement .

On August 26, 2002, the revenue agent received a letter dated August 22, 2002, from petitioners' counsel indicating that petitioners had supplied all that they were able or willing to produce and suggesting that the revenue agent prepare and provide computations based upon the available information . The parties would then be in a position to determine whether any agreement could be reached as to acceptable amounts of tax liabilities owed . By facsimile transmittal dated August 28, 2002, the revenue agent responded with a letter and computations reflecting liabilities for Mr . Matthews for years 1990 through 1996 .

During September and October 2002 the revenue agent had frequent and ongoing communications with representatives of petitioners, seeking to arrive at appropriate tax computation figures for both Superior and Mr . Matthews that would be acceptable to all parties . These communications included additional records petitioners provided .

Under cover of a November 15, 2002, letter, and with the understanding that the enclosed computations were acceptable to all parties, the revenue agent provided to petitioners proposed final examination reports for all years under audit ; i .e ., Superior's TYE 1991 through 1996 and Mr . Matthews's tax years 1990 through 1996 . On December 2, 2002, petitioners executed and the IRS received Forms 870, Waiver of Restrictions on Assessment and Collection and Acceptance of Overass ssment, with respect to each of the taxable years covered by the final examination reports .

On January 13, 2003, the IRS receiv d from Mr . Matthews a check for $3,815,655 .89 . By letter date 1 January 14, 2003, to Mr . Matthews and his representatives the IRS confirmed receipt of the funds and stated : "The check was applied to Mr . James Matthews, Sr . individual tax liability f Dr tax years 1990 to 1996 inclusive ." The remittance paid in full Mr . Matthews's account balances, including tax, penalties, and interest, for 1990 and 1992 through 1996 . Superior's account f Dr TYE 1995 had been paid in full by an advance payment on April 3 , 2002 . The record does not reflect any payments with respect to Superior's liabilities for TYE 1994, and the present status of that account is unclear .

On or about May 19, 2004, Mr . Matth ws filed with the IRS a separate Form 843, Claim for Refund and Request for Abatement, with respect to each of his taxable year 1990 and 1992 through 1996 . The Forms 843 sought abatement of interest under section 6404(e)(1) for the subject years . Superior likewise filed a separate Form 843 requesting abatement o interest for TYE 1994 and TYE 1995 .

The IRS, by letter dated July 20, 2D⁰⁴, disallowed Superior's claims for abatement . Superi r responded in August of 2004 with a request for reconsideration by the IRS Office of Appeals . Regarding Mr . Matthews ' s claims , the IRS on December 9, 2004 , sent a tentative disallowance, and Mr . Matthews in late December submitted a letter treated as a request for reconsideration .

Both petitioners ' cases were assigned to an Appeals officer during January 2005, at which time the officer sent each petitioner an initial letter . After research and review of relevant files and legal authority, the Appeals officer o n May 25, 2005, sent to petitioners ' representative a letter scheduling a joint conference for June 15, 2005, and asking that an explanation of the legal authority for petitioners ' claims be provided before the meeting . The conference was rescheduled for June 16, 2005, at the request of petitioners' representative, and so held, but neither an explanation of legal authority no r further factual information was provided to the Appeals officer .

On August 26, 2005 , the Appeals officer advised petitioners' counsel by telephone that, on the existing record, he intended to disallow the claims for abatement in their entirety . A Ful l Disallowance-Final Determination was issued to each petitioner on September 14, 2005, on the grounds that no error or delay merited abatement of interest . The petitions in the instant case were thereafter timely filed on October 13, 2005, and the instant cross - motions for summary judgment followed .

Discussio n I .

General Rule s A .

Summary Judgmen t Rule 121 ( a) allows a party to mov e "for a summary .adjudication in the moving party's favo r upon all or any part o f the legal issues in controversy ." Rul e 21(b) directs that a decision on such a motion shall be rende ed "if the pleadings , answers to interrogatories , depositions , admissions , and any other acceptable materials , together wi t the affidavits, if any, show that there is no genuine issue as t any material fact an d that a decision may be rendered as a ma t er of law . " The moving party bears the burden o demonstrating that n o genuine issue of material fact exists and that he or she i s entitled to judgment as a matter of law .

Sundstrand Corp . v .

Commissioner , 98 T .C . 518, 520 (1992), a fd . 17 F .3d 965 (7t h Cir . 1994 ) .

Facts are viewed in the lig t most favorable to the nonmoving party .

Id .

However, where a otion for summary judgment has been properly made and supp rted by the moving party, the opposing party may not rest u on mere allegation s or denials contained in that party's pleadi gs but must by affidavits or otherwise set forth specif facts showing that there is a genuine issue for trial . Rul 121(d) . 2

. .)

B .

Section 640 4 Section 6404 ( e), as in effect for the years in issue, provided in relevant part as follows :

SEC . 6404( e) . Assessments of Interest Attributable to Errors and Delays by Internal Revenue Service .-- (1) In general .-- In the case of any assessment of interest on-- (A) any deficiency attributable in whole or in part to any error or delay by an officer or employee of the Internal Revenue Service ( acting in his official capacity) in performing a ministerial act, o r (B) any payment of any tax described in section 6212 ( a) to the extent that any error or delay in such payment is attributable to such an officer or employee being erroneous or dilatory in performing. a ministerial act , the Secretary may abate the assessment of all or any part of such interest for any period . For purposes of the preceding sentence , an error or delay shall be taken into account only if no significant aspect of such error or delay can be attributed to the taxpayer involved , and after the Internal Revenue Service has contacted the taxpayer in writing with respect to such deficiency or payment ." ' 2( .

.

. continued) lodged corresponding motions to shift the burden . At the hearing , however, the parties concurred with the Court that those motions would need to be reached only if a material fact or facts remaining in question precluded disposition by summary judgment . Given the Court ' s conclusions below , the motions for leave will be denied as moot .

(continued .

For purposes of section 6404(e), a "ministerial act" is defined as " a procedural or mechanical ct that does not involve the exercise of judgment or discretion, and that occurs during the processing of a taxpayer ' s case afte r all prerequisites t o the act , such as conferences and review y supervisors, have taken place ."

Sec . 301 .6404 - 2T(b)(1), T mporary Proced . & Admin .

Regs ., 52 Fed . Reg . 30163 (Aug . 13, 1987 ) .4 Furthermore, " A decision concerning the proper applicati n of federal tax law (or other federal or state law ) is not a mi n sterial act ."

Id .

Section 6404 ( h)(1) provides the Tax Court with jurisdiction to review denials of requests for abatem nt of interest under a n abuse of discretion standard .'

Action constitutes an abuse o f 3( .

.

. continued ) performing a "ministerial or managerial " act . effective for tax years beginning after my 30, 1996, and i s thus inapplicable to the cases at bar . Commissioner , 112 T .C . 19, 25 n .8 (1999 ) ee Woodral v .

The amendment i s

Pe erson Marital Trust v . ffd . 78 F .3d 795 (2d Final regulations were prom lgated under sec . 6404 Sec . 301 .6404 - 2(b)(2), Pro led . & Admin . Regs .

' The provision for Tax Court review determinations was enacted as sec . 6404(c Rights 2 ( TBOR 2 ), sec . 302 ( a), 110 Stat . provision was then redesignated after the as sec . 6404(i) by the Internal Revenue Reform Act of 1998, Pub . L . 105-206, secE Stat . 743, 745 , and then as sec . 6404(h) Terrorism Tax Relief Act of 2001 , Pub . L .

of interest abatement ) . Taxpayer Bill o f 1457 ( 1996) . The years in issue, first ervice Restructuring and . 3305 ( a), 3309 ( a), 112 by the Victims o f 107-134, sec .

(continued .

. . ) discretion where arbitrary , capricious , or without sound basis in fact or law .

Woodral v . Commissioner , 112 T . C . 19, 23 (1999) .

Congress originally intended by section 6404(e) to sanction abatement of interest only where failure to do so "would be widely perceived as grossly unfair", not to provide a remedy enabling taxpayers " routinely to avoid payment of interest" .

H . Rept . 99-426 , at 844 ( 1985 ), 1986 -3 C .B .

(Vol . 2 ) 1, 844 ; S . Rept . 99-313, at 208 (1986 ), 1986-3 C .B .

(Vol . 3) 1, 208 .

II .

Positions of the Partie s Respondent ' s motion for summary judgment, arguing that petitioners are not entitled to abatement of interest with respect to any of the tax years in issue, is premised on three principal considerations : ( 1) Section 6404(e) as a matter of law precludes abatement for any period before the IRS first contacted the taxpayer in writing with respect to the underlying deficiency or payment of tax ; ( 2) judicial precedent establishes that abatement under section 6404 ( e) is not available for the period during which a civil examination is suspended for a criminal fraud investigation ; and (3 ) the record reveals no error or delay in performing a ministerial act during any of the remaining periods .

5( .

.

. continued) 112(d )( 1)(B), 115 Stat . 2435 ( 2002 ) and redesignated applies to requests for abatement after July 30, 1996 . TBOR 2 sec . 302 ( b), 110 Stat . 1458 . To avoid confusion, references herein will be to the current designation .

The provision as enacted .

For purposes of the cross - motions or summary judgment, petitioners advance a primary and an alternative position . As reflected in petitioners ' computations, the primary argument maintains that interest should be abated for the entire period from the filing of the underlying return until at least December 5, 2002 . The alternative argument, offe ed in acknowledgment of precedent pertaining to criminal investi rations, seeks abatement for the period just described, less the nterest accruing fro m March 1, 1997, through May 28, 2002 . In making their arguments, petitioners contend that an overarching `grossly unfair" standard should trump period limitations that mig t otherwise derive from statutory language and interpretive juri prudence . Petitioners then claim that they should be deemed to have made a sufficient showing of error or delay by the IRS in erforming a ministerial act because the IRS failed to keep an ad quate record of administrative activity, in violation of IRS Internal Revenue Manual directives, throughout the proces ing of petitioners' cases .

the subject of repeated judicial interpretation and, without exception , applied in instances where taxpayers have sought abatement for the period preceding notification from the IRS .

E .g ., Krugman v . Commissioner , 112 T .C . 230, 239 ( 1999) ; Hawksley v . Commissioner , T .C . Memo . 2000 - 354 ; Banat v . Commissioner , T .C .

Memo . 2000 - 141, affd . 5 Fed . Appx . 36 (2d Cir . 2001) ; Nerad v .

Commissioner , T .C . Memo . 1999 - 376 . We have explained the rationale for the statutory limit as follows :

We have previously Petitioner ' s argument that the IRS failed to examine his return promptly in light of the statement on the return is without merit . held that this Court is not at liberty to modify a period of time prescribed by a statute of limitations in which the Commissioner is authorized to act . See Foster v . Commissioner , 80 T .C . 34 , 229 (1983 ), affd . in part and vacated in part on another issue 756 F .2d 1430 ( 9th Cir . 1985 ) . 395, 424-425 ( 1961 ) the period that respondent is authorized to assess deficiencies against taxpayers . * * * The timeliness of respondent ' s examination is not an error for purposes of section 6404 ( e) . [ Nerad v . Commissioner , supra .

; Saigh v . Commissioner , 36 T .C . Section 6501 expressly defines ] Moreover , congressional pronouncements and action both at the time of enactment of section 6404 ( e) and upon amendment of section 6404 after the years in issue strongly buttress adherence to the plain meaning of the text . Legislative history accompanying the 1986 enactment of section 6404 ( e) notes specifically that section 6404 ( e)(1) "does not therefore permit the abatement of interest for the period between the date the taxpayer files a return and the date the IRS commences an audit, regardless of the length of that time period ." H . Rept . 99-426 , supra at 844, 1986-3 C .B . (Vol . 2) at 8 4 4 ; S . Rept . 99-313 , supra at 208 , 1986-3 C .B . (Vol . 3) at 2 0 8 .

We also note that Congress amende d section 6404 with th e addition of subsection (g) in 1998, them eby providing for a suspension of .interest where the Secret e ry fails to notify a taxpayer of liability within a stated pe riod (18 months under th e original version of section 6404(g)) fr o the later of the filin g or the due date of the corresponding re t r . Internal Revenu e Service Restructuring and Reform Act of 998, Pub . L . 105-206, sec . 3305, 112 Stat . 743 . Although the rovision is effective only for tax years ending after July 22 , 1998, id . , and is thus inapplicable here, it is relevant to th e extent that it s enactment suggests the absence of an ex i ting remedy under section 6404(e)(1) in analogous circums t nces .

Petitioners acknowledge the timing estrictions in the flush language of section 6404(e)(1), as well s the judicial and legislative authorities described supra .

Petitioners contend , nonetheless, that the apparent strict i n erpretation signaled by the statute must be balanced against, an moderated by, th e statement contained in the legislative h story and often repeated in caselaw that Congress did "not inten d that this provision b e used routinely to avoid payment of inter s ; rather it intend s that the provision be utilized in instances where failure to abate interest would be widely perceived as grossly unfair ." H .

Rept . 99-426, supra at 844, 1986-3 C .B . (Vol . 2) at 844 ; S . Rept .

99-313, supra at 208, 1986-3 C .B . (Vol . 3) at 208 . Petitioners maintain that, taking into account both clauses of the foregoing statement :

it is obvious that a "grossly unfair" standard must be considered in evaluating each unique set of facts and circumstances . In other words, the statute should be interpreted based on strict construction of th e language regarding dates, amounts, etc . ; however, this strict interpretation is limited to producing an equitable result that is not "grossly unfair . " Petitioners contend that the "notion of limiting strict construction of I .R .C . § 6404 with a subjective equitable standard (`grossly unfair') is also reflected in an evolving policy trend of both the IRS and Congress ." In support of their contentions, petitioners cite various revenue procedures and statutory enactments (including section 6404(g)) .

Petitioners argue that for certain of the years in issue 8 to 10 years passed before the receipt of any notice that the IRS was considering audits of the underlying returns, concluding :

In the present matter, the assessment of compound interest for such a long period of time outside the normal statute of limitations ; and without providing reasonable notice to the taxpayer from the onset of the investigation, clearly defeats any notion of fair play and runs contrary to the evolving policy demonstrated by the IRS and Congress . Such "grossly unfair" acts are the limiting standard to which Congress was clearly referring in H . Rept . 99-426, at 844 (1985) . Furthermore, this case far exceeds the scope of "routine" in consideration of the abatement of interest . Not only does this matter involve significant dollar amounts, but it elements of criminal and civil fr a also contains d .

The present case sets forth un where, in lieu of the trend enhanci ability to eliminate and/or minimiz upholding the interest charges agai would produce a result that is "gro direct conflict with the applicatio intended by Congress . * * * ique circumstances ng the taxpayer's e interest charges , st the taxpayer ssly unfair" and in of the statute a s We disagree for several reasons . F rst are the fundamental and closely related tenets of statutory onstruction that (1) a statute is to be interpreted so as to gi e effect to its plain and ordinary meaning unless to do so wou d produce an absurd or futile result , and (2 ) a statute clear a d unambiguous on it s face must be regarded as conclusive abse t an unequivocal expression of legislative intent to the ontrary . E . g ., Am .

Tobacco Co . v . Patterson , 456 U .S . 63, 6~ ( 1982 ) ; United State s v . Am . Trucking Associations , Inc . , 310 .S . 534, 543-544 ( 1940) ; Fla . Hosp . Trust Fund v . Commissioner , 1 3 T .C . 140, 152 ( 1994), affd . 71 F .3d 808 (11th Cir . 1996 ) .

In he instant case, the text in issue is a brief statement of to poral limitation, a relatively routine feature of many taxin statutes .

We are hard pressed to see any absurdity , futility , r ambiguity that would permit the text of the statute to be ove ridden by legislativ e history, especially by the legislative expression on whic h petitioners rely, which falls far short Of an unequivoca l repudiation of the statutory language . F' ather , we believe tha t the two would appear to reflect a harmony of purpose .

Although petitioners attempt to characterize the "grossly unfair " clause as a liberalization, the restrictive nature of the language would seem more rationally to be interpreted as reiterating the general narrowness of the relief afforded by the statute .

In the legislative history, the "grossly unfair" clause is followed immediately by statements reprising specific limits imposed by section 6404 ( e)(1) on the period for which relief may be available , including the rule of IRS contact . See H . Rept .

99-426, supra at 844 , 1986-3 C .B . (Vol . 2) at 844 ; S . Rept . 99- 313, supra at 208 , 1986-3 C .B . (Vol . 3) at 208 .

Likewise, the clause is immediately preceded by the statement cautioning against routine use to avoid payment . In that configuration, we find it particularly difficult to read the " grossly unfair" clause in the legislative history as an exception arising from the midst of what is otherwise a description of the narrowness of the remedy .

Furthermore , even if the Court were willing to accept a "grossly unfair" exception, the facts of the instant case would fail to support its application . Stated simply, petitioners seek equitable relief, whereas the instant case is tainted b y Mr . Matthews ' s criminal conviction for tax fraud .

As the Supreme Court has observed in the context of the unlimited statute of limitations for assessment in the case of a fraudulent return :

We do not find petitioners ' complaint of "unfair treatment " persuasive .

Petitioners claim that it is unfair "to forever suspend a Sword taxpayer who at one time may have return , but who has subsequently r amended return providing the Gover information necessary to properly * But it seems to us that a taxpay fraudulent return with intent to e a position to complain of the fair facilitates the Commissioner's coil due . A taxpayer who has been the s fraud investigation is not likely t a notice of deficiency arrives, eve arrive promptly after he files an a4nended return . [ Badaracco v . Commissioner , 464 U .S . 386 , 400 (1984) .

of Damocles over a filed a fraudulent canted and filed an ment with all the ssess the tax ." * * r who has filed a ade tax hardly is in ess of a rule that ection of the tax ubj ect of a tax o be surprised when n if it does no t ] Petitioners in the instant case are essentially seeking to be placed in the position they would hav occupied had they file d and paid timely .

We will not permit suc 1 a result under the facts . With respect to each of the tax ears in issue , petitioners are not entitled to abatemen of interest for any period before the first written IRS cont ct regarding liabilities for that year .

The parties stipulated t e dates of first contac t as follows :

Superior TYE 1994 my TYE 1995 ct .

9, 199 6 4, 199 6 Mr . Matthews 1990 pr . 1992 pr . 1993 pr . 1994 an . 1995 an .

29, 200 2 29, 200 2 29, 200 2 28, 199 7 28, 199 7 Concerning Mr . Matthews ' s 1996 taxable year, the partie s stipulated that no written document was sent before the beginning of the criminal investigation .

C .

Abatement During Criminal Investigatio n As stipulated by the parties , the relevant criminal investigation pertaining to Superior and Mr . Matthews was ongoing from late February 1997 until May 28 , 2002 . The subject of interest abatement vis-a - vis criminal investigations has been addressed in previous litigation .

Courts have long recognized the general policy within the IRS to suspend resolution of a civil examination pending completion of a criminal examination, as well as the realities that may necessitate such an approach .

See, e .g ., Badaracco v . Commissioner , supra at 399 ; United States v . LaSalle Natl . Bank , 437 U .S . 298 , 308-313 ( 1978) . In the words of the Supreme Court : "As a practical matter, therefore, the Commissioner frequently is forced to place a civil audit in abeyance when a criminal prosecution is recommended ."

Badaracco v . Commissioner , supra at 399 .

This Court has noted that while a tax fraud investigation comprises both civil and criminal aspects , the criminal aspects dominate insofar as the investigation is controlled by the IRS Criminal Investigation Division .

Taylor v . Commissioner 113 T .C .

206, 211-212 (1999 ), affd . 9 Fed . Appx . 700 (9th Cir . 2001) ; Gorgie v . Commissioner , T .C . Memo . 2000 - 80 . Such a policy is intended to avoid the conflicts between civil and criminal discovery rules, the issues related to witness testimony and self-incrimination , and the problems of inherent confusion that could result if civil and criminal proc edings were allowed to take place concurrently .

Taylor v . Com issioner, supra at 212 .

Consequently, civil assessment and coil ction are typically deferred .

Id .

In the context of a specific case, the foregoing and related considerations must be weighed and applied by the IRS in deciding how to proceed .

Id . at 212-213 . As a esult, this Court ha s held : "The timing of the decision to d fer the civil proceedings until resolution of the criminal aspect does not detract from the fact that the exercise of judgment is required in making such a decision ."

Id . at 213 . The decision therefore is "not a ministerial act ."

Id . ; Hanks v . Commissioner, T .C . Memo . 2001- 319 ; Gorgie v . Commissioner , supra .

Petitioners acknowledge and do not appear to raise any direct challenge of the above rule . The posit, however, "that while the decision to suspend civil acti ity in itself may not be a ministerial duty, actions prior to and subsequent to the making of the actual decision may be defined as ministerial ." We disagree with their argument as applied o the circumstances of this case . See Gorgie v . Commissioner , u ra ("The time spent investigating whether to impose civil or criminal fraud penalties, regardless of petitioners' gu It or innocence, is not a ground under section 6404(e) that would allow respondent to abate interest .") .

We conclude that petitioners are not entitled to interest abatement for the period of the criminal investigation .

Additionally, in the light of the parties' stipulations and the circumstances discussed infra , we find it unnecessary to determine whether the period of suspension should be considered to end on May 28, 2002, when the U .S . Department of Justice formally closed the files on its criminal case or at the earlier time in February 2002 when the IRS resumed civil examination activity at petitioners' express request .

D .

Abatement for Periods From July 1996 to February 1997 and From February to November 200 2 There remain two periods during which some or all of the tax years in issue were being examined for civil purposes . Those timeframes will be evaluated in turn for the existence of ministerial error or delay . As a threshold matter, however, we will address the primary argument advanced by petitioners in connection with the concept of ministerial error or delay .

Petitioners quote extensively from provisions of the Internal Revenue Manual, contending throughout their submissions on this point that "The IRS, according to the Internal Revenue Manual, is mandated to keep copious records of all action taken by the Service on each case ." Petitioners express their position as follows :

The Examining Officer's Activity Records on the Petitioner show that the IRS has produced a number of records that are vague , uninformative , and fail to comply with it [sic ] own practice to the IRS ' s failure to provide de required by its own practice and p claims that it is entitled, as a m such acts deemed favorably to the regarded by the Court as being min The Court should further determine the IRS's duty to keep copious rec taken by the Service, its examiner responsible for activity on the ca Service is in violation of such a i In the present case, t ; this case . own manual .

nd procedures . Due ailed records as ocedures , Petitioner tter of law, to have etitioner, and sterial in nature . that it is , in fact, rds of all actio n or other s e ; and that the inisterial duty in e IRS violated it s Initially, we note the well - settle principle that the Internal Revenue Manual does not have the force of law, is not binding on the IRS, and confers no rights on taxpayers . E .g ., Fargo v . Commissioner , 447 F .3d 706 , 713 (9th Cir . 2006 ), affg .

T .C . Memo . 2004 - 13 ; Carlson v . United States , 126 F .3d 915, 922 (7th Cir . 1997 ) ; Tavano v . Commissioner , 986 F .2d 1389, 1390 ( 11th Cir . 1993 ), affg . T .C . Memo . 1991 - 237 ; Marks v .

Commissioner , 947 F .2d 983, 986 n .l (D .C , . Cir . 1991 ), affg . T .C .

Memo . 1989 - 575 . Moreover, even if some duty of documentation incumbent upon the IRS could be inferred from the Internal Revenue Manual or other pertinent law, petitioners, contentions as applied to the instant case fail in the circumstances .

In support of their argument petitioners enumerate seven periods ( many overlapping) as to which they claim that particular IRS records , or the IRS records generall , are deficient .

According to petitioners , the cited periods and / or records reflect no activity , state only " worked n case", or otherwise reveal no activity of significance . However, six of the seven identified periods transpired entirely within the period of the criminal investigation .

The sole remaining complaint is raised with respect to entries from January 28, 1997, throug h December 2, 2002 , in a specific record of the examining revenue agent .

That record likewise is without significant relevance as it is merely a correspondence log and full activity for relevant times is recounted in other records of the revenue agent .

Accordingly , even petitioners ' argument fails .

1 .

Period From July 1996 to Late February 199 7 The first written contact with respect to any of the tax years in issue was the appointment letter concerning Superior's TYE 1994 sent on July 9, 1996 .

Superior's TYE 1995 was added to the audit , and the first notice thereof was provided o n October 4 , 1996 . Similarly , Mr . Matthews's 1994 and 1995 taxable years were added , with written notice sent on January 28, 1997 .

Examination of the revenue agent's activity records fro m July 1996 through mid-February 1997 reveals consistent and ongoing substantive work on the cases, including interviews, courthouse research , review of returns and taxpayer or third- party records , and analysis . By the second week of February, the emphasis had shifted to coordination and preparation of the fraud referral , but nowhere do the records reflect any serious breaks in activity .

We perceive nothing in the processing of petitioners' cases before the commencement of the criminal investigation that would suggest ministerial errors or delays .

2 . Period From Februar to Mid-November 200 2 Civil examination of petitioners' returns resumed in February of 2002, and proposed final ex mination reports setting forth balances due for each of the year in issue were provided to petitioners on November 15, 2002 . IRS records for th e intervening period reflect consistent and ongoing examination activity . Regular communication occurred between the revenue agent and petitioners' representatives, including repeated requests by the revenue agent for information . Additionally, by written contact on April 29, 2002, a date falling within this period, Mr . Matthews's 1990, 1992, and 993 taxable years were added to the audit . Notably, petitioners initially declined to provide certain information requested, forcing the IRS to pursue summons procedures . Furthermore, even when petitioners began to work more cooperatively with the revenue agent in the fall of 2002, information was typically not provided by promised deadlines, necessitating considerable followup by the revenue agent .

Once negotiations between the parties concerning the relevant computations were completed, the revenue agent prepared and provided the final examination reports within 2 days . From that point, petitioners were solely resp nsible for terminating the accrual of interest by remitting payment . On the record we find no ministerial errors or delays affecting the period from February through mid - November 2002 .

E .

Conclusio n In accordance with governing law and the complete records in the instant case , we conclude that respondent committed no abuse of discretion in determining that petitioners were not entitled to abatement of interest pursuant to section 6404(e)(1) wit h respect to any of the years in issue .

Respondent's motions for summary judgment will be granted, and petitioners' cross-motions will be denied .

The Court has considered all other arguments made by the parties and , to the extent not specifically addressed herein, has concluded that they are irrelevant, moot, or without merit . To reflect the foregoing, Appropriate orders and decisions for respondent will be entered .

1. Unless otherwise indicated, section and Code references are to the Internal Revenue Code of 1986, as amended, and Rule references are to the Tax Court Rules of Practice and Procedure .
2. Petitioners have filed respective motions for leave to file motion to shift the burden of proof to respondent and hav e (continued .
3. Sec . 6404 ( e) was amended in 1996 by the Taxpayer Bill of Rights 2, Pub . L . 104 - 168, sec . 301 , 110 Stat . 1457 ( 1996), to permit abatement with respect to "unreasonable" error or delay i n . .)
4. Temporary regulations are entitle to the same weight and binding effect as final regulations . Commissioner , 102 T .C . 790 , 797 (1994 ), Cir . 1996 ) . after the years in issue and contain a d finition of "ministerial act" that does not differ from that set orth in the temporary regulations .
18. U .S .C . section 371, arising from the preparation and filing of Superior ' s corporate income tax returns for TYE 1995 and TYE 1996 . On February 1 , 2002, a waiver of indictment and a crimi al information were filed against Mr . Matthews in the U .S . D 'strict Court for the Northern District of Mississippi in conn ction with hi s involvement in the preparation and filin of Superior ' s corporate income tax returns for TYE 1995 and TY E 996 .