Abatement of interest: new Tax Court rules.

• Author: Hudson, Boyd D.

The Taxpayer Bill of Rights 2 (TBOR2) signed into law by President Clinton in July 1996 extended the authority to abate interest to cases of IRS managerial acts that result in an unreasonable error or delay. The committee report to TBOR2 stated that such managerial acts could include loss of records by the Service, IRS personnel transfers, extended illnesses, extended personnel training or extended leave (Sec. 6404(e)).

Previously, the Service, in its discretion, had the authority to abate the assessment of interest on a tax deficiency or payment only if the assessment was attributable to an error or delay by an IRS employee in performing a ministerial act, defined as "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" (Temp. Regs. Sec. 301.6404-2T(b)(1)).

In addition, prior to TBOR2, there was no judicial review of the Service's denial of a taxpayer's request for abatement under Sec. 6404(e). The courts, when denying a taxpayers request, frequently cited the IRS's discretionary authority in the statute and the fact that no standards of judicial review existed (see, e.g., Argabright, 35 F3d 472 (9th Cir. 1994)). The omission of judicial review was corrected in TBOR2.

Under new Sec. 6404(g), as of Aug. 1, 1996, the Tax Court has the jurisdiction to determine whether the Service's failure to abate interest was an abuse of discretion; the court recently issued interim rules on the procedure for taxpayers to follow in actions for review of the Service's failure to abate interest (Title XXVII, Rules of Practice and Procedure of the United States Tax Court).

Under new Tax Court Ride 280, the Tax Court will have jurisdiction for such an action when (1) the IRS has mailed a notice of final determination (the "notice") not to abate interest and (2) a petition for review of the failure to abate interest is filed with the court within 180 days after the mailing of the notice.

Under Tax Court Rule...