Monday, January 17, 2011

Interest Accrues While IRS Delays

Samir H. Abumayyaleh, et ux. v. Commissioner, TC Memo 2010-275

In dealing with the IRS, one thing that you really need is patience.  Sometimes, I think that they invented "hurry up and wait".  What is extremely frustrating is when, having dragged their feet in handling a case, they ask for an extension of the statute of limitations.  Mr. Abumaryyaleh and his spouse ultimately settled their case at appeals.  They believe though that for they should not have to pay interest for the periods during which the service was dragging its feet.  Talk about patience.  The underlying tax liabilities to the controversy are from 1993, 1994 and 1995.

Sorry to spoil the suspense, but they did not get any relief.  The Court explained:

As we discussed earlier, the Abumayyalehs allege that during each of the four periods for which they request abatement the IRS “performed no significant work”. The parties stipulated that there were instances of IRS work during each period. We conclude that these instances of work are significant. Therefore, we have fully considered, and rejected, the Abumayyalehs' factual contentions.

The Abumayyalehs argue that the alleged absence of significant IRS work during each of these four periods should be treated as equivalent to an error or delay in a ministerial act.  Because we have for each period rejected the premise that the IRS “performed no significant work”, the Abumayyalehs' legal argument is moot, and we decline to consider its merits.

So what exactly was the intense level of activity required of the IRS to keep the interest clock ticking ? The Abumayyalehs requested interest abatement for four periods in which they claim their was no significant work done on their audit. 

1.September 8, 1995, Through April 17, 1996:

For September 8 through October 24, 1995, nothing in the record shows that the IRS performed any significant work on the audit.

On October 25, 1995, Agent Crandall, or another IRS agent at her direction, generated “Currency Banking and Retrieval System” reports that related to Mr. Abumayyaleh and Cup Foods. These reports appear to be summaries of records of certain transactions involving large amounts of money. ....The due dates on the IDRs were November 7 and 8, 1995, respectively. It was about then, we infer, that Agent Crandall prepared a workpaper describing Mr. Abumayyaleh's responses to the insurance-policy IDR.

For the period from November 9, 1995, through April 17, 1996, the record is silent as to whether the IRS performed any significant work on the audit.

So roughly half way through a period of seven months a document request was sent out and the response analyzed over a period of less than three weeks.

2. , April 19, 1996, through February 13, 1997

On April 26, 1996, Agent Crandall mailed the Abumayyalehs a notice that she was expanding the audit to cover their 1993 and 1994 tax returns. This letter asked them to bring their 1995 return to an appointment which would be scheduled. (The record before us indicates that the IRS later extended the audit to the 1995 tax return. The IRS issued a 30-day letter on September 6, 1997, proposing an adjustment for 1995.) About May 1996, Agent Crandall, or another IRS agent at her direction, summoned from TCF Bank records of deposits made and checks drawn by Mr. Abumayyaleh. In order to respond to the summons, a clerk at the bank issued an internal request bearing the date May 28, 1996, for the records. (We infer from the date of the request that the IRS issued the summons about May 1996.)

From June 1996 to October 2, 1996, the record is silent as to whether the IRS performed any significant work on the audit.

On October 3, 1996, Agent Crandall conducted a bank-deposit analysis of the TCF Bank account for 1993. 4 Also on this date she issued Mr. Abumayyaleh two IDRs asking about transfers of funds among three bank accounts, and another IDR requesting documents relating to a property transaction.

On November 19, 1996, Agent Crandall asked her supervisor in writing for permission to ask the Abumayyalehs to extend the periods of limitation on assessment for tax years 1992 and 1993.
For the period December 1996 through January 1997 the stipulated facts and exhibits do not show that the IRS performed any significant work on the audit.

On February 3, 1997, the IRS received a tip from a third party suggesting that Mr. Abumayyaleh might have unreported income.

On February 12, 1997, Agent Crandall prepared a “Comparative Balance Sheet & Income Statement” for Cup Foods. This document consists of a series of tables and graphs comparing Cup Foods' financial status from year to year.

Maybe it's a prejudice of mine from being on the other side, but I don't consider asking for a statute extension working on the audit.

 3.November 12, 1997 through September 28, 1998

By January 8, 1998, the Appeals Office had received the Abumayyalehs' case file, including Agent Erickson's transmittal letter, and had assigned the Abumayyalehs' case to Appeals Officer Sandra Williams. Appeals Officer Williams conducted a “preliminary review” of the case on January 12, 1998. On or about January 21, 1998, she mailed the Abumayyalehs a letter stating that their case had been referred to Appeals as requested, that because her inventory of cases was “so large” she would not be able to consider theirs right away but would start their case and contact them “as soon as I can”, and that they could write to or call her at the address on the letter. On January 22, 1998, she conducted a “preliminary review” of a related case she had received involving Cup Foods.

The IRS Appeals Office appears not to have done any work on the Abumayyalehs' case from January 22 through September 1, 1998. On September 2, 1998, Appeals Officer Williams performed four hours of “analysis” of the case.

4.July through September 1999

On July 25, 1999, Appeals Officer Williams spent eight hours considering the letter from the Abumayyalehs' lawyer. The record does not show any other significant work on the appeal during this period. This is the last period for which the Abumayyalehs request abatement.

All in all, the taxpayers identified four periods totalling about 29 months where they didn't think the IRS did anything.  Studying the record, the Court identified sub periods within those periods that did not indicate anything being done.  Those periods totalled roughly 20 months.  Not good enough.  They did express some sympathy.

We recognize that a taxpayer could have difficulty in determining the extent, if any, to which an apparent delay is actually attributable to “behind-the-scenes” work by the IRS. See Jacobs v. Commissioner, T.C. Memo. 2000-123 [TC Memo 2000-123]. But the Abumayyalehs did not contend, in the alternative, that we should abate interest for parts of the periods of alleged delay in which the IRS has not shown continual work on their case. Consequently, the IRS has not been put on notice that it would have to show continual work (or justified delays), rather than just examples of work, in order to rebut the Abumayyalehs' allegations. Moreover, nothing in the record indicates that the IRS hindered the Abumayyalehs in obtaining meaningful judicial review of its interest-abatement determination by failing to answer questions about what it had been doing or of why it had not been doing anything for any period. The Abumayyalehs may simply not have asked.

Question -  Would it be a different decision if the taxpayers had selected the periods that the court found no activity in ?  Or would the IRS be able to document that during those periods the cleaning people moved one of the file cabinets that the case records were in ?

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