SERVICE ISSUES PROCEDURES FOR FILING REQUESTS FOR ABATING INTEREST CHARGES.

SECTION 1. PURPOSE

01 This revenue procedure provides taxpayers with instructions for filing requests under section 6404(e)(1) of the Internal Revenue Code for abatement of interest assessed. If the interest assessed has been paid and is abated pursuant to such request, the interest will be refunded or credited. Section 6404(e)(1) provides the Secretary of the Treasury with the discretionary authority to abate interest assessed or collected as a result of an error or delay by an officer or employee of the Internal Revenue Service (acting in an official capacity) in performing a ministerial act. Section 6404(e)(1) was added to the Code by the Tax Reform Act of 1986 (Act), section 1563(a), 1986-3 (Vol. 1) C.B. 679.

SEC. 2. BACKGROUND

01 Under section 6404(e)(1) of the Code, the Commissioner may abate an assessment of interest on a deficiency if the interest is attributable in whole or in part to any error or delay by an officer or employee of the Service (acting in an official capacity) in performing a ministerial act. The Commissioner may also abate interest on certain payments of tax to the extent that any delay in such payment is attributable to an officer or employee being dilatory in performing a ministerial act. An error or delay is taken into account only if no significant aspect of such error or delay can be attributed to the taxpayer involved.

02 Section 6404(e)(1) of the Code applies only to interest relating to a tax of the type for which a notice of deficiency is required by section 6212, that is, the taxes imposed by subtitle A of title 26 (relating to income taxes), subtitle B (relating to estate, gift, and generation-skipping taxes), or chapters 41, 42, 43, 44, or 45 (relating to certain excise taxes). Abatement of interest assessed or collected with respect to employment taxes or to excise taxes other than those imposed by chapters 41 through 45 is not authorized by section 6404(e)(1).

03 Section 6404(e)(1) of the Code provides that the Service may abate the assessment of all or any part of such interest for any period. However, the Service cannot abate interest attributable to an error or delay that occurs before the Service contacts the taxpayer in writing with respect to the deficiency or payment as explained in section 3.03 below.

04 Section 301.6404-2T(b)(1) of the Temporary Regulations on Procedure and Administration defines a "ministerial act" 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. A decision concerning the proper application of federal tax law (or other federal or state law) is not a ministerial act.

05 Section 1563(b)(1) of the Act states that the abatement authority applies to interest accruing with respect to deficiencies or payments for tax periods beginning after December 31, 1978. Section 1563(b)(2) of the Act provides that if refund or credit of any amount resulting from the application of section 6404(e)(1) of the Code is otherwise prevented by the operation of any law or rule of law (including res judicata), refund or credit of such amount may, nevertheless, be made or allowed if a claim for refund or credit is filed on or before October 22, 1987.

SEC. 3. SCOPE AND OBJECTIVE

01 This revenue procedure applies to requests for abatement of interest attributable to an error or delay by an officer or employee of the Service in performing a ministerial act. This procedure does not apply to an abatement of interest on certain erroneous refunds as provided in section 6404(e)(2) of the Code.

02 Whether interest will be abated in a particular situation is within the discretion of the Service. Congress did not intend that section 6404(e)(1) of the Code be used routinely to avoid the payment of interest. Rather, Congress intended that the section be used in situations where failure to abate interest would be "widely perceived as grossly unfair." S. Rep. No. 99-313, 99th Cong., 2d Sess. 208 (1986), 1986-3 (Vol. 3) C.B. 208.

03 The Service has the authority to abate only the amount of interest that accrued during the period attributable to the error or delay in performing the ministerial act. Interest cannot be abated for any period if a significant aspect of the error or delay can be attributed to the taxpayer or to a person related to the taxpayer within the meaning of section 267(b) or 707(b)(1) of the Code. Section 6404(e)(1) applies only to errors or delays that occur after the date the Service contacts the taxpayer in writing with respect to the deficiency or payment. Accordingly, the amount of interest that accrued prior to that date cannot be abated regardless of the period that may have elapsed since the taxpayer's return was filed.

SEC. 4. PROCEDURE

01 Requests for abatement of interest should be made on Form 843, Claim. The claim should be filed with the Internal Revenue Service Center where the tax return was filed or, if the identity of that Service Center is unknown, with the Service Center where the taxpayer's most recent tax return was filed.

02 The claim should clearly state across the top "Request for Abatement of Interest under Rev. Proc. 87-42."

03 Line 5 should state the tax period involved, not the period for which abatement of interest is claimed.

04 Lines 6, 8, and 9 of Form 843 should be left blank.

05 Line 7 of Form 843, Dates of Payment, should reflect dates of any payment of interest or tax liability with respect to the tax period and type of tax to which the claim relates.

06 Line 11 of Form 843 should state:

1 the type of tax involved,

2 when the taxpayer was first contacted by the Service in writing with respect to the deficiency or payment,

3 the specific period for which abatement of interest is requested,

4 the circumstances of the case, and

5 the reason or reasons why the taxpayer believes that failure to abate the interest would result in grossly unfair treatment.

07 Generally, a separate Form 843 should be filed for each tax period for each type of tax. However, if the interest assessment resulted from the Service's error or delay in performing a single ministerial act that affected a tax assessment for multiple tax years or types of tax (for example, where two or more tax years were under examination) only one Form 843 is required. It is not necessary to compute the dollar amount of interest for which abatement is requested.

08 If a claim for abatement is denied, the taxpayer has the right to appeal that decision to the appropriate Appeals office.

SEC. 5. EXAMPLES CONCERNING THE DEFINITION OF MINISTERIAL ACT

01 Section 301.6404-2T(b)(2) of the temporary regulations contains the following examples.

1 A taxpayer moves from one state to another before the Internal Revenue Service 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 Service'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 his or her discretion) abate interest attributable to a delay in transferring the case.

2 An examination of a taxpayer's income tax return reveals a deficiency with respect to which a notice of deficiency will be issued. After the taxpayer and the Internal Revenue Service have identified all agreed and unagreed issues, the notice has been prepared and reviewed (including review by District Counsel, if necessary) and any other relevant prerequisites have been completed, the issuance of the notice of deficiency is a ministerial act. The Commissioner may (in his or her discretion) abate interest attributable to a delay in issuing the notice.

3 A taxpayer invested in a tax shelter and reported a loss from the tax shelter on the taxpayer's income tax return. Internal Revenue Service personnel conducted an extensive examination of the tax shelter, and the processing of the taxpayer's case was delayed during such examination. Because the period of limitations on assessment was about to expire, the taxpayer executed a consent to extend the period of limitations. The time required to process the taxpayer's case was not a result of a delay in performing a ministerial act; consequently, interest attributable to this period cannot be abated.

4 A revenue agent is sent to a training course, 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. Neither the decision to send the agent to the training course nor the decision not to reassign the agent's cases is, under the circumstances, a ministerial act. Thus, interest attributable to the delay cannot be abated.

5 A taxpayer who claimed a loss from a tax shelter on the taxpayer's income tax return is notified that the Internal Revenue Service intends to examine the return. However, because of other work priorities and resource limitations, a decision is made not to commence the examination for an extended period thereafter. The decision not to commence the examination involves the exercise of judgment and discretion and is not a ministerial act; consequently, interest attributable to the period of delay cannot be abated.

SEC. 6. EFFECTIVE DATE

This revenue procedure is effective with respect to claims for abatement of interest accruing for taxable years beginning after December 31, 1978. If a refund or credit resulting from the application of section 6404(e)(1) of the Code is otherwise prevented by the statute of limitations or by operation of any law or rule of law (including res judicata), the refund or credit may nevertheless be made or allowed if a claim is filed on or before October 22, 1987.