Court transfer delay did not support interest abatement

Plain-English summary

Chief Counsel advised that interest could not be abated under section 6404(e) when a federal court clerk, rather than an IRS employee, delayed transferring restitution payments to the IRS. The delay therefore was not an unreasonable IRS error or delay in performing a ministerial or managerial act. A closing agreement that did not address the restitution assessment or related interest did not prevent the IRS from assessing restitution as tax under section 6201(a)(4)(A) or interest under section 6601. For payment timing, the IRS treats a remittance as made when the IRS or Treasury actually receives it, not when the taxpayer delivers funds to the court clerk.

Ruling snapshot

• Question: Could interest be abated for a court clerk's delayed transfer of restitution payments, and did a separate closing agreement bar the assessment?
• Outcome: Advice given that abatement was unavailable and the restitution assessment and interest could proceed.
• Key authorities: IRC §§ 6201(a)(4)(A), 6404(e), and 6601(a); Treas. Reg. § 301.6404-2(b).

Full text (IRS public release)

ID: CCA_2015042112454061
UILC: 6404.00-00, 6201.00-00

Number: 201526008
Release Date: 6/26/2015
From:
Sent: Tuesday, April 21, 2015 12:45:40 PM
To:
Cc:
Bcc:
Subject: FW: Application of Payment Case - TAS Inquire and F843 filed

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Section 6404(e) states that the Service can abate interest resulting from “unreasonable error or delay by
an officer of employee of the Internal Revenue Service. . . in performing ministerial or managerial act” . .
. if no significant aspect of such error or delay can be attributed to the taxpayer involved . . .”. A
managerial act is 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.” Treas. Reg. § 301.6404-2(b)(1). A ministerial act is “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 of
supervisors, have taken place. Treas. Reg. § 301.6404-2(b)(2). In order to be able to grant an
abatement of interest, the taxpayer would need to “(1) identify an error or delay by the IRS in
performing a ministerial or managerial act; 2) establish a correlation between the error or delay by the
IRS and a specific period for which interest should be abated; and 3) show the taxpayer would have paid
his or her tax liability earlier but for such error or delay.” Hancock v. Commissioner, T.C. Memo 2012-31,
at 3.

Based on what we understand of the facts in this case, there was no error or delay on the part of any
Service’s employee, instead the delay was caused by the Clerk of Court who did not transfer the funds to
the Service until several months after the taxpayer made restitution payments to the Clerk of
Court. The Clerk of Court for a Federal District Court is not an officer or employee of the IRS, and any
delay in transferring the funds to the Service from the Clerk of Court was due to the procedures of that
particular Federal District Court. Because the delay was not caused by unreasonable error or delay on
the part of the Service’s employee, interest that accumulated and was collected by the Service after the
taxpayer made a payment to the Clerk of Court to the day the funds were transferred to the Service
cannot be abated.

Additionally, the closing agreement is of no benefit to the taxpayer with respect to the restitution-based
assessment or the section 6601 interest accruing on that assessment. I.R.C. § 6201(a)(4)(A) requires the
Service to assess the amount of restitution as if such amount were a tax. As explained in Q&A 12 of CC
Notice 2011-018, I.R.C. § 6601(a) requires interest to accrue on unpaid tax assessments and the date
that interest starts running on a restitution-based assessment is the due date for the tax period to which
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the restitution relates. The closing agreement you provided us does not refer to either the assessment
of restitution or the interest accruing on that restitution based assessment. Accordingly, it does not
prevent the Service from assessing the amount of restitution nor does it prevent the Service from
assessing interest under section 6601 accruing on the assessment of the amount of restitution.

Regarding the date of payment, the Service’s policy is to consider any remittances made to the Service
as made when actually received by the Service. I.R.M. 3.8.45.2(9) provides that “[a]ll remittances will be
credited to taxpayer accounts for the earliest IRS Received Date,” which is “the date the remittance is
received by the IRS or Department of Treasury.” The IRM does not give rationale for such policy, but
such method is consistent with the general principle of debtor-creditor law, that a creditor will only
treat a payment made when it acquires control over the funds a debtor uses to make the payment.

If you have any further questions please do not hesitate to contact me.