Interest Abatement: What is a Ministerial Act?

Imagine that the IRS did not act quickly. Okay, that isn’t hard to imagine. The IRS never acts quickly. I’ll rephrase that. When the IRS goes slow in processing even the most basic request or inquiry, what happens? Does this stop the accrual of interest? The answer is, unfortunately, “no” it does not–in most cases.

But taxpayers can ask the IRS to abate or remove interest and the IRS may grant the request in some circumstances.

The IRS is authorized to abate or remove interest where there is a ministerial act. Okay, so what does that mean? What is a ministerial act? The Beall vs. United States, 170 F. Supp. 2d 709 (E.D. Tex. 2001), case provides an opportunity to consider this question.

Facts & Procedural History

The Bealls were limited partners in two partnerships. They filed a joint income tax return for tax year 1984.

The IRS audited the Bealls’ 1984 income tax return. The IRS audit was triggered by an investigation of a general partner of the two partnerships in which the Bealls were limited partners. As the court explains:

In March 1989, in connection with a grand jury investigation, the IRS entered the general partner’s office and seized the partnerships’ books and records. The grand jury proceedings remained ongoing for four years and were concluded without any indictments or charges being brought or filed. During this time, the United States suspended the civil examination and adjustment process. The IRS did not return the partnerships’ books and records until 1993, and when the IRS did return them, some had been lost and the remainder were in disarray.

So the IRS had the books and records for the partnership for four years.

Sometime in 1996, the Bealls entered into a settlement agreement with the IRS for issues related to the partnerships. About a year and a half later the IRS notified the Bealls that the IRS had assessed an additional $29,978 of taxes and penalties and interest in the amount of $67,525, which the Bealls paid.

The Bealls asked the IRS to abate the tax interest, but the IRS refused. Tax litigation ensued.

What are “Ministerial Acts”?

The IRS has the discretion to abate IRS tax penalties, but more limited discretion when it comes to interest. Note that the IRS cannot abate interest on certain taxes, such as interest on employment taxes.

The IRS can abate interest that results from errors or delays resulting from IRS “ministerial” acts.

What is a ministerial act? The tax law does not provide a definition. However, the term “ministerial” is commonly defined as “an act performed in a prescribed manner and in obedience to a legal authority, without regard to one’s own judgment or discretion.” “Ministerial” acts are basically acts by IRS employees that do not require independent thought or judgment.

Given this definition, one might think that all government acts are ministerial. But they are not. To understand what is and is not ministerial, it is helpful to consider what is not ministerial. Acts that are not ministerial are those where the government is doing something other than its assigned task. It also includes the government simply being dilatory and not doing anything. The failure to act is not ministerial. The courts have even said recomputing tax twice does not count as a ministerial act.

Given this explanation, ministerial acts for purposes of computing interest means the time the IRS is actually doing something productive on the case.

Does the Criminal Investigation Time Count?

But in this case, the IRS was not actively trying to determine the correct amount of the taxpayer’s tax liability. For at least some of the time, the IRS was trying to determine whether there was a criminal liability for the taxpayers or others. Surely this is a ministerial act as to the taxpayer’s tax liability, right? Wrong.

Ultimately the court agreed with the IRS that the interest on the tax debt should not be abated. The court reasoned that the IRS’s decisions in regard to the criminal investigation of the general partner were not a ministerial act.

It should also be noted that the court offered little sympathy for the IRS holding the tax records for an extended period of time.

Why the Case is Interesting

The lesson from this case is that the IRS is often slow. This can result in significant amounts of interest accruing. The reason for it being slow can dictate whether interest can be removed. As this case shows, it is up to the taxpayer to document what the IRS is doing and when, if the taxpayer intends to try to abate interest. Absent records, such as correspondence with the IRS or IRS case histories, the courts will generally not abate interest on tax liabilities.