128 T.C. No. 10



                    UNITED STATES TAX COURT



ESTATE OF EDWARD P. ROSKI, SR., DECEASED, EDWARD P. ROSKI, JR.,
                     EXECUTOR, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



    Docket No. 5639-05.                Filed April 12, 2007.



         The estate elected to pay its tax in installments
    under sec. 6166(a)(1), I.R.C. (the election). R
    informed the estate that it would have to secure a bond
    equal to twice the amount of tax deferred or provide a
    special lien under sec. 6324A, I.R.C. (special lien),
    in order to qualify for the election. R’s requirement
    was based on a recent decision by R to make a bond or a
    special lien a prerequisite of the election in all
    cases. The estate sent R a detailed letter enumerating
    reasons why it was impracticable for the estate to
    secure a bond or a special lien and requested that R
    exercise his discretion and find that it was not
    necessary because of the minimal financial risk the
    estate’s circumstances posed. R sent the estate a
    notice of determination denying the election and
    explaining that the estate failed to meet the
    requirements for the election because it failed to
    provide a bond or a special lien.
                         - 2 -

     The estate filed a petition with this Court
requesting relief under sec. 7479, I.R.C. The estate
alleged that R abused his discretion in denying the
election on the basis of the estate’s failure to
provide a bond. R moved for summary judgment on the
grounds that this Court does not have jurisdiction to
review R’s determination because the requirement of a
bond or a special lien is not within the scope of the
jurisdiction granted by sec. 7479, I.R.C. The estate
objected to R’s motion and filed a cross-motion for
summary judgment, asking this Court to find that R has
no authority to impose a bright-line security
requirement and that if R had exercised his discretion
properly, he would not have found a bond or a special
lien to be necessary in this case.

     Held: We have jurisdiction under sec. 7479,
I.R.C., to review R’s determination. Nothing in the
statute or its legislative history restricts our review
of R’s denial of the election. R has failed to rebut
the strong presumption that an action of an
administrative agency is subject to judicial review.

     Held, further, R has no authority to require a
bond or a special lien in every case. By doing so, R
is making the furnishing of security a substantive
requirement of sec. 6166, I.R.C., which Congress did
not intend. Further, R’s adoption of a standard that
precludes the exercise of discretion is grounds to set
aside R’s determination.




Robert T. Carney, for petitioner.

Scott A. Hovey, for respondent.
                               - 3 -

                              OPINION


     GOEKE, Judge:   This matter is before the Court on the

parties’ cross-motions for summary judgment under Rules 121(a)

and 217(b)(2).1

     Respondent issued a notice of determination denying the

Estate of Edward P. Roski (the estate) the election to pay

Federal estate tax in installments under section 6166.     The

issues before us are:   (1) Whether this Court’s jurisdiction

under section 7479 includes reviewing respondent’s determination,

which was based upon his imposition of a security requirement,

that an election may not be made under section 6166; and (2)

whether respondent abused his discretion by imposing a bright-

line requirement of a bond or a special lien for every estate

election under section 6166(a)(1).     We hold that we have

jurisdiction under section 7479, and that respondent has abused

his discretion.

     The following is a summary of the relevant facts that are

not in dispute.   They are stated solely for purposes of deciding

the pending cross-motions for summary judgment and are not




     1
      All Rule references are to the Tax Court Rules of Practice
and Procedure, and all section references are to the Internal
Revenue Code in effect for the date of decedent’s death,
unless otherwise indicated.
                                 - 4 -

findings of fact for this case.    See Estate of Kahn v.

Commissioner, 

, 228 (2005) (citing Fed. R. Civ. P.

52(a) and Lakewood Associates v. Commissioner, T.C. Memo.

1995-552).

                            Background

     Edward P. Roski (decedent) died on October 6, 2000.    He was

a resident of Los Angeles, California, at the time of his death.

The executor resided in California when the petition was filed.

     On January 4, 2002, the executor of decedent’s estate filed

a timely Form 706, United States Estate (and Generation-Skipping

Transfer) Tax Return (the estate tax return), reporting a balance

due of $32,778,372.   Attached to the estate tax return was a

Notice of Election Under Section 6166 of the Internal Revenue

Code, in which the estate elected to defer payment of the balance

on the estate tax return.   On June 17, 2003, the estate filed a

supplemental Form 706 reporting a liability of $28,901,454.     The

estate also amended its section 6166 election to reflect the new

balance due.   Pursuant to the election, if the estate were able

to obtain the full extension, it would pay the tax due in

installments as late as the 14th anniversary of the normal due

date, which would be in 2015.2




     2
      Sec. 6166(a) allows an estate electing under that section
to pay the tax due in installments over a 10-year period after a
5-year deferral.
                                 - 5 -

     In September 2003, respondent notified the estate that he

had received the estate’s notice of election.     Respondent stated

that because of the election, the estate was required to either

post a bond, or in lieu of a bond, elect to provide a special

lien under section 6324A.     By letter dated September 8, 2004, the

estate requested that “the government exercise its

Congressionally mandated discretion and not require the posting

of a bond or the imposition of a Section 6324A lien in this

case.”     The estate provided the following reasons.3

     (1)     The estate had explored the possibility of posting a

bond but was unable to find a bonding company willing to

underwrite the amount in question for the duration of the 10-year

installment payment period under section 6166(a).        Further, even

if the estate were able to obtain a bond, the estate’s advisors

believed that the cost would be prohibitive.

     (2)     The assets of the estate are part of a well-established

family-owned business, and decedent’s only child has continued

the ownership and management of the business.     The estate’s

assets consist of interests in valuable, well-managed, and

profitable active real estate and provide assurance that adequate




     3
      There is insufficient evidence in the record to permit the
Court to evaluate the merits of the arguments the estate makes in
the letter; the letter is reproduced only for purposes of
establishing what information respondent was presented with in
order to evaluate the necessity of a bond or a lien.
                               - 6 -

funds will be available to pay the estate tax liability,

therefore mitigating any default risks.

     (3)   Edward P. Roski, Jr., the son of decedent and the

executor of the estate, is a highly respected businessman who at

all times has fulfilled his tax obligations.

     (4)   The Government already has security for the payment of

the estate’s deferred taxes in the form of the statutory lien

provided for under section 6324.   The lien is in effect until

2010 and is a personal liability of the executor, as well as of

all the other transferees of the estate.

     (5)   The imposition of the special lien in lieu of a bond

would adversely affect the estate’s ability to carry on the

closely held businesses that ultimately are to provide the funds

from which the estate’s deferred taxes would be paid.    Without

the interference of the special lien, the estate will have the

cashflow to pay the installments as they become due.

     (6)   The imposition of a special lien, in lieu of a bond,

against the estate’s assets would violate covenants in

partnership agreements that affect the estate’s interests in

those assets and could lead to litigation forcing the estate to

sell its properties.   Such forced sales would frustrate the

purpose of section 6166, which is to avoid forced sales or other

actions that might jeopardize the continued operation of a

closely held business.
                               - 7 -

     On December 28, 2004, respondent issued to the estate a

notice of determination stating that the estate may not make an

election under section 6166.   The notice of determination stated

in relevant part:

               We have determined, as provided by
          Section 7479 of the Internal Revenue Code of
          1986, that an election may not be made under
          Section 6166 of the Code by the above estate.
          * * * If you want to contest this
          determination in court, your petition must be
          filed with the United States Tax Court * * *

Attached to the notice of determination was an Explanation for

Determination.   The document contained the following explanation

in its entirety:

          It is determined that the Estate failed to
          fulfill the requirements for the election to
          pay taxes in installments pursuant to IRC
          Section 6166. The Estate failed to provide a
          bond or IRC section 6324A lien per IRC
          Sections 6166 and 6165.

          Additionally, it is determined that the
          estate failed to demonstrate why the
          Commissioner should exercise his discretion
          and waive the requirement of a bond or IRC
          Section 6324A lien in this case.

          Accordingly, the IRC Section 6166 election is
          denied.

     The estate filed its petition for a declaratory judgment

under section 7479 on March 23, 2005.   In its petition, the

estate seeks a redetermination of respondent’s denial of the

election and a judgment that it was entitled to the election.

The petition, inter alia, alleges that respondent erred by
                               - 8 -

determining not to exercise his discretion to allow an election

under section 6166.   The estate also alleges that respondent

erred by requiring the estate to provide a bond or a special lien

in order to qualify for the election.    The estate argues that

such a requirement was without basis in law, was arbitrary and

capricious, and constituted an abuse of discretion.

     Respondent moved for summary judgment, arguing that section

7479 does not give this Court jurisdiction to review respondent’s

denial of the section 6166 election because of the estate’s

failure to fulfill respondent’s prerequisite of a bond or a

special lien under section 6324A.    The estate objected to

respondent’s motion and filed a cross-motion for summary judgment

arguing that:   (1) Respondent’s refusal to exercise his

discretion by requiring a bond in every case is an abuse of

discretion; and (2) the undisputed facts establish that if

respondent had properly exercised his discretion, no bond or

special lien should have been required.

                            Discussion

I.   Background of the Relevant Statutes

     A.   Installment Payment Election

     In general, Federal estate tax is due within 9 months of a

decedent’s death.   Sec. 6075(a).   Under section 6166(a)(1), a

qualifying estate may elect to pay the estate tax in installments

over an extended period.   Section 6166(a) provides:
                              - 9 -

          SEC. 6166(a). 5-Year Deferral; 10-Year Installment
     Payment.--

               (1) In general.--If the value of an
          interest in a closely held business, which is
          included in determining the gross estate of a
          decedent who was (at the date of his death) a
          citizen or resident of the United States
          exceeds 35 percent of the adjusted gross
          estate, the executor may elect to pay part or
          all of the tax imposed by section 2001 in 2
          or more (but not exceeding 10) equal
          installments.

               (2) Limitation.--The maximum amount of
          tax which may be paid in installments under
          this subsection shall be an amount which
          bears the same ratio to the tax imposed by
          section 2001 (reduced by the credits against
          such tax) as--

               (A) the closely held business
               amount, bears to

               (B) the amount of the adjusted
               gross estate.

               (3) Date for payment of
          installments.--If an election is made under
          paragraph (1), the first installment shall be
          paid on or before the date selected by the
          executor which is not more than 5 years after
          the date prescribed by section 6151(a) for
          payment of the tax, and each succeeding
          installment shall be paid on or before the
          date which is 1 year after the date
          prescribed by this paragraph for payment of
          the preceding installment.

     B.   Bond Requirement

     Section 6166(d) provides that “If an election under

subsection (a) is made, the provisions of this subtitle shall

apply as though the Secretary were extending the time for payment
                              - 10 -

of the tax.”   Section 6166(k) provides the following cross-

references:

          SEC. 6166(k).   Cross References–-

                (1) Security.--For authority of the
          Secretary to require security in the case of
          an extension under this section, see section
          6165.

               (2) Lien.--For special lien (in lieu of
          bond) in the case of an extension under this
          section, see section 6324A.

     Section 6165 provides:

     SEC. 6165.   BONDS WHERE TIME TO PAY TAX OR DEFICIENCY
                  HAS BEEN EXTENDED.

               In the event the Secretary grants any
          extension of time within which to pay any tax
          or any deficiency therein, the Secretary may
          require the taxpayer to furnish a bond in
          such amount (not exceeding double the amount
          with respect to which the extension is
          granted) conditioned upon the payment of the
          amount extended in accordance with the terms
          of such extension.

     Section 6324A provides in relevant part:

     SEC. 6324A. SPECIAL LIEN FOR ESTATE TAX DEFERRED UNDER
                 SECTION 6166.

               (a) General Rule.--In the case of any
          estate with respect to which an election has
          been made under section 6166, if the executor
          makes an election under this section (at such
          time and in such manner as the Secretary
          shall by regulations prescribe) and files the
          agreement referred to in subsection (c), the
          deferred amount (plus any interest,
          additional amount, addition to tax,
          assessable penalty, and costs attributable to
          the deferred amount) shall be a lien in favor
          of the United States on the section 6166 lien
          property.
                               - 11 -

     C.    Judicial Review

     Before the enactment of section 7479 in the Taxpayer Relief

Act of 1997, Pub. L. 105-34, sec. 505(a), 111 Stat. 854,

generally the only recourse estates had in a dispute over a

section 6166 election was to pay the tax first and seek a refund.

See, e.g., Estate of Meyer v. Commissioner, 

, 562

(1985); cf. Snyder v. United States, 

 (D. Md.

1986).    However, Congress realized that this limited recourse

would often defeat the purpose of the relief section 6166

provided, which was to allow estates whose assets were mainly

composed of small businesses to defer payment of tax so they

could avoid having to liquidate their small businesses to fulfill

their obligation to pay the tax within 9 months.    See H. Rept.

105-148, at 358 (1997), 1997-4 C.B. (Vol. 1) 319, 680.     Section

7479(a) provides:

                 SEC. 7479(a). Creation of Remedy.--In a
            case of actual controversy involving a
            determination by the Secretary of (or a
            failure by the Secretary to make a
            determination with respect to)--

                      (1) whether an election may be
                 made under section 6166 (relating
                 to extension of time for payment of
                 estate tax where estate consists
                 largely of interest in closely held
                 business) with respect to an estate
                 (or with respect to any property
                 included therein), or

                      (2) whether the extension of
                 time for payment of tax provided in
                 section 6166(a) has ceased to apply
                              - 12 -

                with respect to an estate (or with
                respect to any property included
                therein),

           upon the filing of an appropriate pleading,
           the Tax Court may make a declaration with
           respect to whether such election may be made
           or whether such extension has ceased to
           apply. Any such declaration shall have the
           force and effect of a decision of the Tax
           Court and shall be reviewable as such.

II.   Evolution of the Commissioner’s Position

      The Commissioner has changed his position regarding whether

a bond is required for a section 6166 election four times over

the last 15 years.

      In a 1987 IRS General Litigation Bulletin (GLB),4 the

Internal Revenue Service (IRS) posed the question “Is a bond or

notice of lien required only if the personal representative seeks

discharge from personal liability for the estate tax?”     IRS

General Litigation Bulletin No. 323 (Aug. 1987).     The

Commissioner’s answer was that “An estate executor may elect to

extend the time for payment of the estate tax under IRC 6166

without either posting bond, or obtaining agreement to the

creation of an IRC 6324A lien.   If neither is done, however, the




      4
      Although General Litigation Bulletins are not precedent,
sec. 6110(k)(3), they “‘do reveal the interpretation put upon the
statute by the agency charged with the responsibility of
administering the revenue laws’”, Thurman v. Commissioner, T.C.
Memo. 1998-233 (quoting Hanover Bank v. Commissioner, 

, 686 (1962)).
                             - 13 -

executor does not meet the requirements of IRC 2204 for a

discharge from personal liability.”   Id.

     In a 1993 GLB, the IRS changed its position:

          Advice was requested as to whether the division
     would reconsider its position taken in a 1987
     memorandum that the Service could not require a bond or
     lien under I.R.C. § 6324A once a personal
     representative requested to pay the estate tax in
     installments pursuant to I.R.C. § 6166 and all the
     requirements of section 6166 were met. Having
     reconsidered the issue, we now take the view that the
     Service may refuse to grant an extension of time for
     payment of estate taxes where the personal
     representative refuses to post a bond. [Ed. Note: This
     bulletin item changes the position taken in
     51.06.00-17, issue 3].

IRS General Litigation Bulletin No. 398 (Nov. 1993).

     The IRS once again reversed itself in a 1997 GLB:

          Nothing in section 6166 or the regulations
     thereunder requires the executor to agree to the
     section 6324A lien or to post a section 6165 bond as a
     prerequisite to granting an extension of time to pay
     estate tax under section 6166. In addition, the
     legislative history behind section 6166, as last
     amended, indicates that Congress intended to liberalize
     the extension provisions. S. Rep. No. 938, 94th Cong.,
     2d Sess. 18 (1976). Furthermore, the committee reports
     specifically state that the section 6324A lien is
     elective, and if elected, the lien is in lieu of the
     executor’s personal liability and a bond. See H.R.
     Rep. No. 1380, 94th Cong., 2d Sess. 33 (1976); Staff of
     the Joint Committee on Taxation, 94th Cong., 2d Sess.,
     General Explanation of Tax Reform Act of 1976 549
     (Comm. Print 1976).

          Although we believe the Service should not make a
     section 6324A lien or a section 6165 bond a
     prerequisite to granting an extension of time to pay
     estate tax under section 6166, the Service may require
     an executor of an estate to provide security after
     granting the section 6166 election. However, in
     situations where the estate's eligibility for section
                                 - 14 -

     6166 installment treatment is questionable, the Service
     should rely on the operative provisions of section 6166
     to deny the election in the first instance. Memorandum
     from Chief, Branch 1 (General Litigation) to Ohio
     District Counsel, dated October 24, 1997.

     IRS General Litigation Bulletin No. 447 (Dec. 1997).

     The IRS reversed itself for the third time in 2000:

     The Service may require a bond under I.R.C. § 6165, but
     not the special lien under I.R.C. § 6324A, as a
     prerequisite of granting a section 6166 election.

          *       *      *       *        *    *      *

     There are no statutory or regulatory provisions under
     section 6166 covering the issue of the timing of the
     Service's request for security nor is there any case
     law. Since the law in this area is not well settled,
     we recommend that the Service take a conservative
     approach and establish standards for determining
     whether a bond should be a condition to granting the
     extension.

Chief Counsel Advice (CCA) 200027046 (Apr. 26, 2000) (emphasis

added).

     Ultimately, the Commissioner did not adhere to the position

he took in 2000.      In 2002, the Commissioner modified the Internal

Revenue Manual to announce his current position, which, unlike

any previous position, adopted a bright-line bond requirement:

                   The Service requires estates to furnish
              a surety bond as a prerequisite for granting
              the installment payment election. Instead of
              furnishing a surety bond, the estate may
              choose to elect the special lien provided for
              in IRC 6324A that requires the estate to have
              a lien placed on a specific property. This
              property must have a value equal to the total
                               - 15 -

            deferred tax plus four years of interest and
            must be expected to exist until the entire
            tax is paid.

Internal Revenue Manual sec. 4.25.1.4.9(1).

       The Commissioner’s determination to require security for all

section 6166 elections was made in response to the recommendation

of the U.S. Treasury Inspector General for Tax Administration

(TIGTA).    See TIGTA Rept. 2000-30-059, The Internal Revenue

Service Can Improve the Estate Tax Collection Process (March

2000) (the TIGTA report).    The TIGTA report found that 93 percent

of the total outstanding estate tax balances were not secured by

a bond or a special lien for the full term of the agreement.        Id.

It also found that the Commissioner was attempting to collect

$177 million in overdue tax balances involving 187 defaulted

installment agreements that had not been secured by bonds or

liens and that $50 million due from 252 estates that had

defaulted on installment agreements not secured by bonds or liens

was no longer collectible.    Id.   On the basis of these default

rates, the TIGTA report recommended that the Commissioner secure

his interest in all section 6166 deferrals with either bonds or

special liens.

III.    Jurisdiction Under Section 7479

       There is a strong presumption that the actions of an

administrative agency are subject to judicial review. Abbott

Labs. v. Gardner, 

, 140-141 (1967); United States v.
                              - 16 -

Winthrop Towers, 

, 1032, 1035 (7th Cir. 1980);

Estate of Gardner v. Commissioner, 

, 994 (1984)

(citing Dunlop v. Bachowski, 

, 567 (1975)).

Respondent argues that his determination in this case is not

reviewable because the decision to require a bond or a special

lien is committed to agency discretion by law.5   See 5 U.S.C.

sec. 701(a)(2) (2000).   Respondent supports his premise with the

following arguments:   (1) Section 7479 limits review to the

eligibility requirements contained in section 6166 itself, which

do not include the requirement of a bond under section 6165; and

(2) even if the Court had jurisdiction to review respondent’s

exercise of discretion to require a bond, section 6165 provides

no standard for the application of respondent’s discretion and

therefore no criteria for the Court to judge whether respondent

has exceeded his authority.   We shall address each of

respondent’s arguments individually.

     A.   Section 7479 Does Not Limit Judicial Review to the
          Substantive Requirements of Section 6166

     Ironically, respondent argues that we have jurisdiction over

only the eligibility requirements for the section 6166 election

while simultaneously taking the position that the provision of a

bond or a special lien is required for any estate to be eligible

for the election.   Even if we ignore this glaring contradiction,


     5
      Respondent concedes that no statute prohibits judicial
review under 5 U.S.C. sec. 701(a)(1) (2000).
                              - 17 -

we find respondent’s arguments based on the statutory scheme of

sections 6166 and 6165 to be unpersuasive.

           1.   “See” Cross-Reference in Section 6166(k)

     Respondent’s first argument is that section 6166 itself

precludes judicial review, citing 5 U.S.C. sec. 701(a)(1).

Respondent argues that Congress did not intend to incorporate

section 6165 into section 6166 because section 6166 only cross-

references section 6165.   Respondent contends that since there is

no legal effect to the cross-reference under section 7806(a),6

section 6165 is not part of section 6166, and therefore is

outside the scope of our review under section 7479.

     Respondent’s argument overlooks section 6166(d), which

provides that once the executor elects the extension under

6166(a), the provisions of the subtitle shall apply as if the

Secretary were granting an extension.   Section 6165 applies in

the event that the Secretary grants any extension within which to

pay tax.   Therefore, section 6165 is incorporated as a

substantive part of section 6166(a) through (d).

           2.   Section 7479 and Accompanying Legislative History

     Respondent argues that section 7479 gives the Court

jurisdiction to review only a determination with respect to the


     6
      Sec. 7806(a) provides that “The cross references in this
title to other portions of the title, or other provisions of law,
where the word ‘see’ is used, are made only for convenience, and
shall be given no legal effect.”
                              - 18 -

substantive requirements of the election.    To support his

argument, respondent cites the legislative history of section

7479, which states:

          If the Commissioner determines that an estate
          was not initially eligible for deferral under
          section 6166, or has lost its eligibility for
          such deferral, the estate is required to pay
          the full amount of estate taxes asserted by
          the Commissioner as being owed in order to
          obtain judicial review of the Commissioner's
          determination.

H. Rept. 105-148, supra at 358, 1997-4 C.B. (Vol. 1) at 680.

     Respondent argues that this language tracks the language in

section 7479 that grants the Tax Court jurisdiction to issue

declaratory judgments as to whether an election “may be made” or

has “ceased to apply”.   Sec. 7479(a).   Respondent focuses on

section 6166(a) and (g), which provides that an executor “may

elect” to pay the tax in installments and that if certain

conditions occur, the election “shall cease to apply”.

Respondent concludes that this language is evidence of

congressional intent to limit our review to those particular

subsections.

     Respondent’s attempt to selectively take phrases from the

statute and the legislative history to support his narrow reading

is unpersuasive.   Section 7479 gives the Court authority to

review a determination by the Secretary of whether an election

may be made.   The determination respondent made in this case is

not confined to an application of section 6166(a) and (g).
                               - 19 -

Respondent determined that an election may not be made because

the estate was not initially eligible.   There is nothing in the

statute or the legislative history that precludes our review of

the reasons.   A narrow reading such as respondent’s would also

preclude our review of the denial of an election “‘if it were

made without a rational explanation, inexplicably departed from

established policies, or rested on an impermissible basis such as

an invidious discrimination against a particular race or group’”.

Estate of Gardner v. Commissioner, supra at 1000 (quoting Wong

Wing Hang v. INS, 

, 719 (2d Cir. 1966)).    “Such

allegations, if proved, would constitute the very essence of

arbitrary administrative action and an abuse of the discretion

granted.”   Id.   We cannot imagine that Congress intended to

eliminate review of determinations where such circumstances were

alleged to have existed.

     Further, respondent’s interpretation would frustrate the

legislative purpose behind both sections 6166 and 7479.     Congress

enacted section 7479 because “[it] believed that taxpayers should

have access to the courts to resolve disputes over an estate’s

eligibility for the section 6166 election, without requiring

potential liquidation of the assets that the installment

provisions of section 6166 are designed to protect.”   Staff of

Joint Comm. on Taxation, General Explanation of Tax Legislation

Enacted in 1997, at 74 (J. Comm. Print 1997).   The broad
                                  - 20 -

legislative purpose shows that Congress did not intend section

7479 to have the limited scope that respondent urges.

       B.      Respondent’s Arguments Concerning the Lack of
               Judicially Manageable Standards in Section 6165 Are
               Misdirected

       In the absence of a specific statutory preclusion of

review,7 agency action may be determined to be “‘committed to

agency discretion by law’” only when a fair appraisal of the

entire legislative scheme, including a weighing of the practical

and policy implications of reviewability, persuasively indicates

that judicial review should be circumscribed.       Estate of Gardner

v. Commissioner, 82 T.C. at 995 (quoting Local 2855, AFGE v.

United States, 

, 578 (3d Cir. 1979)).

           Respondent argues that because section 6165 provides that

he “may” require a bond, and provides no other conditions for

this authority, the decision to require security when granting a

section 6166 extension is “committed entirely to respondent’s

discretion.”

       We rejected respondent's argument in the context of a

similar statute in Estate of Gardner v. Commissioner, 

(1984).       In Estate of Gardner, the estate elected under section

2032A to value its farm at its actual use rather than its best

use.       However, section 6075 required that the timing of the



       7
      Respondent concedes that nothing in sec. 6165 expressly
precludes judicial review.
                              - 21 -

election coincide with the 9-month period for filing an estate

tax return under section 2001.   The estate requested that the

Commissioner exercise his discretion and extend the due date

under section 6081(a) because the estate’s tax return preparer

had died unexpectedly.   The examining agent told the executrix in

a later meeting that the estate had made a good case for an

extension but that his supervisor had told him he must deny the

request for an extension because his supervisor disliked farmers,

believing farmers were too rich, got away with too much already,

and did not deserve any further breaks.   The estate was not

thereafter afforded an Appeals Office conference.

     The Government moved for summary judgment, arguing that

section 6081 was committed to agency discretion.    Section 6081(a)

has language similar to that of section 6165, providing that “The

Secretary may grant a reasonable extension of time for filing any

return, declaration, statement, or other document required by

this title or by regulations.”   The Government argued that

because the statute provided simply that the Commissioner “may”

grant an extension, the statute lacked ascertainable standards on

which the Court could base its review.

     We rejected the Government's argument, first noting that the

“committed to agency discretion” exception to the general rule of

reviewability is a very narrow one.    Estate of Gardner v.

Commissioner, supra at 995 (citing Citizens to Preserve Overton
                              - 22 -

Park, Inc. v. Volpe, 

, 410 (1971)) (other citations

omitted).   We also observed that we regularly review

discretionary acts of the Government.   Id. at 997 n.11.    We also

explained that nothing suggested that the Government’s exercise

of discretion under section 6081 involves any agency expertise

beyond the competence of courts and that “‘No delicate political

or economic questions present themselves.   To the contrary, we

need only ask whether * * * [the Government exercised its

discretion] in a rational, nonarbitrary, and regular fashion’.”

Id. at 998 (quoting Hondros v. U.S. Civil Serv. Commn., 

, 294 (3d Cir. 1983)).

     In this case, we do not need to decide whether all

determinations under section 6165 are reviewable.    We are not

reviewing a determination made under section 6165.    We are

reviewing respondent’s determination under section 6166.    See

sec. 7479(a).   We have already held that we have jurisdiction to

review all reasons for respondent’s determination that the estate

may not make an election under section 6166.   Therefore,

respondent’s arguments relating to section 6165 are not

applicable.

     We conclude that we have jurisdiction under section 7479 to

review respondent’s determination that the estate does not

qualify for the section 6166 election because the estate did not

meet respondent’s requirement of a bond or a special lien.
                                - 23 -

IV.   Respondent’s Denial of the Section 6166 Election on the
      Basis of Bright-Line Bond Requirement Is an Abuse of
      Discretion

      A.   Standard of Review

      When reviewing an agency action, a reviewing court shall

hold unlawful and set aside any agency action that is arbitrary,

capricious, or an abuse of discretion.      See Keene v.

Commissioner, 

, 17-18 (2003) (“when a taxpayer’s

underlying tax liability is not properly at issue in the

administrative hearing, we review the Appeals Office’s

determination for abuse of discretion”) (citing Lunsford v.

Commissioner, 

, 185 (2001)).      Respondent argues that

we do not have abuse of discretion review under section 6166

because section 7479 also gives us jurisdiction over eligibility

for the section 6166 election in the case of a “failure by the

Secretary to make a determination”.      Sec. 7479(a).   Thus,

respondent argues that Congress did not intend an abuse of

discretion standard.   Contrary to respondent’s assertion, abuse

of discretion has been found in situations where the

Commissioner’s refusal to exercise discretion is arbitrary,

capricious, or unreasonable.    See Greene v. Commissioner, T.C.

Memo. 1997-296 (citing Mailman v. Commissioner, 

(1988), Estate of Gardner v. Commissioner, supra, and Haught v.

Commissioner, T.C. Memo. 1993-58).
                                - 24 -

     B.     The Commissioner’s Oscillating Position Is Entitled to
            Less Deference

     At the outset, we are wary of the Commissioner’s position

because of the oscillations in his interpretation of the bond

requirement demonstrated by his published guidance over the

years.    Although the published guidance discussed earlier cannot

be cited as precedent under section 6110(k)(3), it highlights the

Commissioner’s confusion about the proper interpretation of the

bond requirement.     The Commissioner’s current interpretation,

being in conflict with his initial position (and his penultimate

position), is entitled to considerably less deference.     Watt v.

Alaska, 

, 273 (1981) (citing Gen. Elec. Co. v.

Gilbert, 

, 143 (1976)).

     C.     The Plain Language of Sections 6166 and 6165 Imposes a
            Discretion That Respondent Failed To Exercise

     The statutory scheme of sections 6166 and 6165 reveals that

the bond requirement is discretionary and was not intended to be

mandatory.     The substantive requirements of section 6166 are

confined to section 6166(a) and (g).     None of these requirements

include securing a bond or a special lien under section 6324A.

Rather than making security a substantive requirement, Congress

incorporated the Commissioner’s discretionary authority under

section 6165, which provides that the Secretary may require a

bond.     Thus, section 6165 gives the Commissioner discretion to

require a bond for extension of time to pay tax, but it does not
                              - 25 -

make it mandatory.   Implicit in this grant of discretion is a

statutory obligation to exercise discretion.   Respondent,

however, has not exercised discretion in spite of the fact that

he concedes in his memorandum that requiring a bond under section

6165 is “unquestionably a discretionary act that could only be

subject to an abuse of discretion review.”   See also CCA

200027046 (Apr. 26, 2000) (“Although the Service can require a

section 6165 bond or accept a section 6324A lien agreement, such

action is discretionary and not a statutory or regulatory

requirement of section 6166.”).8

     The notice of determination states that the estate failed to

demonstrate why respondent should exercise his discretion and

waive the bond requirement.   Section 6165 does not give the

Commissioner the authority to waive a bond requirement--it gives

the Commissioner discretion to require a bond.   This distinction

is elucidated by the legislative history, which states that “the

Internal Revenue Service may, if it deems it necessary, require

the executor to furnish a bond”.   S. Rept. 94-938 (Part 2), at 17

(1976), 1976-3 C.B. (Vol. 3) 643, 659.   Therefore, it is evident

that Congress envisioned the furnishing of a bond to be a

discretionary requirement that the Commissioner may impose in

certain cases, and did not intend it to be a universal


     8
      We are merely citing this Chief Counsel Advice as evidence
of respondent’s position. See Thurman v. Commissioner, T.C.
Memo. 1998-233.
                               - 26 -

requirement that the Commissioner has discretion to waive.

However, regardless of this semantic difference, we focus our

criticism of the Commissioner’s position on his adoption of a

bright-line rule requiring a bond or lien in every case.

     We are aware that a narrow construction should be applied to

the deferral benefit provisions of section 6166.    Estate of Bell

v. Commissioner, 

, 903 (9th Cir. 1991) (citing

Commissioner v. Jacobson, 

, 49 (1949), and Helvering

v. Nw. Steel Rolling Mills, 

, 49 (1940)), affg. 

 (1989).    However, even the strictest construction of

section 6166 does not give the Commissioner the authority to

impose a mandatory bond requirement without exercising any

discretion.    Imposing such a requirement in every case would

rewrite the statute to make a bond a substantive requirement of

section 6166, which Congress did not intend.    The deliberate

decision to incorporate section 6165 in such an intricate manner,

rather than simply make a bond requirement part of the

substantive requirements of the election, evidences that Congress

did not intend to make the securing of a bond or a special lien a

requirement in every case.

          D.     Legislative History

     The legislative history of section 6166 shows that Congress

did not envision a mandatory bond requirement.    Congress enacted

section 6166 because the existing law was “inadequate to deal
                              - 27 -

with the liquidity problems experienced by estates in which a

substantial portion of the assets consist of a closely held

business”.   H. Rept. 94-1380, at 30 (1976), 1976-3 C.B. (Vol. 3)

735, 764; and see Estate of Bell v. Commissioner, supra at 902

(“The purpose of section 6166 is to prevent the forced

liquidation of closely held businesses because substantial estate

taxes must be paid.” (citing H. Rept. 94-1380, supra at 30, 1976-

3 C.B. (Vol. 3) at 764, and S. Rept. 94-938 (Part 2), supra at

18-19, 1976-3 C.B. (Vol. 3) at 660-661).   Congress was concerned

that “In many cases, the executor is forced to sell a decedent’s

interest in a farm or other closely held business in order to pay

the estate tax.”   H. Rept. 94-1380, supra at 30, 1976-3 C.B.

(Vol. 3) at 764.   Allowing the Commissioner to impose a mandatory

bond requirement exacerbates the problem that Congress was

dealing with in enacting the statute.    Estates such as the one in

this case have liquidity problems that would make it difficult

not only to pay tax but also to secure a bond.   Also, the closely

held nature of the small businesses that give rise to the

election may make it more difficult for these businesses to be

able to offer to secure their assets with liens.   This does not

mean, however, that the financial risk is too great to allow the

estate to pay its tax in installments.   The record in this case

suggests that the executor is a wealthy, well-respected

businessman; that the businesses giving rise to the election are
                               - 28 -

extremely profitable and well managed; and that the nature of the

estate’s business assets ensures adequate cashflow to pay the

installments timely.   There may be cases where the facts reveal

that collection is reasonably assured and a bond is not

necessary.   We are not implying that a bond or a special lien is

not necessary in this case.   We are merely stating that without

exercising his discretion and evaluating the facts diligently and

thoroughly, respondent is depriving the estate of the opportunity

to demonstrate why a bond is not necessary.

     E.   The Commissioner’s Uniform Requirement Precluding the
          Exercise of Discretion Exceeds the Administrative
          Authority Delegated to Him

     By adopting a bright-line rule in every case, the

Commissioner has shirked his administrative duty to state

findings of fact and reasons to support his decisions that are

sufficient to reflect a considered response to the evidence and

contentions of the losing party and to allow for thoughtful

judicial review.   Harborlite Corp v. ICC, 

, 1092

(D.C. Cir. 1979) (citing Secy. of Agric. v. United States, 

, 652-654 (1954)).    There is a recognized distinction in

administrative law between proceedings for the purpose of

promulgating policy rules or standards, on the one hand, and

proceedings designed to adjudicate disputed facts in particular

cases, on the other.   Id. at 1092 n.5 (quoting United States v.

Florida E. Coast Ry., 

, 245 (1973)).    The
                                - 29 -

Commissioner has used his adjudicative capacity to adopt a policy

that trumps the discretionary authority granted by section 6165

to require a bond.     Although requiring a bond in this case may be

reasonable, respondent did not look at the facts of the case.        If

respondent had exercised his discretion, the result might have

been reasonable; however, the means to the end was still

arbitrary.9

     Respondent’s failure to exercise discretion is grounds to

set aside his determination.    See Asimakopoulos v. INS, 

 (9th Cir. 1971) (citing United States ex rel. Accardi v.

Shaughnessy, 

, 266-268 (1954)).     An agency’s reliance

on a standard that prevents the exercise of discretion warrants

further proceedings.    See id. at 1365.    Respondent argues that

factors such as the estate's creditworthiness are not the only

factors he is able to consider in making his decision.     He

contends that the difficulties in administering the deferrals

that were discussed in the TIGTA report were valid factors for

him to consider in the estate’s case.      Respondent further argues

that there is always risk of default in a debtor-creditor

relationship and that IRS collection experience showed a high



     9
      We do not address in this Opinion whether the Commissioner
could have exercised his discretion through the promulgation of a
regulation. See, e.g., Fook Hong Mak v. INS, 

, 730
(2d Cir. 1970). Here, he established his bright-line test
through insertion in the Internal Revenue Manual without any
opportunity for notice and comment.
                              - 30 -

default rate in collection.   We agree that respondent should be

able to consider factors such as administrative convenience and

revenue collection.   However, considering these factors

exclusively precludes any exercise of discretion in a particular

case, which is what the Court of Appeals for the Ninth Circuit

eschewed in Asimakopoulos.

V.   Conclusion

     We have found that respondent has arbitrarily failed to

exercise his discretion and may not impose a bright-line bond

requirement.   Therefore, for the above reasons, we will deny

respondent’s motion for summary judgment.    However, we will not

adjudicate the merits of the dispute at this juncture as the

estate requests in its cross-motion for summary judgment.    The

record does not contain sufficient facts for us to decide the

merits of the estate’s assertion that furnishing security is not

necessary in this case.   The uncontested facts do not allow us to

resolve the matter in favor of the estate.    Therefore, we shall

also deny the estate’s cross-motion for summary judgment to the

extent that it seeks a final disposition of the matter.

     To reflect the foregoing,


                                      An appropriate order will be

                                 issued.