Terauds v. Commissioner

T.C. Memo. 1997-64

UNITED STATES TAX COURT

ASTRIDA TERAUDS, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 10433-95. Filed February 4, 1997.

Astrida Terauds, pro se.

Gary W. Bornholdt, for respondent.

MEMORANDUM OPINION

DAWSON, Judge: This case was assigned to Special Trial

Judge D. Irvin Couvillion pursuant to section 7443A(b)(4)1 and

Rules 180, 181, and 183. The Court agrees with and adopts the

opinion of the Special Trial Judge, which is set forth below.

1
Unless otherwise indicated, section references are to the
Internal Revenue Code in effect for the years in issue. All Rule
references are to the Tax Court Rules of Practice and Procedure.
 - 2 -

OPINION OF THE SPECIAL TRIAL JUDGE

COUVILLION, Special Trial Judge: Respondent determined

Federal income tax deficiencies of $10,703 and $7,954 and

additions to tax under section 6651(a)(1) of $2,675 and $2,815,

respectively, for petitioner's 1986 and 1987 tax years.2

After concessions, the issues for decision are: (1) Whether

petitioner is entitled to a dependency exemption under section

151(a) for her daughter Sandra for the year 1987; (2) whether

petitioner, for the year 1986, realized a long-term capital gain

in an amount less than that determined by respondent; (3) whether

petitioner, for the year 1986, is entitled to a deduction for

2
Petitioner elected to have this case considered as a Small
Tax Case under sec. 7463 even though the deficiencies in tax and
additions to tax for both years exceed $10,000. Sec. 7463 limits
the jurisdiction of this Court to consider a case under sec. 7463
to one in which neither the amount of deficiency placed in
dispute (including additions to tax) nor the amount of any
claimed overpayment exceeds $10,000 for any one taxable year.
Petitioner placed in dispute "approximately" $6,000 and $2,000 of
the deficiencies for 1986 and 1987 based upon her concession of
the following adjustments in the notice of deficiency:
Unreported dividend income of $8,872 and $8,784, respectively,
for 1986 and 1987, and unreported interest income of $13,412 and
$16,218, respectively, for 1986 and 1987. As a result of these
concessions, the deficiencies and additions to tax for each year
are well under $10,000. However, petitioner alleged in her
petition a claim for a credit or refund of an overpayment of
taxes but did not allege the amount of the overpayment. After
the case was heard and was taken under advisement, it became
apparent that the amount of a claimed overpayment would exceed
$10,000, at least for one of the years at issue. Therefore the
Court, pursuant to Rule 173, ordered that consideration of this
case under sec. 7463 be discontinued and that the case be
considered under sec. 7443A(b)(4).
 - 3 -

expenses under section 212, relating to rental property, which

was not allowed by respondent; (4) whether petitioner, for the

year 1987, is entitled to apply, as partial payment of the tax

shown as due and owing on her return, the amount of $2,899.89

held by respondent for her account, which was received by

respondent pursuant to a levy, and whether petitioner is entitled

to an additional credit for the proceeds of a separate levy that

is not shown on respondent's transcript of account; (5) whether

petitioner is entitled to credits or refunds for overpayments of

her 1986 and 1987 taxes; and (6) whether petitioner is liable for

the additions to tax under section 6651(a)(1) for 1986 and 1987.3

Some of the facts were stipulated. Those facts, with the

annexed exhibits, are so found and are incorporated herein by

reference. At the time the petition was filed, petitioner's

legal residence was Long Beach, New York.

During the years at issue, petitioner was a systems engineer

for the Sperry Rand Corp. Her 1986 Federal income tax return was

filed on April 15, 1992, and her 1987 return was filed on March

4, 1992.

Because there are several issues involved in this case, we

have combined our findings of fact and opinion with respect to

3
For 1986, respondent disallowed itemized deductions of
$3,011, consisting of mortgage interest and property taxes.
These disallowed amounts were allowed as deductions for rental
expenses. Petitioner does not challenge the characterization of
these items as rental expenses.
 - 4 -

each issue. The determinations of the Commissioner in the notice

of deficiency are presumed correct, and the burden is on the

taxpayer to show that they are in error. Rule 142(a); Welch v.

Helvering, 290 U.S. 111, 115 (1933). Additionally, deductions

are a matter of legislative grace, and the taxpayer must satisfy

the specific statutory requirements for any deduction claimed.

INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992).

1. Claimed Dependency Exemption Deduction

The first issue is petitioner's claim to a dependency

exemption deduction for her daughter Sandra for 1987. Petitioner

claimed Sandra as a dependent on her 1986 and 1987 returns;

however, respondent disallowed the exemption for 1987. The

reason stated for the disallowance is that petitioner did not

establish that she had provided more than one-half of Sandra's

support during 1987.

Section 151(c)(1) generally allows as a deduction an

exemption for each dependent of a taxpayer as defined in section

152. Section 152(a) provides, in general, that the term

"dependent" means certain individuals over half of whose support

was received from the taxpayer during the taxable year in which

such individuals are claimed as dependents. Eligible individuals

who may be claimed as dependents include, among others, a son or

daughter of the taxpayer. Sec. 152(a)(1). Section 151(c)(1)

further provides that, if the claimed dependent is a child of the
 - 5 -

taxpayer claiming the exemption, the child must not have attained

the age of 19 at the close of the calendar year or must be a

student. Sec. 151(c)(1)(B).

During 1987, Sandra had not attained the age of 19 at the

close of the year. However, she had a part-time job at a

supermarket during 1987. Based on petitioner's testimony at

trial, Sandra's gross income from this job was "over $1,900"

during 1987.

Petitioner presented no evidence to establish the total

support provided to Sandra during 1987, and that, of the total

support provided, more than one-half of such amount was provided

by petitioner. See Blanco v. Commissioner, 56 T.C. 512, 514

(1971). Although petitioner provided Sandra with a place of

abode, food, and perhaps some clothing, the record shows, based

on petitioner's testimony, that Sandra had other means of support

during 1987 in addition to the earnings from her part-time job

and petitioner's support. Sandra's father provided her $100 per

week during 1987. On this record, petitioner has not established

that she provided more than half of Sandra's total support during

1987. Respondent, therefore, is sustained on this issue.4

4
Petitioner offered no testimony as to her relationship with
Sandra's father, and, in particular, whether she and Sandra's
father were married to each other; whether they were divorced or
legally separated and, if so, the date thereof, and who was the
custodial parent; and whether there were any agreements or court
decrees regarding which parent was entitled to the dependency
(continued...)
 - 6 -

2. Long-Term Capital Gain

The second issue is whether long-term capital gain realized

by petitioner in 1986 is less than the amount determined by

respondent. On her 1986 Federal income tax return, petitioner

did not report any gain or loss from the sale of capital assets.5

During the examination of petitioner's 1986 tax year, respondent

determined, based upon information furnished by payers, that

petitioner sold stock during 1986 totaling $82,529 as follows:

RCA Corp. $ 6,650
Financial Clearing & Services 7,010
Financial Clearing & Services 1,377
Burroughs 17,136
Harris Trust Co. 10,710
Harris Trust Co. 14,917
Duke Power Co. 2,575
Merrill Lynch 2,569
Merrill Lynch 257
Merrill Lynch 7,063
Polaroid Corp. 25
Burroughs 12,240
Total $82,529

In the examination of her 1986 tax year, petitioner provided

information to respondent's auditing agent that showed that she

had a basis of $65,071 in the stock listed above. Respondent's

agent accepted this amount as petitioner's basis and,

accordingly, determined that petitioner realized a long-term

4
(...continued)
exemption. See sec. 152(e).
5
Petitioner's 1986 return did not include a Schedule D,
Capital Gains and Losses.
 - 7 -

capital gain of $17,458 from the sales of these stocks. After

allowing the 60-percent capital gain deduction under section

1202, petitioner's net long-term capital gain was determined to

be $6,983, which is the amount set forth in the notice of

deficiency.

At trial, petitioner acknowledged sales or exchanges

involving the stocks listed above. However, petitioner presented

conflicting positions as to why the $17,458 gain determined by

respondent was not correct. One of her positions is that, while

the transactions for all the stocks listed above totaled $82,529,

she did not receive cash for that amount, and that a portion of

the consideration received was stock she received in connection

with a corporate merger. With respect to the stock she received,

petitioner contends that no gain or loss was realized; therefore,

the exchange of such stock was not a taxable event and should not

be considered as part of the $82,529 determined by respondent to

have been the amount realized from sales of stock.6 Petitioner

presented no documentation to establish that there was a merger,

that the amounts reported by payers to the Internal Revenue

Service represented stock that was issued to petitioner in

exchange for other stock as the result of a merger, or that there

6
If this contention is correct, petitioner's basis for such
stock should also be deducted from the $65,071 basis determined
by respondent. This was not addressed by petitioner in her
testimony.
 - 8 -

was no taxable event as to such stock. Another contention by

petitioner is that, of the amounts listed above, two of the stock

sales listed, Harris Trust Co. in the amounts of $10,710 and

$14,917, were incorrect and should have been, respectively,

$4,310 and $5,967. Petitioner presented to the Court a Form 1099

from the Harris Trust Co. of New York that reflected a cash

payment to petitioner of $5,967.50 during 1986; however,

petitioner failed to prove that this Form 1099 related to any of

the Harris Trust Co. transactions listed above. The Form 1099

for $5,967.50 presented by petitioner did not indicate that it

was a corrected or amended Form 1099. Petitioner's position is

not only vague but contradictory because, in support of her first

argument, she acknowledged that the transactions at issue

involving stock totaled $82,529 during 1986. To argue that two

of the amounts making up the $82,529 are incorrect is simply

contradictory to her acknowledgment that her stock transactions

that year amounted to $82,529. On this record, petitioner has

not satisfied her burden of proving that respondent's

determination of her long-term capital gains for 1986 is

incorrect. Respondent, therefore, is sustained on this issue.

3. Claimed Deduction for Expenses Relating to Rental Property

The third issue is whether petitioner is entitled to a

deduction for expenses incurred in connection with rental

property during 1986 that was not allowed by respondent. In the
 - 9 -

notice of deficiency, respondent allowed petitioner a $775 loss

from her rental activity for 1986.

During 1986, petitioner owned what she described as a "two-

family" house. She lived in one portion of the house and rented

the other portion. On her 1986 Federal income tax return,

petitioner did not report either the rental income or the

expenses incurred in connection with the rental portion of her

house. She testified that, because her expenses were more or

less equal to or in excess of her rental income, she chose not to

report the activity. In the course of the audit of her returns

for 1986 and 1987, petitioner made known the activity to

respondent's auditing agent, and a determination was made with

respect to the activity for 1986.7 In the notice of deficiency,

the net loss of $775 allowed by respondent was determined as

follows:

Rental income $3,136.00
Expenses (for entire house)
Mortgage interest $2,087.01
Real estate taxes 3,934.21
Insurance 300.00
Utilities 1,500.00
Total $7,821.22
Attributable to rented portion (½) 3,910.61
(Loss) ($ 774.61)

7
The rental activity issue is only for the year 1986.
Petitioner did not report a rental activity on her 1987 return,
and no mention was made at trial of such an activity during 1987.
The Court presumes that petitioner did not conduct such an
activity during 1987.
 - 10 -

At trial, petitioner did not dispute the amounts shown

above. She claimed that she should be allowed additional expense

deductions of $1,000 for depreciation for that portion of the

house that was rented, repairs, and expenses she incurred in

evicting the tenant.

In the case of an individual, section 212 allows a deduction

for all the ordinary and necessary expenses paid or incurred

during the taxable year with respect to property held for the

production or collection of income and expenses for the

management, conservation, or maintenance of property held for the

production of income. Section 167(a)(2) allows as a depreciation

deduction a reasonable allowance for the exhaustion, wear and

tear, and obsolescence of property held for the production of

income. Depreciation is designed to allow the taxpayer to secure

a return for the cost of the property. United States v. Ludey,

274 U.S. 295, 300-301 (1927); Simon v. Commissioner, 103 T.C.

247, 253 (1994), affd. 68 F.3d 41 (2d Cir. 1995). Generally, the

annual depreciation amount is a fraction or percentage of the

depreciable basis of the property computed in accordance with the

method of depreciation used. Sec. 167(c)(1).

Petitioner presented no evidence to establish the amounts

spent for repair of her rental property; she did not describe the

nature of the repairs and presented no receipts or other

documentary evidence to corroborate her testimony. Likewise,
 - 11 -

petitioner presented no evidence regarding the proceedings she

undertook to evict the tenant from her rental property or

receipts or canceled checks to show what amounts were paid to

effect the eviction. With respect to the claimed depreciation,

petitioner presented no evidence to establish her ownership of

the house, the cost of the property and an allocation of that

cost between the land and the building, the useful life of the

property, and the amounts of depreciation claimed on the property

for prior years.

When a taxpayer has insufficient records to substantiate

claimed deductions, this Court is permitted to estimate expenses

where the Court is convinced from the record that the taxpayer

has incurred such expenses. Cohan v. Commissioner, 39 F.2d 540

(2d Cir. 1930). However, to allow a deduction under the "Cohan

rule", there must be some evidence in the record to support the

Court's estimation of the amount that was actually spent or

incurred for the purpose claimed. Williams v. United States, 245

F.2d 559, 560 (5th Cir. 1957). There is insufficient evidence in

this record upon which the Court can make an estimate of the

claimed expenses or depreciation. Therefore, we reject

petitioner's claim for additional expenses in excess of those

allowed by respondent with respect to her rental activity during

1986.

4. Claimed Credits for Amounts Received by Respondent Pursuant
to Levies
 - 12 -

The fourth issue is whether petitioner is entitled to direct

the payment of a portion of the tax shown on her 1987 return by

the application of levied funds held by respondent for

petitioner's account. In addition, petitioner claims further

credit for an additional levy by respondent that is not reflected

on respondent's transcript of petitioner's account.

The Federal income tax return filed by petitioner for 1987

showed a tax of $4,379. As shown on the return, petitioner paid

that tax in the following manner:

Federal income taxes withheld $1,055.97
Levy on bank account 2,899.89
$3,955.86
Amount paid with return 423.14
Total $4,379.00

Petitioner's return included a footnote referencing the levy

shown above as follows: "Dime Bank ($901.11) and Crossland

Savings ($2,899.89)".

In the notice of deficiency, respondent made the following

adjustments to the payment amounts shown above, with the

following explanation:

Adjustment: FEDERAL WITHHOLDING

1987

PER RETURN: + 3,9571
CORRECTED: + 1,073
ADJUSTMENT: + 2,884

Explanation
Your withholding credit(s) was/were adjusted to reflect
amount(s) shown on your Form(s) W-2.
 - 13 -

1 Respondent rounded off this amount to $3,957; however, since
the prepayments claimed by petitioner totaled $3,955.86, the
correct rounded off figure should be $3,956. It follows that the
adjustment should be $2,883 instead of $2,884.

At trial, respondent's examining agent testified that the

above table reflected two adjustments in the prepayments claimed

by petitioner on her return: (1) Respondent increased

petitioner's withheld taxes from $1,055.97 claimed on her return

to $1,073 to reflect an additional $17 in taxes withheld on

petitioner's dividend and interest income that she had not

claimed on her return, and (2) the $2,899.89 levy that was

claimed by petitioner on her return as a payment was not allowed.

Because of these adjustments, $2,884 of the prepayments claimed

by petitioner was disallowed. The agent further testified that,

subsequent to the filing of petitioner's 1987 return, respondent

applied the $2,899.89 to payment of an unpaid 1989 tax assessment

against petitioner.

Petitioner contends that the $2,899.89 should be applied

toward her 1987 tax liability, as she directed on her 1987

return, and that the 1987 deficiency should be reduced

accordingly. Petitioner also claims that the $2,884 disallowed

payment in the notice of deficiency represents another levy by

respondent on another of her bank accounts, and that this $2,884

levy should also be applied to her 1987 tax liability or

otherwise credited or refunded to her.
 - 14 -

The background on this issue is somewhat unusual.

Petitioner and her daughter Sandra held joint title to the

corporate stock addressed earlier in this opinion in connection

with the capital gain issue. Petitioner and Sandra also held

joint title to several interest-bearing accounts in several banks

as well as certificates of deposit. For each of these accounts

and securities, the reports to the Internal Revenue Service (IRS)

by the payers of interest and dividends, as well as the reports

of the gross sales proceeds on the sales of corporate stocks

during 1986, listed Sandra as the recipient or payee of the

reported amounts. However, for the years 1985, 1986, and 1987,

Sandra did not report any of these amounts on her Federal income

tax returns. Notices of deficiency were issued to Sandra for

these 3 years with respect to the unreported amounts. Sandra did

not pay the deficiencies determined in the notices of deficiency

and took no action to challenge the determinations of respondent

in these notices of deficiency. Accordingly, Sandra was assessed

for deficiencies in tax in accordance with the amounts determined

in the notices of deficiency.8 Pursuant to these assessments,

the IRS levied on several of the bank accounts that were in the

joint names of Sandra and petitioner. Sizeable amounts of money

8
The notices of deficiency to Sandra and the assessments
against her were not introduced into evidence. These factual
assertions are based solely on statements to the Court by counsel
for respondent, which the Court construes as factual admissions
for purposes of this case.
 - 15 -

were turned over to the IRS as a result of these levies. At

trial, respondent produced IRS transcripts that reflected the

following amounts realized from these levies:

For the 1986 tax year:

$ 661.05 Sept. 28, 1992
918.29 Sept. 14, 1993
3,084.23 Sept. 17, 1993
54,532.26 July 17, 1991
$59,195.83 Total levies for 1986 tax year

For the 1987 tax year:

$3,823.00 Sept. 17, 1993

The Federal income tax returns of petitioner for 1986 and

1987, respectively, were received and filed by the IRS on

April 16, 1992, and March 4, 1992. Petitioner did not report

either the capital gain realized on the stock sales during 1986

nor any of the interest and dividends received on the stock, bank

accounts, and certificates of deposit that were jointly in her

and Sandra's names. However, sometime after filing her 1986 and

1987 returns (and presumably feeling the sting of the sizeable

levies by respondent), petitioner came forward and made known to

the IRS that she and not Sandra owned the stock sold during 1986,

and that petitioner also owned all of the various bank accounts

and certificates of deposit that were titled jointly with Sandra.

In the resulting audit of petitioner's 1986 and 1987 tax years,

respondent determined the gain realized from the stock sales and
 - 16 -

the interest and dividends received on the bank accounts and

stock was in fact petitioner's income and was not Sandra's

income. As shown earlier, petitioner conceded these

determinations in this case and challenged only the amount of

capital gain realized on the 1986 stock sales.

Although respondent accepted the fact that all of the gains

and income previously attributed to Sandra were attributable to

petitioner, it does not appear that the IRS abated the

assessments against Sandra. Moreover, respondent never released

any of the moneys realized from the various levies. At trial,

counsel for respondent acknowledged that the amounts levied

continued to be held by the IRS but were held for the account of

petitioner rather than Sandra. Counsel for respondent

acknowledged that, if the Court should decide all issues in this

case in favor of respondent, the amounts held by respondent for

the account of petitioner will far exceed the deficiencies in

tax, additions to tax, and interest.9 Until the deficiencies and

additions to tax in this case become final, respondent agrees

9
Counsel for respondent did not advise the Court as to the
legal basis for the levy of property based on an assessment
against a taxpayer respondent acknowledges does not owe the tax
but retains possession of such property for the account of
another taxpayer (petitioner herein) against whom there is no
assessment. There is no indication in the record that the
assessment against Sandra was abated as authorized under sec.
6404, nor is there any indication in the record that petitioner
instituted an action against the IRS under sec. 7426 for the
return of wrongfully levied property.
 - 17 -

that petitioner cannot be assessed and the levied funds cannot be

applied to satisfy the assessments. Moreover, petitioner has not

executed any consent to an assessment and collection of the

amounts determined by respondent in the notice of deficiency for

1986 and 1987.

As noted earlier, when petitioner filed her 1987 return, she

directed on the return that part of the $4,397 tax due should be

paid by application of $2,899.89 that respondent realized from a

levy on Crossland Savings, a bank or financial institution that

held an account for petitioner. Respondent did not allow the

$2,899.89 as a payment of petitioner's 1987 tax liability, and,

on September 17, 1993, that amount was transferred by the IRS out

of petitioner's 1987 account and applied toward payment of a 1989

tax assessment against petitioner. Petitioner contends that the

$2,899.89 constituted a payment of part of her 1987 tax, and the

deficiency determined by respondent is overstated by that amount.

The liability for payment of a tax (or the right to enforce

collection thereof by respondent) arises when the tax is assessed

pursuant to sections 6201 through 6210. At the time petitioner

filed her 1987 income tax return, respondent was holding sizeable

amounts of moneys for petitioner's account, which respondent had

obtained previously through several levies.

No reasons were stated in the notice of deficiency as to why

the $2,899.89 did not constitute a payment of the 1987 tax shown
 - 18 -

on the return filed by petitioner, nor were any reasons stated by

respondent at trial to explain the action taken in disallowing

the $2,899.89 as a payment of the 1987 tax and subsequently

applying this amount to a 1989 tax liability of petitioner.

Section 6151(a) provides generally that, when a return of

tax is required, the person required to make such return shall,

without assessment or notice and demand from the Secretary, pay

such tax to the internal revenue officer with whom the return is

filed and shall pay such tax at the time and place fixed for

filing the return. Section 6342(a) provides generally that any

money realized pursuant to a levy or sale of seized property

shall be applied first against the expenses of the levy and sale,

second against any taxes owing on the property seized and sold,

third against the liability of the delinquent taxpayer in respect

of which the levy was made or the sale conducted. Section

6342(b) provides that any surplus shall, upon application and

satisfactory proof thereof, be credited or refunded by the

Secretary to the taxpayer or persons legally entitled thereto.

Section 301.6342-1(b), Proced. & Admin. Regs., provides that the

delinquent taxpayer is the person entitled to the surplus

proceeds unless another person establishes a superior claim

thereto.

Thus, when petitioner filed an income tax return for 1987

that showed a tax due and owing of $4,379, she was required by
 - 19 -

law to pay that tax on the date the return was filed. That tax

was paid, as shown on the return, by taxes withheld, a cash

payment petitioner submitted with the return, and the amount of

$2,899.89 to be taken from proceeds of a levy that petitioner

identified on her return. At the time petitioner's 1987 return

was filed, there were no other outstanding assessments against

her as to which respondent could have applied the amount at

issue. In view of these facts and circumstances, we conclude

that respondent should have applied the $2,899.89 levy proceeds

identified on the return toward payment of the tax shown on that

return filed by petitioner. Respondent has given no factual

reason and no legal basis for disallowing this amount as a

payment and later applying such amount toward payment of a

subsequently assessed tax liability. Petitioner is sustained on

this issue.

As to the second part of this issue, petitioner contended

that the $2,884 disallowed as a payment by respondent in the

notice of deficiency represented the proceeds of another levy on

a different bank account, and that the $2,884 should be allowed

to her as an additional credit. Petitioner failed to establish

that there was such a levy. Respondent's transcript did not

reflect that such proceeds were realized through levy, other than

the amounts listed earlier in this opinion. Petitioner presented

no evidence from the bank or savings institution from which she
 - 20 -

claims this levy was made showing that amounts were remitted by

such bank or institution to respondent. The Court, therefore,

rejects petitioner's contention that she is entitled to an

additional credit of $2,884 for 1987.

5. Claimed Credits or Refunds of Overpayments

The fifth issue is whether petitioner is entitled to credits

or refunds for overpayments of her 1986 and 1987 taxes. In her

petition, petitioner alleged "I should get a refund. Exact

amount unknown as depends on many variables."

This Court has jurisdiction to determine whether a taxpayer

has made an overpayment of taxes where a notice of deficiency has

been issued, and a timely petition is filed with this Court.

Section 6512(b)(1) provides, in part:

if the Tax Court finds that there is no deficiency and
further finds that the taxpayer has made an overpayment of
income tax for the same taxable year, * * * or finds that
there is a deficiency but that the taxpayer has made an
overpayment of such tax, the Tax Court shall have
jurisdiction to determine the amount of such overpayment,
and such amount shall, when the decision of the Tax Court
has become final, be credited or refunded to the taxpayer.

In this case respondent acknowledged at trial that moneys

were levied and held by respondent for petitioner's account that

will exceed the deficiencies, additions to tax, and interest

determined against petitioner. The moneys held by respondent,

however, came to respondent by way of levy and not by voluntary

payments from petitioner or withholdings of third parties. The

question before us is whether these levied funds constitute a
 - 21 -

"payment". In Fortugno v. Commissioner, 41 T.C. 316 (1963),

affd. 353 F.2d 429 (3d Cir. 1965), this Court held that no

overpayment exists with respect to a particular fund until all or

a part of that fund has been assessed, or until the taxpayer

acquiesces in the proposed deficiency or a part thereof, and the

deposited fund is allocated by respondent to payment of the

agreed deficiencies. In the Fortugno case the taxpayers had

deposited $1 million with the IRS in order to forestall a

jeopardy assessment against them. At the time the deposit was

made, the IRS had made no determination of any deficiencies

against the taxpayers; the taxpayers never requested an

assessment and never intended by their $1 million payment to

waive their right to contest the correctness of any determination

of deficiencies by the IRS. This Court held that, in order for

the taxpayers' remittances to constitute a payment of tax, the

remittances had to be made with the intention of satisfying an

"asserted tax liability". Fortugno v. Commissioner, supra at

322. We concluded that the taxpayers did not make remittances to

the IRS to satisfy an "asserted tax" liability, and, therefore,

the remittances constituted a deposit rather than the payment of

a tax.

Here, other than the $2,899.89 directed by petitioner to be

applied against her 1987 tax, petitioner made no payments to

respondent. The amounts in question were levied pursuant to an
 - 22 -

assessment against another taxpayer. When respondent

acknowledged that no tax was due by the assessed taxpayer, rather

than releasing the levied funds, respondent retained the funds

for petitioner's account. The facts demonstrate that there was

no "asserted tax" liability against petitioner at the time

respondent decided the levied funds would be held for

petitioner's account. Petitioner never agreed to an assessment

nor to a tax liability. The Court concludes, therefore, that

respondent's levy of funds pursuant to an assessment against

another taxpayer, but held by respondent for the account of a

taxpayer who has not been assessed, does not constitute a

"payment" of an asserted tax liability by the taxpayer who has

not been assessed. Consequently, petitioner has not made a

"payment" of taxes with respect to the levied amounts held by

respondent for petitioner's account. Thus we hold that there

were no overpayments for the years in issue. This does not mean,

however, that petitioner is not entitled to a return of the

amount by which the levied funds will exceed petitioner's tax

liabilities after the decision in this case becomes final, and

the amounts due and owing by petitioner are assessed and

satisfied by application of the levied funds in respondent's

possession. Under section 6342 and the regulations thereunder,

any surplus proceeds shall, upon application and satisfactory

proof thereof, be credited or refunded to the person legally
 - 23 -

entitled thereto. Petitioner's recourse is to proceed under

section 6342.

6. Section 6651(a)(1) Additions to Tax

The final issue is whether petitioner is liable for the

additions to tax under section 6651(a)(1) for 1986 and 1987.

The addition to tax under section 6651(a)(1) is imposed

where there is a failure to timely file a tax return, unless it

is shown that the failure to timely file is due to reasonable

cause and not due to willful neglect. The taxpayer bears the

burden of proving that the Commissioner's determination is in

error. Funk v. Commissioner, 687 F.2d 264, 266 (8th Cir. 1982),

affg. T.C. Memo. 1981-506; Ehrlich v. Commissioner, 31 T.C. 536,

540 (1958).

Petitioner's returns for 1986 and 1987 were not timely

filed. Her position is that she could not decide whether she

would report the income attributable to the stocks and interest-

bearing accounts that were titled jointly in the names of

petitioner and Sandra and, for that reason, did not file her 1986

and 1987 returns until 1992. However, petitioner had salary and

wage income in each of these years as to which returns should

have been filed. Whatever doubts petitioner had with respect to

income attributable to property that was titled jointly with

Sandra was not a reasonable cause for her failure to timely file

the 1986 and 1987 returns. Thus, we hold that her failure to
 - 24 -

timely file the returns was not due to reasonable cause, but to

willful neglect.

The addition to tax under section 6651(a)(1) is 5 percent of

the "amount required to be shown as tax on * * * [the] return".

Section 6651(b)(1) provides that, for purposes of computing the

addition to tax, "the amount of tax required to be shown on the

return shall be reduced by the amount of any part of the tax

which is paid on or before the date prescribed for payment of the

tax." The Court has concluded that the levied amounts held by

respondent for petitioner's account did not constitute a payment

of tax. Also, with respect to the $2,899.89 that the Court has

held constituted a payment of petitioner's 1987 tax liability,

that payment does not allow for a reduction of the section

6651(a)(1) addition to tax because it was not made on or before

the date prescribed for payment of the tax; i.e., on or before

April 15, 1988. Therefore, we sustain respondent's determination

as to the section 6651(a)(1) additions to tax for 1986 and 1987.

To reflect concessions and our disposition of the disputed

issues,

Decision will be entered

under Rule 155.