T.C. Memo. 2001-62
UNITED STATES TAX COURT
NEWTON K. AND KIMBERLY A. MCKOIN, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 4812-00. Filed March 15, 2001.
Newton K. McKoin, pro se.
Alan Friday, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
ARMEN, Special Trial Judge: Respondent determined a
deficiency in petitioners’ Federal income tax for the taxable
year 1997 in the amount of $1,950.
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After a concession by petitioner Newton K. McKoin,1 the only
issue for decision is whether certain payments made by petitioner
Newton K. McKoin pursuant to an installment payment agreement may
be offset against the deficiency in issue herein. We hold that
they may not.
FINDINGS OF FACT
Virtually all of the facts have been stipulated, and they
are so found.
Petitioners resided in D’Iberville, Mississippi, at the time
that their petition was filed with the Court. References to
petitioner are to Newton K. McKoin.2
A. Petitioner’s Tax Liability for the Year in Issue
Petitioner, an attorney, timely filed a Federal income tax
return, Form 1040, for 1997. On his return, petitioner reported
income tax in the amount of $2,381 and claimed total payments in
the amount of $6,924.3 Accordingly, petitioner claimed an
1
Petitioner Newton K. McKoin does not dispute the
deficiency in income tax determined by respondent.
2
Petitioner Kimberly A. McKoin (Mrs. McKoin) did not appear
at trial and did not execute the stipulation of facts.
Accordingly, the Court will dismiss this action as to her
pursuant to respondent’s oral motion to dismiss for lack of
prosecution. See Rule 123(b), Tax Court Rules of Practice and
Procedure. However, decision will be entered against Mrs. McKoin
consistent with the decision entered against petitioner.
3
This total consisted of (1) income tax in the amount of
$76 withheld from Mrs. McKoin’s wages and (2) estimated tax paid
by petitioner in the amount of $6,848.
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overpayment in the amount of $4,543.
In processing petitioner’s 1997 return, respondent
discovered mathematical or clerical errors that served to
understate petitioner’s reported tax liability, and therefore
overstate petitioner’s overpayment claim, by $118. After
correction of these errors, the overpayment claim was reduced to
$4,425.
By notice dated June 1, 1998, respondent advised petitioner
that the overpayment claimed on his 1997 return (corrected as
described above) had been applied to petitioner’s outstanding tax
liability for 1987.
On February 4, 2000, respondent sent petitioner a notice of
deficiency determining a deficiency in his Federal income tax for
1997 in the amount of $1,950. The deficiency was based on
respondent’s determination that petitioner had failed to report
on his 1997 return: (1) Gambling income in the amount of $6,800,
(2) interest income in the amount of $315, and (3) taxable Social
Security benefits in the amount of $5,878.
Shortly after respondent sent the notice of deficiency,
petitioner submitted Form 1040X, Amended U.S. Individual Income
Tax Return, for 1997. In the Form 1040X, petitioner admitted
that he had failed to report the amounts determined by respondent
in the notice of deficiency and that his total income tax
liability for 1997 was $4,451, an amount consistent with
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respondent’s overall determination. Further, in the Form 1040X,
petitioner claimed an overpayment in the amount of $2,373, which
he calculated by subtracting total tax of $4,451 from total
payments of $6,924.4
B. Petitioner’s Tax Liabilities for 1983 Through 1990
Prior to 1992, petitioner entered into an installment
payment agreement with respondent. This agreement, which was
memorialized using Form 433-D, Installment Agreement, pertained
to income taxes owed by petitioner for the taxable years 1983
through 1990 in the amount of approximately $59,300. The
agreement has remained in effect continuously through the date of
submission of this case.
As originally executed, the Installment Agreement obligated
petitioner to pay 10 percent of his monthly gross receipts to
respondent. In or about 1992, the agreement was amended to
obligate petitioner to pay 20 percent of his monthly gross
receipts to respondent. The agreement provides that amounts paid
by petitioner will “be applied to current year’s estimated tax.”
The Installment Agreement includes a number of conditions.
Among these conditions are the following three:
All Federal taxes that become due during the term of
this agreement must be paid on time.
Any Federal or State refunds that might otherwise be
4
Mathematically, the amount of the claimed overpayment
should have been $2,473.
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.due will be applied to this liability until it is
satisfied.
If the Conditions of this Installment Agreement are not
met, it will be terminated and the entire tax liability
may be collected by levy on income, bank accounts, or
any other assets, or by seizure of property.
OPINION
Petitioner concedes that there is a deficiency in his income
tax for 1997 as determined by respondent in the notice of
deficiency. However, petitioner contends that he does not owe
the deficiency because he previously paid it. In this regard,
petitioner relies on language in the Installment Agreement that
obligates him to pay 20 percent of his monthly gross receipts to
respondent “to be applied to current year’s estimated tax.”
Petitioner construes this language to mean that current year
payments made pursuant to the Installment Agreement are allocable
to current year tax liability, regardless of when such liability
may ultimately be determined, and only then may any excess be
applied to an outstanding liability for some other year.
We disagree with petitioner’s interpretation of the
Installment Agreement. In our view, petitioner’s interpretation
is strained, if not unreasonable, and subverts the statutorily
established estimated tax payment procedure.
The Installment Agreement expressly requires that “All
Federal taxes that become due during the term of this agreement
must be paid on time.” Towards that end, the agreement obligates
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petitioner to pay 20 percent of his monthly gross receipts to
respondent to “be applied to current year’s estimated tax.”
Payment of estimated tax by a taxpayer constitutes payment on
account of the taxpayer’s current year tax liability as reported
by the taxpayer on the taxpayer’s return. Sec. 6315; see sec.
6654.5 See also In re Ripley, 926 F.2d 440, 441-442 (5th Cir.
1991), for a brief, general discussion of the estimated tax
payment procedure. Once such reported liability is paid, any
excess payment constitutes an overpayment, which may be refunded
to the taxpayer or applied by the Commissioner to any outstanding
liability owed by the taxpayer. See sec. 6402. In this regard,
the Installment Agreement expressly authorizes respondent to
apply any refund that might otherwise be payable to any
outstanding liability covered by the agreement.
Here, petitioner made payments pursuant to the Installment
Agreement in 1997 that respondent properly treated as payments of
estimated tax for 1997. Petitioner then filed his 1997 return
and claimed an overpayment because estimated tax payments (plus
withheld income tax) exceeded his reported tax liability.
Respondent allowed the claim (after adjusting the amount to
correct for certain mathematical or clerical errors made by
petitioner). Then, acting pursuant to section 6402, respondent
5
All section references are to the Internal Revenue Code in
effect for 1997, the taxable year in issue.
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applied the overpayment to petitioner’s outstanding liability for
1987. Respondent’s actions were fully consistent with the
Installment Agreement, as well as with operative provisions of
statutory law. See Terry v. Commissioner, 91 T.C. 85, 87 (1988)
(after applying an overpayment to a taxpayer’s liability for
another taxable year, the Commissioner is not precluded from
subsequently determining a deficiency for the taxable year in
respect of which the overpayment was originally claimed and
allowed).
In view of the foregoing, we hold for respondent.6
In order to give effect to our disposition of the disputed
issue, as well as petitioner’s concession and respondent’s oral
motion to dismiss for lack of prosecution as to petitioner
Kimberly A. McKoin,
An appropriate order of dismissal
and decision will be entered.
6
In so holding, we are mindful of sec. 6512(b)(4), which
serves to deny jurisdiction to the Court "to restrain or review
any credit or reduction made by the Secretary under section
6402." Savage v. Commissioner, 112 T.C. 46, 49 (1999).