T.C. Summary Opinion 2011-40
UNITED STATES TAX COURT
CYNTHIA SUSAN RUHL AND JONATHAN B. KLINCK, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 14569-09S. Filed April 5, 2011.
Cynthia Susan Ruhl and Jonathan B. Klinck, pro sese.
Kevin W. Coy, for respondent.
GERBER, Judge: This case was heard pursuant to the
provisions of section 7463 of the Internal Revenue Code in effect
when the petition was filed.1 Pursuant to section 7463(b), the
decision to be entered is not reviewable by any other court, and
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year under
consideration.
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this opinion shall not be treated as precedent for any other
case.
Respondent determined a $1,106 income tax deficiency for
petitioners’ 2006 tax year. The parties now agree that the
statutory deficiency is $906.99. Petitioners disagree with
respondent’s computation of the amount of their deficiency in
payment. We must decide whether we have jurisdiction in this
case to consider the amount, if any, of tax due.
Background
Petitioners resided in California when their petition was
filed. Pursuant to an extension, they timely filed their 2006
joint Federal income tax return (2006 return) on October 15,
2007. By a correspondence audit respondent examined petitioners’
2006 return and on December 22, 2008, mailed petitioners a notice
of proposed changes. The proposed changes resulted in a $1,106
increase in tax for 2006 which was to be reduced by an “Amount
Previously Paid” of $500, resulting in $606 of tax due without
considering interest.
In a notice of deficiency (2006 deficiency notice)
respondent determined that there was a $1,106 deficiency in
petitioners’ 2006 Federal income tax. The 2006 deficiency notice
did not reference or give petitioners credit for the $500 “Amount
Previously Paid” that was explained in the December 22, 2008,
notice of proposed changes.
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On their 2006 return petitioners reported an income tax
liability of $61,950, which included $4,414 of alternative
minimum tax (AMT). Petitioners also reported that they were
liable for a $528 addition to tax under section 6654 for failure
to pay estimated tax. Petitioners reported $67,983 in payments
attributable to 2006, as follows:
Tax withholding $24,964
Application of 2005 overpayment 10,019
Estimated tax payments 13,000
Paid with extension to file return 20,000
Total payments 67,983
The net result of their reporting $67,983 in payments and $62,478
in tax and the addition to tax ($61,950 + $528) was a claimed
overpayment of $5,505 which petitioners requested be applied
toward their 2007 estimated tax liability.
Respondent’s accounts agree with petitioners’ reported
payments with the exception of the $10,019 application of the
2005 overpayment. Instead of the $10,019 from the 2005 year,
respondent’s accounts reflected an overpayment of $9,014.70, or
$1,004.30 less, resulting in $66,978.70 in total payments and,
ultimately, resulting in a $5,143.69 overpayment to be credited
by respondent to petitioners’ 2007 estimated payments. When
petitioners’ 2006 return was processed at the Internal Revenue
Service Fresno Service Center, respondent reduced the $4,414 of
AMT reported by petitioners to $3,771, a difference of $643. The
$643 decrease in AMT resulted in respondent’s reducing
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petitioners’ claimed $5,505 overpayment by approximately $360 to
$5,143.69 instead of reducing it by the $1,004.30 difference in
payments between petitioners and respondent.
The parties now agree that respondent’s reduction of
petitioners’ AMT was in error and that respondent should have
assessed the $61,950 of tax petitioners originally reported. The
parties’ disagreement focuses solely upon the $1,004 difference
in payments.
The $1,004 difference derives from a somewhat complex
computation of the amount of overpayment that should have been
applied from petitioners’ 2005 tax year, which, in turn, concerns
applications of other overpayment credits. Petitioners directed
the application of a $6,882.94 overpayment for 2004 as an
estimated payment on their 2005 income tax year. Subsequently,
in a November 21, 2005, notice, respondent notified petitioners
that $1,007.242 of their 2004 overpayment was being applied to an
outstanding tax liability3 for their 2002 tax year. Petitioners
disagreed with respondent’s application of the $1,007.24 as being
in contravention of their direction and claimed the entire
$6,882.94 overpayment from 2004 as a prepayment on their 2005
2
The small difference between the $1,007.24 and the $1,004
that is in dispute is attributable to an unrelated adjustment
about which there is no disagreement.
3
Petitioners do not agree that they had an outstanding 2002
income tax liability. Respondent countered that the period for
seeking a refund of the offset has expired.
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income tax return. Conversely, respondent applied a credit of
only $5,875.70 ($6,882.94 - $1,007.24) from 2004 for use as a
payment in 2005.
After petitioners’ 2006 return was audited, respondent, on
September 22, 2008, sent petitioners an initial notice of
adjustments. The notice contained the following two
noncomputational proposed increases to income: Nonemployee
compensation of $2,500 and interest income of $48. The
adjustments, according to respondent’s computation, resulted in a
$1,527 income tax deficiency along with $142 of interest for a
total amount due of $1,669.
In response to the September 22, 2008, notice, petitioners
on October 24, 2008, sent a letter to respondent along with a
2006 Form 1040X, Amended U.S. Individual Income Tax Return.
Petitioners included the $2,500 of nonemployee compensation in
income and deducted $920 in expenses connected with the income
for a net increase in income of $1,580. Petitioners also
explained that they had included the $48 of interest on their
original 2006 return and they did not include it again on their
Form 1040X for 2006. Petitioners also submitted a $500 payment
with their Form 1040X to pay the self-reported deficiency of
$447, plus interest. Respondent did not process or formally
accept petitioners’ Form 1040X and instead on December 22, 2008,
mailed petitioners a notice of proposed changes that would result
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in a $1,106 income tax deficiency and proposed to allow
petitioners a $500 credit for their payment so that the amount
due including $105 in interest was $711. On March 16, 2009,
respondent issued a notice of deficiency in which he determined a
deficiency of $1,106. After issuing the deficiency notice,
respondent admitted that the $1,106 deficiency was incorrect and
reduced the deficiency by $199.01 to $906.99. The reduction is
attributable to the allowance of expenses against the $2,500 of
nonemployee compensation.
Discussion
The question we consider is a simple one, although the
underlying factual predicate is complex. Ultimately, the
question posed by petitioners is whether respondent was entitled
to disregard their explicit instructions to credit their entire
2004 overpayment as a prepayment for 2005 and, in turn, a
prepayment for 2006. If petitioners’ request had been honored,
they would have no tax due for 2006. If, on the other hand,
respondent was entitled to ignore petitioners’ request, then
petitioners are liable for the $447 unpaid portion of the $906.99
deficiency.
We begin by considering the definition of a deficiency.
Under section 6211(a) a “deficiency” is the amount by which the
tax imposed exceeds the excess of the sum of the amount shown as
tax by the taxpayer upon the return plus the amounts previously
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assessed (or collected without assessment) as a deficiency over
the amount of rebates made. This definition has been described
as the “statutory deficiency”. The parties do not disagree about
the amount of the statutory deficiency. See supra p. 2.
Respondent argues that this Court’s jurisdiction is limited
to redetermining the amount of the income tax deficiency and that
the Court has no authority to consider any payment credits in
connection with the determination of the statutory deficiency.
Petitioners believe that the Court has jurisdiction to
consider any aspect of the 2006 tax year, including the
composition or amount of credits that may affect the amount of
the statutory deficiency that remains unpaid.
Petitioners’ and respondent’s arguments are, in some
respects, generally correct. Before this Court’s authorization
to hear collection matters, the credits, payments, and
collection-related matters were without this Court’s statutory
jurisdiction. With the enactment of sections 6320 and 6330, this
Court acquired jurisdiction to hear collection matters where the
Commissioner issues certain notices and taxpayers file petitions
seeking review of the Commissioner’s proposed collection action.
Unfortunately for petitioners the predicate for collection
consideration is an administrative collection proceeding, a
notice of determination, and a petition to this Court with
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respect to the notice of determination.4 We also agree with
petitioners that it may be inefficient to require two separate
proceedings to resolve the deficiency determination and
collection aspects for the same taxable year. In many collection
proceedings, it is first necessary to decide the amount of any
deficiency before collection issues can arise. In this case,
however, the subject of the collection-related dispute arose
before the deficiency determination. Irrespective of that
distinction, Congress has not empowered this Court to consider
petitioners’ collection matters in this deficiency proceeding.
To reflect the foregoing,
Decision will be entered for
respondent in the amount of the
agreed deficiency.
4
We note, however, that sec. 301.6402-3(a)(6), Proced. &
Admin. Regs., in accord with sec. 6402, authorizes the
Commissioner to override a taxpayer’s instructions to apply
overpayments or credits and to apply them against “any
outstanding liability for any tax”. Accordingly, it is
questionable whether petitioners would be successful in pursuing
respondent’s decision to override their overpayment directions on
their 2004 Federal income tax return.