dissenting:
The question presented in this case is whether the taxpayer may retain a $92,006 refund made by the IRS in error.
The Singletons correctly reported their tax liability for 1987 and requested an appropriate refund. The IRS, however, made á computational error in recording their tax and refunded an additional $92,006 as the result of that error. When the IRS discovered the error over two years later, it sent the taxpayer a supplemental assessment to collect the erroneously refunded money, and the taxpayer and the IRS entered into a payback arrangement. But thereafter, the taxpayer sued the IRS in the district court for the amount of the erroneous refund, claiming that the IRS was not entitled to collect the erroneous refund without first sending them a notice of deficiency, which the IRS did not do, and that it was now too late to correct the procedure, because any further assessment would be beyond the three-year limitation period provided by the Tax Code.
Because I believe the IRS was not required to give notice of deficiency, since no deficiency, as defined by the Code, was involved, I would affirm the IRS’s method of proceeding, and for that reason I would affirm the judgment of the district court.
More than two years after the IRS discovered its refund error, it issued a supplemental assessment under I.R.C. § 6204, correcting its error. It then began with efforts to collect from the Singletons the amounts erroneously refunded. The IRS did not issue a notice of deficiency before issuing the supplemental assessment because the tax reported by the taxpayer was never less than that due under the Tax Code and therefore a deficiency as defined by the Tax Code was never involved.
Both parties agree that, in general, the IRS may recover erroneous refunds resulting from erroneous initial assessments .in one of two ways. First, the IRS may file suit under I.R.C. § 7405, which explicitly authorizes suits to recover erroneous refunds. Second, the IRS may make a “supplemental assessment” to correct the original error in the tax assessment, under I.R.C. § 6204(a) .(authorizing “supplemental assessment whenever it is ascertained that any assessment is imperfect or incomplete in any material respect”). The IRS may then follow administrative or judicial procedures for collecting the amount due.
In this case, the IRS did not file suit under I.R.C. § 7405, apparently because it did not discover the erroneous refund within the two year period after the refund as allowed by the Code. See I.R.C. § 6532(b) (allowing suit under § 7405“only if such suit is begun with*840in two years after the making of such refund”). Instead, the IRS made a “supplemental assessment” under I.R.C. § 6204. The question before us is whether the IRS correctly followed procedures in making such a “supplemental assessment” without first issuing a notice of deficiency. If it did, the IRS may retain the money that has been collected from the Singletons and may collect the remaining sums not yet paid. And if the IRS was not allowed to omit a notice of deficiency, the Singletons must be awarded the money because no additional assessments may now be made. See I.R.C. § 6204(a) (allowing supplemental assessments “within the period prescribed for assessment”); I.R.C. § 6501 (requiring assessments to be made within three years of filing of return, except as otherwise provided). While the question might appear rather straightforward, it quickly plunges us into the dense, technical definitions of the Internal Revenue Code, which I respectfully suggest the majority has misread.
Section 6204 of the Tax Code, which authorizes supplemental assessments, incorporates as'“restrictions on assessment” the provisions of § 6213 (relating to deficiencies). Section 6213, in turn, provides that “no assessment of a deficiency ... and no levy or proceeding in court for its collection shall be made, begun, or prosecuted until such notice [of deficiency] has been mailed to the taxpayer.” I.R.C. § 6213(a). It is on the basis of this section that the majority says that the Tax Code “prohibit[s] the IRS from issuing a supplemental assessment without first issuing a notice of deficiency.” Op. at 838. To make that conclusion, however, the majority must assume that a deficiency existed, or it simply misreads the statute.
The Tax Code does not prohibit supplemental assessments without a notice of deficiency. It prohibits supplemental assessments of a deficiency without notice of a deficiency. See I.R.C. § 6213(a) (“no assessment of a deficiency ... shall be made” without notice (emphasis added)). In this regard, the majority misreads “Section 6213(a) [to] appl[y] to all assessments.” Op. at 838. That section, however, reads only to require a notice of deficiency when there is a deficiency at stake. When no deficiency is involved, as is the case before us, then the notice of deficiency is not required. Accordingly, we must turn to whether a deficiency was involved in this case, recognizing that “deficiency” is a specifically defined term under the Code.
Section 6211 defines deficiency as:
The amount by which the tax imposed by [the Code] exceeds the excess of ... the amount shown as the tax by the taxpayer upon his return ... plus ... the amounts previously assessed (or collected without assessment) as a deficiency over ... the amount of rebates, as defined in subsection (b)(2) made.
I.R.C. § 6211(a). In other words, a deficiency is equal to the Code-imposed tax, minus the taxpayer’s calculated amount of tax and prior deficiency assessments, plus prior rebates. Moreover, “rebate” is also specifically defined by the Code as:
So much of an abatement, credit, refund, or other repáyment, as was made on the ground that the tax imposed by [the Code] was less than the excess of the amount specified in subsection (a)(1) over the rebates previously made.
I.R.C. § 6211(b)(2). In other words, a rebate is money sent to the taxpayer because the taxpayer’s calculation (plus prior deficiency assessments) was greater than the Tax Code liability (minus past rebates). Notably, a “rebate” does not include all of a refund, but only so much of it as is made “on the ground that” the taxpayer overestimated his tax liability (when past deficiencies and rebates are accounted for). In this limitation on the definition inheres the distinction between “rebate” and “non-rebate” refunds.
At the risk of oversimplification, a deficiency, as defined by the Tax Code, is a measurement defined in respect to Tax Code liability. Thus, if the Tax Code imposes liability for an amount greater than reported by the taxpayer, the difference, as adjusted by any rebates, is the deficiency. And a rebate is likewise a Tax Code-liability measurement defined to be the difference between a tax *841payment made to a taxpayer and the Tax Code liability.
In this case, the Tax Code liability of the Singletons was the same as they reported on their tax return, and therefore there was neither a deficiency nor a rebate involved. The IRS refunded $92,006, not because the taxpayer calculated his liability to be greater than the Tax Code imposed it, but because the IRS made a computational error. The IRS’s refund of $92,006 was thus a “non-rebate refund” for which no notice of deficiency is required. The limitation imposed by I.R.C. § 6213(a), requiring a notice of deficiency, applies only when there is an “assessment of a deficiency.” (Emphasis added).
For these reasons, I respectfully submit that the IRS’s position reflects, not an “attempt to bypass congressionally-mandated procedures,” see op. at 838, but a recognition that Congress mandated a notice of deficiency only with respect to the assessment of a deficiency.
While it would have been much simpler if the IRS had discovered its error within the two years and therefore been able to file suit under I.R.C. § 7405, the fact that it discovered the error within three years entitled it to file a supplemental assessment without giving a notice of deficiency because a deficiency was not involved. Accordingly, following its assessment, it was entitled to collect the erroneously refunded money.
For these reasons, I would affirm the judgment of the district court.