T.C. Memo. 2006-165

UNITED STATES TAX COURT

ALFONSO J. AND ELENA L. DIAZ DEL CASTILLO, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 1514-05. Filed August 14, 2006. 

Alfonso J. and Elena L. Diaz Del Castillo, pro sese.

Scott A. Hovey, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

GERBER, Judge: Respondent determined a $2,327.40 deficiency

in petitioners’ 2001 Federal income tax. Respondent’s

determination was based on the disallowance of a deduction

claimed on petitioners’ 2001 joint Federal income tax return for

an $8,448 charitable contribution carryover. Petitioners

contend, alternatively, that they are not liable for the
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deficiency under any of the following three theories: (1) The

statutory notice of deficiency is invalid; (2) respondent is

contractually estopped from determining a deficiency for the 2001

tax year; and (3) the manufacturer of the software used by

petitioners to prepare their return was responsible for the

deficiency, and petitioners should be allowed to interplead and

make the software manufacturer a responsible party in this

proceeding. 

FINDINGS OF FACT

Petitioners resided in Pomfret, Maryland, at the time that

their petition was filed in this proceeding. Petitioners timely

filed a joint Federal income tax return for 2001 that they

prepared using Intuit TurboTax software (Turbotax). The Turbotax

software programs are designed so that a taxpayer’s responses to

questions, ostensibly, are automatically placed onto approved

forms, and the tax due or overpaid is automatically computed. 

The promotional material on the software packaging states that it

“double-checks for overlooked deductions, missing information and

entries that could trigger an audit * * * [and] [e]ven gives you

personalized advice as you go.” By this methodology, petitioners

provided answers to Turbotax’s questions and were able to produce

and print a copy of their return, which they signed and submitted

to respondent for filing. 
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Petitioners’ Turbotax-generated Federal return contained an 

$8,448 deduction of a charitable contribution carryover on line

17 of Schedule A, Itemized Deductions, labeled “Gifts to Charity”

“Carryover from prior year”. Petitioners were not entitled to

deduct an $8,448 charitable contribution carryover from prior

years. Petitioners believe that the $8,448 on line 17 was caused

by faulty software in the Turbotax product. Approximately 2

years after petitioners’ 2001 return was filed, on May 13, 2004,

respondent sent a letter to petitioners notifying them of a 2001

income tax examination solely involving their claimed “Gifts to

Charity.” In that same letter, respondent advised of the

intention to disallow their deduction of an “amount you claimed

on Line 17 of Schedule A as a carryover contribution from a prior

year.”

Subsequently, respondent, in a July 7, 2004, letter,

provided petitioners with an examination report (30-day letter)

explaining the proposed changes to petitioners’ 2001 return. The

first page of the July 7, 2004, transmittal letter advised

petitioners that they owed income tax in the amount of $1,153.23.

On Form 4549, Income Tax Examination Changes, however, the amount

of tax due was shown as $2,327.40. On two other pages of the 30-

day letter, the tax due was also shown as $2,327.40, along with

interest computed to August 6, 2004, of $201.37, for total tax

and interest of $2,528.77. 
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In response to respondent’s July 7, 2004, 30-day letter,

petitioners sent a letter, dated July 24, 2004, along with their

check in the amount of $1,153.23 to respondent. In that letter,

petitioners explained that the $8,448 claimed contribution

carryover deduction was an error attributable to Turbotax

software. In a September 7, 2004, letter, respondent answered

petitioners’ July 24 letter, and among other matters, advised

petitioners that the changes to their 2001 tax return resulted in

a total tax obligation (apparently including interest to August

6, 2004) of $2,528.77. Respondent, on November 5, 2004, sent

petitioners a statutory notice of deficiency for their 2001 year

determining an income tax deficiency in the amount of $2,327.40. 

Petitioners thereafter commenced this proceeding. 

OPINION

The controverted item in this case is an $8,448 contribution

carryover deduction. Petitioners do not contend that they were

entitled to that deduction. Instead, they make a collateral

attack, contending, alternatively, that respondent’s deficiency

notice was invalid, or that respondent agreed to a lesser

deficiency, or that the tax preparation software manufacturer is

liable. 

Petitioners’ first argument is that the 2001 notice of

deficiency is invalid. Petitioners argue that the notice has

errors and does not reflect the correct amount of income tax
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1 It is not clear how respondent treated the $1,153.23

payment made by petitioners prior to issuance of the notice of

deficiency. It appears that the $1,153.23 was not treated as an

assessable payment of tax because the notice determines a

$2,327.40 deficiency. See Rev. Proc. 2005-18, 2005-1 C.B. 798. 

In any event, respondent has acknowledged petitioners’ payment,

and the Court expects that petitioners will not be required to

pay more than $2,327.40, plus any applicable interest. 

deficiency. In particular, petitioners argue that the $2,327.40

income tax deficiency determined in the notice differs from the

$1,153.23 referenced in the 30-day letter. That discrepancy,

according to petitioners, makes the deficiency notice unclear,

inaccurate, and invalid.1

The basic minimum requirements for a notice of deficiency

are the following: (1) It must advise a taxpayer that respondent

has determined a deficiency for a particular year; (2) it must

specify the amount of the deficiency; and (3) it must provide

sufficient information to permit the computation of the

deficiency. Portillo v. Commissioner, 932 F.2d 1128, 1132 (5th

Cir. 1991), affg. in part and revg. in part T.C. Memo. 1990-68. 

The notice of deficiency sent to petitioners is in no way

contradictory or unclear on its face. It meets or exceeds the

minimum standards and provides petitioners with the amount, year,

and means to compute the deficiency. 

Petitioners are correct in their observation that the

various tax liability amounts set forth in the 30-day letter are

inconsistent. They are also correct in observing that the
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amounts on the first page of the 30-day letter and the deficiency

notice differ. Petitioners do not argue or contend that the

$2,327.40 determined in the deficiency notice is not the correct

income tax deficiency that would result based upon the

disallowance of the claimed $8,448 contribution carryover

deduction. 

Respondent counters that the $2,327.40 income tax deficiency

set forth in the deficiency notice constitutes a valid

determination under the statute. Respondent points out that the

deficiency notice is the jurisdictional document upon which this

proceeding is based. Additionally, respondent points out that no

agreement was reached with petitioners regarding the amount of

deficiency attributable to the adjustment disallowing the $8,448

that was erroneously claimed as a contribution carryover. 

Respondent admits that the $1,153.23 amount stated on the first

page of the 30-day transmittal letter that forwarded the

examination report to petitioners was incorrect but nevertheless

contends that it is not binding.

We agree with respondent. The notices that may precede the

statutory notice of deficiency during the administrative portion

of the controversy are generally irrelevant to establishing the

deficiency amount. See Greenberg’s Express, Inc. v.

Commissioner, 62 T.C. 324 (1974). It is the determination in the

deficiency notice that constitutes respondent’s determination or
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position from which a taxpayer may appeal to this Court. 

Accordingly, we hold that the deficiency notice is adequate and

valid. 

Petitioners’ second argument is that respondent is limited

to assessing or collecting the $1,153.23 amount stated on the

first page of the 30-day transmittal letter. In that regard,

petitioners correctly point out that respondent stated, albeit

erroneously, that $1,153.23 was the liability that resulted from

the $8,448 correction to their claimed contribution deduction. 

In addition, petitioners make the point that they, in reliance on

respondent’s statement, paid the $1,153.23 amount. Those events,

contend petitioners, bind the parties to the $1,153.23.

Respondent agrees with petitioners’ characterization of the

circumstances and counters that those circumstances do not rise

to the level of a binding agreement or form the basis for an

estoppel. Respondent makes clear that in response to

petitioners’ payment of the $1,153.23, he sent a letter followed

by a deficiency notice advising that petitioners’ income tax

deficiency was $2,327.40. Respondent also points out that the

Form 4549, forwarded with the 30-day letter and seeking

petitioners’ consent to the tax liability, was not executed or

returned by petitioners. 

We agree with respondent that payment of the $1,153.23 set

forth in the 30-day letter does not, by itself, rise to the
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2 Section references are to the Internal Revenue Code as

amended and in effect for the period under consideration. 

status of constituting a binding agreement between petitioners

and respondent. Nor did these events provide the basis for an

estoppel that would have affected the parties’ rights. Section

71212 permits the Commissioner to enter into binding closing

agreements regarding the amount of a taxpayer’s income tax

liability. A closing agreement, as provided in section 7121, is

the prescribed method for the Commissioner to bind himself to a

particular tax liability, and other approaches are generally not

approved by the courts. See, e.g., Estate of Meyer v.

Commissioner, 58 T.C. 69 (1972); see also sec. 301.6213-1(b)(3),

Proced. & Admin. Regs.

Respondent’s error in the 30-day letter, followed by

petitioners’ payment, by itself did not result in a meeting of

the minds or formal agreement. This is especially so here, where

respondent clearly communicated the correct amount of the income

tax deficiency in subsequent, but contemporaneous, correspondence

and in the notice of deficiency. Accordingly, we hold that

respondent is not contractually bound to the lesser amount shown

on the first page of the 30-day letter. 

Petitioners’ final argument, in essence, is that the

software manufacturer that produces and sells Turbotax is at

fault for any tax deficiency determined in this case. 
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3 Procedurally, petitioners amended their petition in an

attempt to interplead the software manufacturer into this income

tax deficiency proceeding. Petitioners also attempted to call an

officer of the software manufacturer as a witness. Ultimately,

petitioners were not permitted to interplead the manufacturer.

4 Respondent did not determine any penalties against

petitioners with respect to their 2001 tax year. 

5 If such penalties were in issue, we note that this Court

does not have jurisdiction over them. 

Petitioners believe that software flaws in the Turbotax program

they used to prepare their return caused the erroneous $8,448

contribution carryover deduction.3 Petitioners appear to base

their theory on Commissioner’s Rev. Rul. 85-189, 1985-2 C.B. 341,

which considers the question of who is an “income tax return

preparer” for purposes of section 7701(a)(36). In addition, that

revenue ruling discusses software developers’ potential for

liability under tax return preparer penalty provisions. See

secs. 6107(a), 6695(a).4 Respondent counters that this case does

not involve preparer penalties5 and that the software

manufacturer is not relevant to the resolution of this income tax

deficiency case. Finally, respondent points out that the only

issue we consider is whether petitioners are entitled to an

$8,448 contribution carryover deduction. 

Petitioners have not asserted that they are entitled to the

$8,448 contribution deduction. The focus of their argument is

that the software manufacturer should be responsible because of

petitioners’ belief that the deficiency was caused by Turbotax. 
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6 We note that it is petitioners’ belief that the software

caused the error on their return. The record in this case does

not support or reject petitioners’ belief.

7 As discussed, we note that respondent has acknowledged

petitioners’ payment of $1,153.23 in response to respondent’s 30-

day letter. Accordingly, the amount of tax due from petitioners

will be less than the determined deficiency.

Petitioners’ argument must fail in this proceeding because our

jurisdiction is limited to deciding whether petitioners are

liable for the deficiency determined by respondent. This Court

is without jurisdiction to join unrelated third parties to an

individual taxpayer’s deficiency proceeding under the

circumstances of this case.6 

Accordingly, we hold that petitioners are liable for the

$2,327.40 income tax deficiency for their 2001 tax year.7 To

reflect the foregoing,

Decision will be entered

for respondent.