T.C. Memo. 1995-588

UNITED STATES TAX COURT

WILLIAM D. COLBURN, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 12817-93. Filed December 12, 1995.

Charles L. Abrahams, for petitioner.

Roy Wulf, Michael McMahon, Lisa Kuo, for respondent.

MEMORANDUM OPINION

SCOTT, Judge: Respondent determined a deficiency in

petitioner's Federal income tax for the taxable year 1989 in the

amount of $10,998.
This case is before us on respondent's motion for summary

judgment filed February 6, 1995, and petitioner's motion for

summary judgment filed March 3, 1995. Respondent in her motion

asks us to determine that petitioner failed to include in his

reported income for 1989, the amount of $32,811 of interest paid

to him in connection with a refund of an overpayment of tax for

1966. Petitioner asks us to determine that he properly reported

on his 1989 income tax return his interest income in connection

with the refund of his 1966 income tax.

Also pending is petitioner's motion to amend his petition,

which the parties agreed should be denied if respondent's motion

for summary judgment is granted and, therefore, should be acted

upon after action on respondent's motion for summary judgment.

The parties have stipulated all facts that either party

considers necessary for a disposition of the motions for summary

judgment. All the stipulated facts are found accordingly.

At the time of the filing of the petition in this case,

petitioner resided in San Diego, California. Petitioner timely

filed his Federal income tax return for the taxable year 1989

with the Internal Revenue Service Center in Ogden, Utah. On his

1989 return, petitioner reported $104,635 of interest income.

An assessment in the amount of $157,494.09 for income taxes

and $40,542.40 in restricted interest for the taxable year 1966

was made to petitioner's account on July 28, 1971. On July 30,
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1 All section references are to the Internal Revenue Code in effect for

the year in issue, and all Rule references are to the Tax Court Rules of

Practice and Procedure, unless otherwise indicated.

1973, a $6 fee for collection costs (lien fee) was assessed on

petitioner's account for the taxable year 1966.

On September 18, 1973, petitioner made a payment to the

Internal Revenue Service (IRS) in the amount of $218,292.77 on

his 1966 tax liability to satisfy the Federal tax liens on land

he owned in Nevada. On October 15, 1973, respondent made a

refund to petitioner in the amount of $20,300.21, of which $49.93

was an interest overpayment. 

In March 1971 respondent issued a notice of deficiency to

petitioner for the taxable year 1966 in which it was determined

that petitioner was liable for additions to tax pursuant to

sections 6651(a)(1) and 6653(a).1 Petitioner litigated his 1966

tax liability in this Court, docket No. 3625-71. On December 6,

1973, over the objection of respondent, petitioner was permitted

to amend his petition. Petitioner states that he amended his

petition to bring the issue of the 1966 tax liability into the

Tax Court proceeding.

An opinion was filed by this Court on February 3, 1977,

Colburn v. Commissioner, T.C. Memo. 1977-29, and pursuant to the

opinion a decision was entered under Rule 155 on July 22, 1977. 

In accordance with the opinion, the decision set forth an

overpayment of tax due petitioner for the year 1966 in the amount
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of $81,054.21, an addition to tax for 1966 due from petitioner

under section 6651(a) in the amount of $33,301.12, and an

addition to tax for the year 1966 in the amount of $6,660.22 due

from petitioner under section 6653(a). The additions to tax were

timely assessed on December 12, 1977.

Petitioner appealed our decision to the Court of Appeals for

the Ninth Circuit. The Court of Appeals affirmed our decision in

an unpublished opinion dated March 19, 1981.

During the first week of the calendar year 1988, the IRS

master file account for petitioner was credited $39,961 (the

total additions to tax determined by this Court for 1966) in an

entry coded "608". Code 608 means "statute expiration". The

entry was posted effective as of January 15, 1979. During the

fiftieth week of the calendar year 1989, the IRS master file

account for petitioner was debited $39,961 in an entry coded

"609". Code 609 means "reversal of statute expiration". This

entry was also posted effective as of January 15, 1979.

Petitioner did not receive the amounts owed to him by

respondent for 1966 within the time he had expected to receive

the refund. In October 1988 petitioner engaged an attorney to

expedite the issuance of the payment. On November 13, 1989,

respondent issued a check to petitioner in the amount of

$186,177.79. Respondent computed the amount of the payment made

to petitioner as follows:

Tax liability $76,439.88
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Interest assessed as of 9/18/73 32,903.58

Penalties and lien fee assessed 39,967.34

 Total liability 149,310.80

Petitioner's payment on 9/18/73 218,292.77

Less refund on 10/15/73 (20,250.28)

Net payments 198,042.49

 Total overpayment 48,731.69

Interest on overpayment 137,446.10

 Total payment to petitioner 186,177.79

Petitioner contends that respondent was not entitled to

offset the additions to tax against the overpayment, on the basis

that the period of limitations for collection of the additions to

tax had expired before November 13, 1989, when petitioner states

the collection of the additions to tax were made. Petitioner

computed the interest reported on his return as follows:

Total payment to petitioner 186,177.79

Less overpayment per decision (81,054.21)

Balance 105,123.58

Math error (488.58)

Interest reported per return 104,635.00

On March 17, 1993, respondent mailed a notice of deficiency

to petitioner for the year 1989, which stated that petitioner

received $137,446 in interest income in the taxable year 1989,

rather than the amount of $104,635 of interest income reported by

petitioner on his Federal income tax return for 1989.
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2 SEC. 6502. COLLECTION AFTER ASSESSMENT.

(a) Length of Period.--Where the assessment of any tax

imposed by this title has been made within the period of

limitation properly applicable thereto, such tax may be collected

by levy or by a proceeding in court, but only if the levy is made

or the proceeding begun--

(1) within 6 years after the assessment of the

tax, or

(2) prior to the expiration of any period for

collection agreed upon in writing by the Secretary and the

taxpayer before the expiration of such 6-year period (or, if

there is a release of levy 

under section 6343 after such 6-year period, then

before such release).

The period so agreed upon may be extended by subsequent agreements

in writing made before the expiration of the period previously

agreed upon. If a timely proceeding in court for the collection

of a tax is commenced, the period during which such tax may be

collected by levy shall be extended and shall not expire until the

liability for the tax (or a judgment against the taxpayer arising

from such liability) is satisfied or becomes unenforceable. 

Section 6502(a)2 as applicable to this case provides that

where assessment of a tax has been made within the period of

limitations applicable thereto, such tax may be collected by levy

or by a proceeding in court, but only if the levy is made or the

proceeding begun within 6 years after the assessment (with an

exception not here applicable). If, as petitioner contends,

"collection" of the additions to tax was made on November 13,

1989, the period of limitations provided for in section 6502(a)

would have expired before the time of collection.

The facts here are clear that the payment which gave rise to

the overpayment to petitioner was made on September 18, 1973,

which was before the assessment of the additions to tax for 1966
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3 It may be noted that the lien fee of $6 was paid after it was

assessed.

on December 12, 1977, pursuant to our decision entered July 22,

1977. At the time of the assessment of the additions to tax for

1966, there was no amount to collect since the overpayment of tax

we had determined was in excess of the additions to tax we

determined to be due from petitioner. Therefore, when the

assessment of the additions to tax for 1966 was made respondent

had collected for 1966 tax and additions to tax in excess of the

amount due from petitioner for that year.

Neither party has cited a case directly bearing on

petitioner's contention that payment prior to assessment is not a

collection of the tax later assessed.3 A case with facts similar

to those here present is Hefti v. I.R.S., 8 F.3d 1169 (7th Cir.

1993). However, in that case the taxpayers were claiming a

refund of the tax they paid prior to its assessment on the ground

that such amount was a "deposit" for which no valid assessment

had been made.

The facts in the Hefti case were that in 1984 the IRS issued

a notice of deficiency to the taxpayers (the Heftis) for their

taxable years 1980 through 1982. The Heftis petitioned this

Court for redetermination of those deficiencies, and the case was

tried and decided by this Court in favor of the IRS. The

decision of this Court was affirmed by the Court of Appeals for

the Eighth Circuit. Hefti v. Commissioner, T.C. Memo. 1988-22,
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affd. without published opinion 894 F.2d 1340 (8th Cir. 1989). 

On October 4, 1988, while the case was on appeal, the IRS

received a check from the Heftis in the amount of $155,500 which

the IRS applied to the Heftis' 1980 through 1982 tax liability. 

On December 5, 1988, which was prior to the affirmance of our

opinion by the Court of Appeals, the IRS assessed the amount of

the deficiencies and additions to tax for the tax years 1980

through 1982 in accordance with the decision of this Court. 

Approximately 1 year after having made the $155,500 payment to

the IRS, the Heftis filed claims for refund for the years 1980

through 1982 asserting that the IRS had failed to make lawful

assessments of the tax for the years 1980 through 1982. A few

weeks after the claims were filed, the IRS denied the claims. 

The District Court ruled for respondent that the claims were

properly denied, and the Court of Appeals for the Seventh Circuit

affirmed that decision, holding that the assessments made by the

IRS on December 5, 1988, while an appeal from the decision of

this Court was pending in the Court of Appeals for the Eighth

Circuit, were valid assessments made within the appropriate time

after a decision by this Court and prior to that decision's

becoming final. The court pointed out that the Heftis argued

that their case was not a typical case alleging an overpayment

and seeking a refund; rather they asserted that it involved a

demand by them for a return of "deposits" based on the failure of

the Government to assess properly their tax liabilities. The
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court held that on December 5, 1988, when assessments of the

Heftis' tax liabilities for the years 1980 through 1982 were

made, the assessment period had not expired. The court sustained

the District Court's holding for the IRS on a summary judgment

motion.

In the instant case, petitioner does not argue, as did the

Heftis, that the assessment made in accordance with a decision by

this Court after a payment of the tax liability had been made was

not valid, but argues that the payment made before the assessment

was not a valid collection. The Hefti case indicates, however,

that a tax payment made by a taxpayer prior to an assessment may

be a proper collection of the tax. 

It is apparent that the provisions of section 6502(a) with

respect to collection after assessment contain the assumption

that there is an unpaid amount at the time of assessment. In

effect, petitioner's argument here that collection has not been

made within the period provided under section 6502(a) is an

argument that the $218,292.77 paid by petitioner on his 1966 tax

liability was a deposit and not a payment of 1966 taxes and

additions to taxes. Petitioner makes this argument even though

he stipulated as a fact that "on September 18, 1973, petitioner

made a payment in the amount of $218,292.77 on his 1966 tax

liability." Clearly, if petitioner made a payment on his tax

liability and thereafter the tax was properly assessed, as is

also stipulated here, there is nothing to be collected after the
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assessment, and petitioner's argument as to collection being

barred under section 6502(a) in this case must fail, as did the

taxpayers' argument in the Hefti case that the payment before

assessment was a deposit.

There are numerous cases involving whether an amount sent to

the IRS prior to an assessment of tax is a payment of that tax or

is merely a deposit. See Blatt v. United States, 34 F.3d 252

(4th Cir. 1994); Risman v. Commissioner, 100 T.C. 191 (1993). 

Generally, cases involving whether an amount sent to the IRS is a

payment or a deposit present a factual question of whether there

was a proposed tax that the amount sent to the IRS was intended

to discharge. However, these cases indicate that the latest date

of payment of the tax is the date of the assessment. The case of

Ford v. United States, 618 F.2d 357, 360 (5th Cir. 1980),

contains an analysis of cases involving whether amounts sent to

the IRS prior to assessment of a tax are payments at the time

received by the IRS or at the time of the assessment of the tax. 

However, inherent in the discussion in Ford v. United States,

supra, is the conclusion that when the tax is assessed, an amount

that may have been a deposit becomes a payment. Under the

rationale of this long line of cases, if petitioner did not make

payment of his 1966 additions to tax on September 18, 1973, when

he sent a check for $218,292.77 to the IRS, he made the payment

on December 12, 1977, when the additions to tax were assessed.
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Petitioner in his brief cites cases dealing with the time

the Government has for collection of a tax after its assessment.

Petitioner concludes from these cases that "there has to be a

collection of tax either by seizure of petitioner's property or

the sum taken from his refund when issued." It is clear that the

cases cited by petitioner are cases in which prior payment of the

tax had not been made. Apparently petitioner is claiming that

the handling by the Government in the computation of his

overpayment of income tax was effectively a setoff of one tax

against another. As is clear from the facts here stipulated, the

refund to petitioner results from the determination of the amount

of overpayment of income tax due to petitioner for the taxable

year 1966. Section 6659 (as in effect for 1977) provided that

additions to tax shall be paid upon notice or demand and shall be

assessed, collected, and paid in the same manner as taxes, and

that any reference to "tax" imposed by this title shall be deemed

also to refer to additions to tax. There are cases involving

various factual situations that indicate that where a deficiency

for 1 year has been offset against a refund due for another year,

or a different tax, such as a gift or estate tax, is offset

against an overpayment of income tax, the payment date of the

offset tax may be considered to be the date of the offset. We

are not faced with that situation, since here what respondent did

was not technically an offset, but merely the computation of the

amount of overpayment of income tax due petitioner for the year
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1966. In Kingston Prods. Corp. v. United States, 177 Ct. Cl.

471, 368 F.2d 281, 286, 287 (1966), there is a lengthy discussion

of the difference in an "offset" which involves a different

year's tax or a different tax and a computation of tax for a

single taxable year. The court there pointed out that where a

single tax for a single tax year is involved, certain adjustments

will result in an increase in tax and other adjustments a

decrease, with the net effect of all the adjustments resulting in

either an overpayment or a deficiency, as the case may be. In

that case, it was concluded that the principle of "offset" being

date of payment had no application, since the facts in that case

showed no offset of a deficiency against an overassessment, but

the offsetting of an upward adjustment against a downward

adjustment to a single tax for a single tax year. The court

concluded that if such action could be designated as "offset",

that type of "offset" would clearly not constitute a credit or

payment within the meaning of the relevant statutes. See

sections 6402(a), 6407. Cases dealing with collection on which

petitioner relies are factually distinguishable from the present

case because here petitioner paid the tax in full before it was

assessed.

We, therefore, conclude that since payment of the additions

to tax had been made at the time that these additions to tax were

timely assessed on December 12, 1977, there was no amount to be

collected when the Government computed an overpayment due to
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petitioner in accordance with the decision of this Court and

issued a check to petitioner on November 13, 1989, in the amount

of $186,177.79. Since the "penalties and lien fee" of $39,967.34

were timely assessed and collected, petitioner's reliance on the

period of limitations in section 6502(a) is misplaced, and

petitioner has failed to show that respondent's computation of

the interest includable in the refund payment made to petitioner

for the year 1966 under the decision of this Court involving that

year is incorrect.

Respondent further argues that, in any event, her right to a

setoff is not restricted by the period of limitations. In Lewis

v. Reynolds, 284 U.S. 281, 283 (1932) (quoting Lewis v. Reynolds,

48 F.2d 515, 516 (10th Cir. 1931), the Supreme Court stated with

regard to the Commissioner's power to make a setoff after the

expiration of the period of limitations, that--

"the ultimate question presented for decision, upon a

claim for refund, is whether the taxpayer has overpaid

his tax. This involves a redetermination of the entire

tax liability. While no new assessment can be made,

after the bar of the statute has fallen, the taxpayer,

nevertheless, is not entitled to a refund unless he has

overpaid his tax. The action to recover on a claim for

refund is in the nature of an action for money had and

received, and it is incumbent upon the claimant to show

that the United States has money which belongs to him."

* * * * * * *

Although the statute of limitations may have barred the

assessment and collection of any additional sum, it

does not obliterate the right of the United States to

retain payments already received when they do not

exceed the amount which might have been properly

assessed and demanded.
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4 SEC. 6404. ABATEMENTS.

(a) General Rule.--The Secretary is authorized to abate the

unpaid portion of the assessment of any tax or any liability in

respect thereof, which--

(1) is excessive in amount, or

(2) is assessed after the expiration of the period of

limitations properly applicable thereto, or

(3) is erroneously or illegally

assessed.

In Allen v. United States, 73 AFTR2d 94-1728, 94-1 USTC par.

50,102 (N.D. Ga. 1994), the District Court applied the Lewis v.

Reynolds, supra, case and found that the Commissioner had the

right to reduce the taxpayer's refund by additions to tax after

the expiration of the period of limitations for assessment of

those additions to tax. While it is not necessary to reach the

issue of a setoff after the expiration of the period of

limitations for assessment under the facts in this case, the

rationale of Lewis v. Reynolds, supra, supports respondent's

position in this case. 

Petitioner also contends that since respondent abated the

additions to tax, a presumption of correctness should attach to

that abatement. Under section 64044, the Secretary is authorized

"to abate the unpaid portion of the assessment". Respondent's

abatement of the assessment of additions to tax was reversed by a

subsequent entry to the IRS master file account for petitioner. 

The abatement was a mere clerical error, which does not carry
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with it any presumption of correctness. See Kroyer v. United

States, 73 Ct. Cl. 591, 55 F.2d 495, 499 (1932); CromptonRichmond Co. v. United States, 311 F. Supp. 1184, 1187 (S.D.N.Y.

1970).

We shall deny petitioner's motion for summary judgment and

grant respondent's motion for summary judgment. Since we have

held that respondent's motion for summary judgment will be

granted, in accordance with the agreement of the parties, we deny

petitioner's motion to amend his petition.

An order will be issued

denying petitioner's motion for summary 

judgment and petitioner's motion to 

amend petition and granting respondent's

motion for summary judgment and decision

will be entered for respondent.