1 5 1 T.C. No . 8

UNITED STATES TAX COURT

DAVID H. M ELASKY AND AUDREY M ELASKY, Pet it i on ers v . COM M ISSIONER OF INTERNAL REVENUE, Res po n d en t

Do ck etNo . 1 2 7 77 -1 2 L. Fi l edOct o b er 1 0 , 2 0 1 8
.

R m ai l edPs a n ot ice o f d et erm i n at i o n . Ps o wed s ig n i fi can t b ackt ax es d at i n g t o th e m i d -1 9 9 0 s . As p aym en t fo r th ei r m ore recen t t ax es , Ps h an d d el i v ered a ch eckt o R an dd es i g n at ed i t fo r th e 2 00 9 t ax y ear. Fo ur d ay s l at er, an db efo re cas h i n g th e ch eck , R l ev i edo n t h ei r b an k acco u n t . Th e ch ecks ub s equ en t l y b o u n cedwh en R ap p l i ed t h e l ev y p ro ceed s t o an earl i er y ear. Hel d : A ch al l en g e t o t h e p ro p er cred i t i ng o f a p aym en t i s n o ta ch al len ge t o th e u nd erl y i n g t ax l i ab i l i t y . W e t h erefo re rev i ew Ps ’ d i s p u t e as t o ap p l icat i o n o f p aym en ts o n l y fo r ab u s e o f d i s cret i o n .

J u an F. Vas qu ez, J r., an dRen es h a N. Fo u n t ai n, fo r p et i t i o n ers . Su s an K. Green e, fo r res p o n d en t
.- 2
- OPINION
HOLM ES, J u d g e: Dav i dan dAu d rey M el as ky h av e h adth ei r fai r s h are o f t ax tro ub l es an dh av e o wedm o n ey t o t h e IRS g o i n g b ackt o th ei r 1 9 9 5 t ax y ear. In 2 0 11 th ey

h an dd el i v ered a ch eckfo r wh atth ey co n t en dwas t he en t i re am o u n t
o f t h ei r 2 0 09 t ax b i l l t o th e IRS. No o n e atthe IRS cas hedi tb efo re t h e IRS l ev i ed t h e ch eck i n g acco u nto n wh i ch th ey wro t e i t . Th e IRS t h ens en tth em a n o t i ce o f i t s i n t en tt o l ev y

up on th ei r p ro p ert y

t o co l l ect --am o ng ev en o l d er d eb ts --t h e 2 0 0 9 t ax b i l l t h ey

th o u g h tth ey

h adp ai d
. 1 In th i s Op i n i o n we co n s i d er t h e ques t i o n o f wh et h er we rev i ew t h e IRS’ ap p li cat io n o f p aym en t s t o a l i ab i li t y fo r ab us e o f d is cret i o n o r de n o vo . Back gro u n d Th e M el as ky s h av e o u ts t an d i n g t ax l i ab i l i t i es fo r 1 9 9 5, 1 9 9 6 , 1 9 9 9 , 2 0 0 0 -0 4 , 2 0 0 6 , 2 0 0 8 , an d2 0 0 9 . OnJ an u ary 2 7 , 2 0 1 1 , th e M el as ky s wal k edi n t o
an IRS o ffi ce wi t h a ch eckfo r $ 1 8 ,0 0 0 . Th ey as k edt o ap p l y

i tt o th ei r 2 0 09 t ax

1 Tax p ay ers o ft en p refer t o p ay m ore recen tt ax d eb ts fi rs t , b ecau s e th ere i s a t en -y ear s t atu t e o f l i m i t at io n s fo r m o s t t ax d eb t s , s ec. 6 5 0 2 ; s ee al so s ec. 6 5 0 3 , an d b ecau s e t ax d eb ts o l d er t h anth ree y ears g en eral l y can b e d i s ch arg edi n b an krup t cy , 1 1 U.S.C. s ec. 5 2 3(a)(1 )(A) (2 01 2 ); s ee 1 1 U.S.C. s ec. 5 07 (a)(8 ) (2 0 1 2); Sev ero v . Co m

m i ss i o n er, 1 2 9 T.C. 1 6 0 , 1 6 5 (2 0 0 7 ), aff’ d , 5 8 6 F.3 d1 2 1 3 (9 t h Ci r. 2 0 0 9 ). Al l s ect i on referen ces are t o t h e In tern al Rev en u e Co d e (Co d e) i n effect fo r t h e rel ev an tt i m es .- 3
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l i ab i l i t y . Th ey

as sert thatthi s wo u l d ’ ve p ai dth ei r en t i re i n co m e t ax l i ab i l i t y fo r t h aty ear, an dth e IRS ad m i t s thati tg o tth i s ch eck . IRS reco rd s s h o w t h ati t p o s t edth e $ 1 8 ,0 0 0 p aym en t t o th e M el as ky s ’ 2 0 09 t ax l i ab il i t y o n th ats am e d ay . Th es e reco rd s th en s h o w a rev ers al o f t h at s am e am o u n t b ecau se t h e ch eck b o u n ced . Wh y

d i di tb o un ce? Here we h av e an u n u s u al , b u tu n d i s p u t ed , fact --o n J an u ary 3 1 , th e IRS s en ta n o t i ce o f l ev y t o th e M el as ky s ’ b an k . Th i s n o t ice fro ze t h ei r en t i re b al an ce, an dei t her t h ato r t h e IRS’ s ex ecu t i o n o f t he l ev y s o m et i m e aft er J an uary 3 1 m ad e t h e M el as ky s ’ ch eckb ou n ce. Th e IRS t h en ap p l i edth e
en t i re b al an ce t h ati t g o twi th th e l ev y t o th e M el as ky s’ 1 9 9 5 t ax l i ab i l i t y o n Feb ru ary 2 8 . Th e IRS al s o ch arg edth e M el as ky s $ 3 60 as a p en al ty fo r wri t i n g a b ad ch eck . See s ec. 6 6 5 7
. On th e s am e d ay

th e n o t i ce o f l ev y was i s s ued t o th e b an k , th e IRS s en tthe M el as ky s a n o t i ce o f i n t en tt o l ev y th at l is t edo n l y

th e y ears 2 0 0 1, 2 0 0 2 , 2 0 0 4 , 2 0 0 6 , 2 0 0 8 , an d 2 0 0 9. Th e M el as ky s as k edfo r a CDP h eari n g. Th e s et t l em en to ffi cer (SO) as si g n edt o t h ei r cas e rev i ewedIRS reco rd s an d d et erm i n edth atth e M el as ky s h adal read y recei v edn o t i ces fo r t ax y ears 1 9 9 5 ,- 4
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1 9 9 6 , 1 9 9 9 , an d 2 0 0 0-0 4. He t h erefo re co n cl u d edth ey weren ’ ten t i t l edt o a CDP h eari n g fo r t h os e y ears . 2 Th e M el as ky s d on ’ td i sp u te t h i s. In th e n ot ice o f d et erm i n at i o n th e SO co n cl ud ed , am o ng o t h er t h i n g s, t h at t h e m o n ey

th e IRS g o t fro m

th e b an kwas p ro cu redth ro u g h l ev y p ro cedu res an d t h erefo re was an i n vo l u n tary p aym en tth atth e IRS was free t o ap p l y as i twi s h ed
. Th e M el as ky s , wh o were an drem ai n Tex as res i d en ts , t i m el y fi leda p et i t i o n . Th ey arg u e t h atth ei r ch eck was a v o l u n t ary p aym en twh en t en d ered an dth atth ey were free t o ap p ly

i tas th ey wi s h ed . Th e p art ies d o n o td i s p u t e t h e co n ten t s o f t h e ad m i n is t rat i v e reco rdan dcro s s -m o v edfo r s u m m ary ju d g m en t
. Th e cas e rai s es s ev eral i s s u es . Inth is Op i n i o n we ad d res s t h e fi rs t : Wh ati s t h e ap p ro p ri at e s t an d ardo f rev i ew fo r qu es t i o n s o f cred i t i n g p aym en t s ? Di s cu ss i o n W e s t artwi t h s ect i o n s 6 32 0 an d6 3 3 0 . Th es e s ect i o n s al l ow u s t o rev i ew a d et erm i n at i o n m ad e b y

the IRS Ap p eal s Offi ce t o s u s tai n p ro p os edl i en s an d

2 Tax p ay ers are en t it l edt o o n l y o n e CDP h eari n g u n d er s ect i o n 6 3 3 0 p er t ax y ear. Th e IRS can s en d m u l ti p l e n o t i ces o f i n t en tt o l ev y fo r an y g i v en y ear, b u ta t ax p ay er’ s ri g h t t o a CDP h eari n g i s b as edo n t i m el y fi l i n g a req ues tfo r t h e h eari n g b as edo n th e fi rs t n o t i ce o f i n ten tt o l ev y th ath e g otfo r t h at y ear. See s ec. 3 0 1 .6 3 3 0 -1 (b )(2 ), Pro ced . & Ad m i n . Reg s . (Th o u g h n o t e t h atth ere can b e s ep arat e h eari n g s t o rev i ew p ro p o s edco l l ect i o n b y l i en . Secs . 6 3 2 0 (b )(2 ), 6 3 3 0 (b )(2 ); s ee al s o Frei

je v . Co m m i s s io n er, 1 3 1 T.C. 1 , 4 (2 0 0 8), aff’ d, 3 2 5 F. Ap p ’ x 4 4 8 (7 t h Ci r. 2 0 0 9 ).)- 5
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l ev i es . Secs
. 6 3 20 (c), 6 3 30 (d )(1 ). Th ey d o n ot , h o wev er, s p eci fy a s t an dard o f
rev i ew. W e fi l l edth i s g ap o urs el v es wi t h an an al y si s o f t he l eg i s l at i v e h is t o ry , an d h el dth ato u r s t an dard o f rev i ew fo r CDP cas es wo u l dn o rm al ly b e ab u s e o f d i s cret i o n . Go za v . Co m m i s si o n er, 1 1 4 T.C. 1 7 6 , 1 8 1-8 2 (2 0 0 0). Th i s m ean s th at we l o okt o s ee i f t h e Co m m i s s i o n er’ s d eci s i o n was b as edo n an erro r o f l aw, o r
res t edo n a cl earl y

erro n eo u s fi n d in g o f fact , o r wh et h er h e ru l edi rrat i o n al l y . See An t io co v . Co m

m is s i o n er, T.C. M em o . 2 0 1 3 -3 5 , at* 1 3 -* 1 4 ; s ee al s o M at as s ari n
v . Ly nch , 1 7 4 F.3 d5 4 9 , 5 6 3 (5 t h Ci r. 1 9 9 9 ) (n o t i n g “ ‘ arb i t raryan d cap ri ci o u s ’
rev i ew am o u n t s t o an ab u s e-o f-d i s cret io n s t an dard ”); Fl ah ert y v . Bry s o n , 8 5 0 F. Sup p . 2 d3 8 , 4 7 (D.D.C. 2 0 1 2 ). W e rev i ew CDP d et erm i n at io n s d e n o vo , h o wev er, wh en th e u n d erl y in g t ax l i ab il i ty i s ap p ro p ri at el y

b efo re u s . Go za, 1 1 4 T.C. at1 8 2
. Bo t h p art i es ag ree t h atwe s h o u l drev i ew t he d et erm i nat i on fo r t ax y ears 2 0 0 6 an d2 0 0 8 fo r ab u se o f d i s cret i o n , b u t rev i ew th e d et erm i n at i on fo r t ax y ear 2 0 0 9 d e n o vo b ecau s e th e M el as ky s arg u e t h atth ey h adn o 2 0 0 9 t ax l i ab i l i t y . Th e Co m m i s s i o n er ci t es Lan d ry

v . Co m m is s i o n er, 1 16 T.C. 6 0 (2 00 1 ). Lan d ry was ab o utth e co m

pu t at i o n o f t he am o un to wedu nd er t h e Co d e aft er t ak i n g i nt o
acco u n t ov erp aym en tcred i ts th atth e t ax p ay er was en t i t l ed t o . Th e ques t i o n fo r t h e M el as ky s ’ 2 0 09 t ax y ear i s ab o u t wh et h er t h e IRS p ro p erl y ap p li eda ch eck . A- 6
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qu es ti o n ab o u twh et h er t h e IRS p ro p erl y cred it eda p aym en ti s n o ta ch al l en g e t o a t ax l i ab i l i t y ; i .e., th e am o u n to f t ax imp o s ed b y th e Co d e fo r a p art i cu l ar y ear. Iti s i n s t eada ques t i o n o f wh et h er t he l i ab i l i t y rem ai n s u n

p a i d
. Sect i o n 6 33 0 (c)(2 )(A) al l o ws a t ax p ay er t o rai s e ata CDP h eari n g “ an y rel ev an ti s s u e rel at i n g t o t h e
u np ai dt ax ,” wh ereas s ect i o n 6 3 3 0 (c)(2 )(B) s ay s a t ax p ay er m ay ch al l en g e “ t h e
ex i s t en ce o r am o u n to f t h e u n d er l yi ng tax l i a b i li t

y ” (em p h as i s ad d ed ) o n l y

i f h e d i d n ’ trecei v e a n o ti ce o f d efi ci en cy o r o t h erwi s e h av e an o p po rtu ni t y t o d o s o . See Ko v acev ich v . Co m

m i s s i o n er, T.C. M em o . 2 0 0 9 -1 6 0 , 2 0 0 9 W L 1 9 1 63 5 1 , at
* 6 . W e t h erefo re h o l d h ere t hatth e M el as ky s aren ’ tch al l en g i n g t h ei r u n d erl y i n g l i ab i l i t y fo r 2 0 0 9 . See al s o Ch i ef Co u n s el No t i ce CC-2 0 1 4 -0 0 2 (M ay 5 , 2 0 1 4 ) (an n o u n ci n g s im i lar IRS p o s i t i o n ). Ou r s t an d ardo f rev i ew fo r t h es e s p eci fi c fact s i s th erefo re ab u s e o f d i s cret i o n fo r al l y ears .