T.C. Memo. 2001-139

UNITED STATES TAX COURT

HAROLD WILSON, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 392-01. Filed June 14, 2001. 

Harold Wilson, pro se.

Henry N. Carriger, Delilah Seroussi Schroeder, and Peter 

Reilly, for respondent.

MEMORANDUM OPINION

PANUTHOS, Chief Special Trial Judge: This matter is before

the Court on respondent’s Motion to Dismiss for Failure to State
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1 Unless otherwise indicated, section references are to

sections of the Internal Revenue Code, as amended. Rule

references are to the Tax Court Rules of Practice and Procedure.

a Claim Upon Which Relief Can be Granted. As explained in detail

below, we shall grant respondent’s motion.1

Background

Petitioner has been incarcerated in the Nebraska State

prison system since 1986. During the taxable year 1999,

petitioner was employed by TEK Industries (TEK) as a diemaker and

was paid a minimum wage of $5.50 per hour. The State of Nebraska

charged petitioner a maintenance fee of $1.50 for each hour that

he worked. In addition, 5 percent of petitioner’s pay was

remitted to the Nebraska Victim’s Compensation Fund.

Petitioner filed a Federal income tax return for 1999 on

which he reported wage income of $2,699 and zero tax due. 

Petitioner reported that he was eligible for an earned income

credit of $335, and he claimed an overpayment in that amount.

A refund check in the amount of $335 was issued to

petitioner. However, State prison officials, in cooperation with

the Internal Revenue Service (IRS), intercepted the check and

returned it to the IRS. Thereafter, a credit was posted to

petitioner’s account in the amount of $335, and a freeze was

placed on petitioner’s account to prevent any further activity.

On October 20, 2000, respondent issued a notice of

deficiency to petitioner determining a deficiency in his Federal
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income tax for 1999 in the amount of $335. Respondent determined

that petitioner did not qualify for an earned income credit for

1999 and that petitioner was not entitled to a tax refund.

 Petitioner filed a timely petition with the Court

challenging respondent’s determination. In response to the

petition, respondent filed a Motion to Dismiss for Failure to

State a Claim Upon Which Relief Can be Granted. Respondent

argued that section 32(c)(2)(B)(iv) expressly excludes from the

definition of earned income any amounts received for services

provided by an individual while the individual is an inmate at a

penal institution. Respondent reasoned that, because petitioner

had no earned income within the meaning of section 32 during

1999, petitioner failed to state a claim for relief.

This matter was called for hearing at the Court’s motions

session held in Washington, D.C. Counsel for respondent appeared

at the hearing and offered argument in support of respondent’s

motion. No appearance was made by or on behalf of petitioner at

the hearing. 

During the hearing, the question was raised whether

respondent determined a “deficiency” in this case within the

meaning of section 6211. Counsel for respondent argued that the

facts in the instant case were tantamount to a “frozen refund”

and that the Court had jurisdiction over the petition. In

response to petitioner’s challenge to the timeliness of
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2 Shortly after respondent’s motion to dismiss was filed,

petitioner submitted to the Court a Motion to Quash Respondent’s

Motion To Dismiss arguing that respondent’s motion to dismiss was

not timely filed. Petitioner’s motion to quash was returned to

petitioner unfiled with an explanation that the Court had granted

leave to file respondent’s motion to dismiss. Petitioner

responded by sending a second letter to the Court questioning

whether it was appropriate for the Court to grant leave to file

respondent’s motion to dismiss.

respondent’s motion, counsel for respondent noted that the

Court’s docket records reflected that the petition was served on

respondent on January 16, 2001. In addition, counsel for

respondent provided the Court with a certified mail receipt

indicating that respondent mailed the motion to dismiss to the

Court on March 2, 2001--45 days after service of the petition. 

Following the hearing, petitioner filed a memorandum in

opposition to respondent’s motion to dismiss. Petitioner argued:

(1) Respondent’s motion to dismiss was not timely filed;2 and (2)

section 32(c)(2)(B)(iv) was not intended to exclude from the

definition of earned income amounts received by prison inmates

for services provided to private companies as opposed to services

provided to a penal institution.

 Respondent filed a memorandum in support of his motion to

dismiss. Respondent argued that the Court had jurisdiction over

the petition inasmuch as the denial of a claimed earned income

credit is treated as a deficiency pursuant to section 6211(b)(4). 

Respondent repeated the argument that petitioner’s earnings are
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excluded from the computation of earned income. Petitioner filed

a supplemental memorandum repeating his prior arguments.

Discussion

1. Jurisdiction

The Tax Court is a court of limited jurisdiction, and we may

exercise our jurisdiction only to the extent authorized by

Congress. See Naftel v. Commissioner, 85 T.C. 527, 529 (1985). 

The Court's jurisdiction to redetermine a deficiency depends upon

the issuance of a valid notice of deficiency and a timely filed

petition. See Rule 13(a) and (c); Monge v. Commissioner, 93

T.C. 22, 27 (1989); Normac, Inc. v. Commissioner, 90 T.C. 142,

147 (1988).

The initial question in this case is whether respondent

determined a deficiency in petitioner’s Federal income tax within

the meaning of section 6211. The term “deficiency” is generally

defined in section 6211(a) as the amount by which the tax imposed

by subtitle A or B or chapter 41, 42, 43, or 44 of the Internal

Revenue Code exceeds the excess of the sum 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 made. The deficiency that

respondent determined in this case, based upon the disallowance

of an earned income credit under section 32, does not fit neatly

within the confines of this definition.
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However, the definition of a deficiency in section 6211(a)

is augmented by section 6211(b)(4) which provides in pertinent

part:

SEC. 6211(b). Rules for application of subsection

(a).–-For purposes of this section--

* * * * * * *

(4) For purposes of subsection (a)--

(A) any excess of the sum of the credits

allowable under sections 32 and 34 over the

tax imposed by subtitle A (determined

without regard to such credits), and

(B) any excess of the sum of such

credits as shown by the taxpayer on his

return over the amount shown as the tax by

the taxpayer on such return (determined 

without regard to such credits), 

shall be taken into account as negative amounts of

tax. 

Section 6211(b)(4) was enacted under the Technical and

Miscellaneous Revenue Act of 1988, Pub. L. 100-647, sec. 1015(r),

102 Stat. 3572. The legislative history of section 6211(b)(4)

reveals that the provision was enacted to expand the definition

of a deficiency to permit taxpayers to contest the disallowance

of the earned income credit in the Tax Court. In this regard, H.

Rept. 100-795, at 366 (1988), and S. Rept. 100-445, at 387

(1988), state:

18. Certain refundable credits to be assessed under

deficiency procedures (sec. 115(r) of the bill and sec.

6211 of the Code)
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Present Law

Under present law, the deficiency procedures

allowing taxpayers to litigate issues in the Tax Court

relating to the earned income credit (sec. 32) and the

credit for the certain payments of the gasoline and

special fuels tax (sec. 34) may not apply.

Explanation of Provision

The bill provides that the Tax Court deficiency

procedures apply to the credits allowable under

sections 32 and 34, notwithstanding that the credits

reduce the net tax to less than zero.

The provision applies to notices of deficiencies

mailed after the date of enactment of this bill.

There is no mention of the amendment in H. Conf. Rept. 100-1104

(1988), 1988-3 C.B. 473.

Consistent with the plain language of section 6211(b)(4), it

follows that, where petitioner reported a tax liability of zero

and claimed an overpayment based upon an earned income credit of

$335, the latter amount is treated as a negative amount of tax. 

In this regard, respondent’s determination that petitioner’s

correct tax liability is zero and that petitioner is not entitled

to an earned income credit constitutes the determination of a

deficiency within the meaning of section 6211. The fact that the

refund of $335 was intercepted by prison officials in cooperation

with the IRS does not change this result. The fact of payment of

the credit amount is not taken into account under section

6211(b)(4). Under the circumstances, we conclude that the Court
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has jurisdiction over the petition filed herein. See Blore v.

Commissioner, T.C. Memo. 2000-326.

2. Timeliness of Respondent’s Motion To Dismiss

The record in this case demonstrates that respondent’s

motion to dismiss was timely filed. In particular, the Court’s

records indicate that the petition was served on respondent on

January 16, 2001. See Rule 21(a). Consequently, respondent had

45 days from that date to file his motion to dismiss. See Rule

36(a). We are satisfied that respondent timely mailed his motion

to dismiss to the Court on March 2, 2001--exactly 45 days after

January 16, 2001. See Rule 25(a). Because respondent’s motion

to dismiss was timely mailed (and thus timely filed), the Court

will direct the Clerk of the Court to return to petitioner

unfiled petitioner’s letter (with attachments) dated March 26,

2001.

3. Respondent’s Motion To Dismiss

Rule 40 provides that a party may file a motion to dismiss

for failure to state a claim upon which relief can be granted. 

We may grant such a motion when it appears beyond doubt that the

party's adversary can prove no set of facts in support of a claim

which would entitle him or her to relief. See Conley v. Gibson,

355 U.S. 41, 45-46 (1957); Price v. Moody, 677 F.2d 676, 677 (8th

Cir. 1982). Respondent contends that, even assuming the facts
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alleged in the petition are true, petitioner has failed to state

a claim upon which he is entitled to relief. 

In general, the determinations made by the Commissioner in a

notice of deficiency are presumed to be correct, and the taxpayer

bears the burden of proving that those determinations are

erroneous. See Rule 142(a); Welch v. Helvering, 290 U.S. 111,

115 (1933). Deductions and credits are a matter of legislative

grace, and taxpayers bear the burden of proving entitlement to

any deduction or credit claimed on their returns. See INDOPCO,

Inc. v. Commissioner, 503 U.S. 79 (1992); New Colonial Ice Co. v.

Helvering, 292 U.S. 435, 440 (1934).

Section 32 provides a refundable tax credit for certain

eligible taxpayers. Section 32(c)(2)(A) defines the term “earned

income” broadly to include wages, salaries, tips, other employee

compensation, and the taxpayer’s earnings from self-employment.

However, section 32(c)(2)(B) excludes certain items from the

definition of earned income. The dispute in this case centers on

section 32(c)(2)(B)(iv), which provides in pertinent part:

SEC. 32(c). Definitions and special rules.–-For

purposes of this section--

 (2) Earned income. 

* * * * * * *

 (B) For purposes of subparagraph (A)--

* * * * * * *
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 (iv) no amount received for

services provided by an individual while

the individual is an inmate at a penal

institution shall be taken into account,

* * *

Respondent contends that section 32(c)(2)(B)(iv) precludes

petitioner from qualifying for the earned income credit insofar

as all of the wages that petitioner earned during 1999 constitute

amounts that petitioner received for services that he provided to

TEK while he was an inmate at a penal institution. Petitioner

counters that respondent’s construction of section

32(c)(2)(B)(iv) is incorrect on the ground that a prisoner’s

earnings for services provided to a private business are not

excluded from the computation of the earned income credit.

In construing a statute, courts generally seek the plain and

literal meaning of its language. See United States v. Locke, 471

U.S. 84, 93, 95-96 (1985); United States v. American Trucking

Associations, Inc., 310 U.S. 534, 543 (1940). For that purpose,

courts generally assume that Congress uses common words in their

popular meaning. See Commissioner v. Groetzinger, 480 U.S. 23,

28 (1987), affg. 771 F.2d 269 (7th Cir. 1985).

Based upon the plain language of section 32(c)(2)(B)(iv), we

conclude that the wages that petitioner earned during 1999 are

not taken into account in computing the earned income credit. 

Petitioner was an inmate at a penal institution throughout the

taxable year 1999, and all wages for services provided by inmates
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of penal institution are expressly excluded from the computation

of the earned income credit under section 32(c)(2)(B)(iv). See

Taylor v. Commissioner, T.C. Memo. 1998-401.

 Petitioner’s position contradicts the plain language of the

statute. Moreover, we are not persuaded by petitioner’s

contention that the legislative history of section

32(c)(2)(B)(iv) supports his interpretation of the provision. 

Section 32(c)(2)(B)(iv) was enacted as an amendment to section 32

under the Uruguay Round Agreements Act, Pub. L. 103-465, sec.

723, 108 Stat. 5003 (1994). H. Rept. 103-826, at 182 (1994)

explains the purpose for section 32(c)(2)(B)(iv) as follows:

3. Income of prisoners disregarded in determining

earned income tax credit (sec. 723 of the bill and sec.

32 of the Code)

 Reasons for change

The EITC is designed to alleviate poverty and to

provide work incentives to low-income individuals. 

Because of the compulsory nature of much of the work

performed by prison inmates, it does not further the

objectives of the EITC to include in earned income for

EITC calculations any amounts paid for inmates’

services.

 Explanation of provision

The bill removes from the definition of earned

income in section 32(c)(2) any amount received for

services provided by an individual while the individual

is an inmate at a penal institution.

 Effective date

The provision is effective for taxable years

beginning after December 31, 1993.
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Contrary to petitioner’s position, there is nothing in the

legislative history that provides a basis for ignoring or

abandoning the plain language of section 32(c)(2)(B)(iv). 

Indeed, the legislative history reiterates that “any amount

received for services provided by an individual while the

individual is an inmate at a penal institution” is excluded from

the definition of earned income. Id. at 182.

Consistent with the preceding discussion, we hold that

petitioner can prove no set of facts in support of a claim which

would entitle him to relief. See Conley v. Gibson, supra at 45-

46. In the absence of a justiciable claim for relief, we shall

grant respondent’s Motion to Dismiss for Failure to State a Claim

Upon Which Relief Can be Granted.

To reflect the foregoing, 

An order will be issued

granting respondent’s Motion

to Dismiss for Failure to State

a Claim Upon Which Relief Can

be Granted, and a decision will be 

entered for respondent.