131 T.C. No. 8

UNITED STATES TAX COURT

ESTATE OF LEONARD ROSEN, DECEASED, BERNICE SIEGEL,

SPECIAL ADMINISTRATOR, Petitioner v. COMMISSIONER OF

INTERNAL REVENUE, Respondent

Docket No. 18844-04. Filed October 20, 2008.

On June 4, 2001, D’s estate (E) filed D’s 2000

Federal income tax return and paid the liability

reported on that return. On July 7, 2001, E filed D’s

Federal estate tax return and paid the liability

reported on that return. On Aug. 13, 2001, R

mistakenly assessed only part of the liability reported

on the income tax return and refunded to E the portion

of the income tax payment exceeding that assessment. 

On or about Aug. 24, 2001, E voided the refund check

and returned the check to R with a letter stating that

the refund was apparently made in error. On Sept. 3,

2001, R assessed the tax reported on the estate tax

return and assessed as to that return additions to tax

and interest; these assessments totaled more than the

liability reported on the estate tax return. Later in

Sept. 2001, after receiving the voided check, R

recorded the tax reflected in the voided check as a

payment of D’s 2000 income tax, thus then showing in

R’s records that D had overpaid his 2000 income tax. 
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1 Unless otherwise indicated, section references are to the

applicable versions of the Internal Revenue Code, Rule references

are to the Tax Court Rules of Practice and Procedure, and dollar

amounts are rounded.

In June 2002, R credited to D’s unpaid assessed estate

tax liability the income tax overpayment shown in R’s

records. Later, during this proceeding, R observed

that R had not assessed some of the liability reported

on D’s income tax return and that this amount

corresponded to the amount of the overpayment credited

to D’s estate tax. In Nov. 2005, after the 3-year

period of limitations had expired as to D’s 2000 income

tax, R recharacterized as an income tax payment the

amount of the overpayment credited in June 2002 to E’s

estate tax, thus decreasing E’s estate tax payments by

a similar amount.

Held: The disputed funds represent a payment of

D’s Federal estate tax and enter into the calculation

of the overpayment of that tax. R was not entitled in

Nov. 2005 to recharacterize the disputed funds as R

did, given that the 3-year period of limitations for

assessment as to D’s 2000 Federal income tax had

expired before the recharacterization.

Michael R. Morris, for petitioner.

Louis B. Jack, for respondent.

OPINION

LARO, Judge: This case is before the Court for decision

without trial. See Rule 122.1 The Estate of Leonard Rosen,

Deceased (estate), Bernice Siegel, Special Administrator,

petitioned the Court to redetermine respondent’s determination of

a $39,956 deficiency in Federal estate tax and a $28,968 addition

thereto under section 6651(f) (or alternatively section
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6651(a)(1)). The parties agree that the estate is entitled to

receive an overpayment of Federal estate tax and ask the Court to

determine that overpayment. Petitioner asserts that the estate

has overpaid its estate tax by $664,088 (without consideration of

additional deductions for interest and legal fees which the

parties have stipulated the estate may be entitled to, but the

amounts of which require a computation under Rule 155). 

Respondent asserts that the estate has overpaid its estate tax by

$396,543 (without consideration of the just-stated additional

deductions for interest and legal fees).

Our determination of the amount of estate tax the estate

overpaid requires that we decide a single issue. Specifically,

we decide whether the estate in calculating its estate tax

overpayment may treat as a payment of Federal estate tax,

$499,757 that the estate initially tendered to respondent as a

payment of the 2000 Federal income tax of Leonard Rosen

(decedent). Upon receipt of those funds, respondent recorded the

funds as a payment of decedent’s 2000 income tax but subsequently

applied the funds as an overpayment of decedent’s 2000 income tax

to the estate’s Federal estate tax. Later, during this

proceeding, after respondent observed that he had not assessed

“interest” under section 1291(c)(1)(B) reported on decedent’s

2000 income tax return, respondent unilaterally recharacterized

the funds as a payment of decedent’s 2000 income tax purportedly
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2 Sec. 1291(a) provides that a taxpayer in receipt of an

“excess distribution” must increase the taxpayer’s income tax

(continued...)

to carry out the original intent of the estate in tendering the

funds to respondent that the funds be a payment of decedent’s

2000 income tax. We hold that the funds now represent a payment

of the estate’s Federal estate tax and are taken into account in

calculating the estate’s overpayment of that tax.

Background

Our recitations of fact are based upon the parties’

stipulations of fact and the exhibits submitted therewith. We

incorporate those stipulations herein by this reference. 

Decedent resided in California when he died on February 20, 2000. 

When the petition commencing this case was filed, the special

administrator, Bernice Siegel, resided in California.

When he died, decedent’s primary asset was a 100-percent

interest in a Panamanian corporation named Lantana Corp., Ltd.

(Lantana). Lantana owned two Bahamian bank accounts worth

approximately $6.5 million. Lantana’s address was a post office

box in the Bahamas.

On June 4, 2001, the estate filed decedent’s 2000 (final)

Form 1040, U.S. Individual Income Tax Return (decedent’s final

income tax return), with respondent’s service center in Fresno,

California (Fresno Service Center). That return reported that

decedent had received an excess distribution during 2000.2 The
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2(...continued)

liability by a “deferred tax amount”. Sec. 1291(c)(1)(A) and (B)

generally defines the term “deferred tax amount” to mean the sum

of the “aggregate increases in taxes” plus the “aggregate amount

of interest * * * on such increases in tax”. See also sec.

1291(b) (defining the term “excess distribution”).

3 We use the terms “section 1291 tax” and “section 1291

interest” to refer respectively to the “aggregate increases in

taxes” described in sec. 1291(c)(1)(A) and the “aggregate amount

of interest * * * on such increases in tax” described in sec.

1291(c)(1)(B). 

estate included as part of decedent’s final income tax return a

Form 8621, Return by a Shareholder of a Passive Foreign

Investment Company or Qualifying Electing Fund, reporting that

decedent owed section 1291 tax of $562,633 and section 1291

interest of $498,386.3 The estate also included with decedent’s

final income tax return a check in the amount of $1,073,654,

reportedly as payment of the following items:

 Items Amount

Sec. 1291 tax $562,633

Sec. 1291 interest 498,386

Failure to pay estimated

 income tax addition to tax 44

Failure to pay timely 

 addition to tax 5,620

Sec. 6601 interest 7,564 

Credit for the elderly (593)

 Total 1,073,654

Decedent’s final income tax return reported the $562,633 as

section 1291 tax and included that amount in the $562,040

reported as decedent’s total tax for 2000 (i.e., the $562,633

less the $593 credit for the elderly). Decedent reported the
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4 For purposes of calculating sec. 1291 interest, line 11f

of the 2000 Form 8621 directs taxpayers to “See instructions”. 

The instructions state that individuals shall “enter the interest

at the bottom right margin of Form 1040, page 1, and label it as

‘Sec. 1291 interest’ Include this amount in your check or money

order payable to the United States Treasury”.

section 1291 interest of $498,386 at the bottom of page 1 by

typing thereat: “SECT 1291 INTEREST $498,386".4 On the bottom of

page 2, beneath the block stating that it is to be completed by

paid preparers only, was the following information: 

** INTEREST NOT INCLUDED 7,564.

** PENALTY NOT INCLUDED 5,620.

**** TOTAL DUE 1,073,654.

Decedent’s final income tax return was never audited.

The estate’s estate tax return was filed with respondent on

July 7, 2001. As part of that return, the estate claimed a

deduction of $1,067,990 for taxes paid on decedent’s final income

tax return (check amount of $1,073,654 less the sum of the

additions to tax of $44 and $5,620). Respondent did not disallow

any part of that deduction as part of the notice of deficiency. 

The estate reported on its estate tax return that its estate tax

liability totaled $2,068,548 (estate tax of $1,963,261 plus

interest of $105,287) and included with the return a check for

$2,068,548.

On August 13, 2001, the Fresno Service Center processed the

$1,073,654 payment made with decedent’s final income tax return. 
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5 Petitioner’s papers sometimes incorrectly refer to this

amount as $497,757.

6 The letter states in relevant part: “Enclosed please find

a VOID IRS refund check, Check no. 2303-84095190, in the amount

of $501,073.09. We believe the deviation [sic] is from the

Section 1291 interest. A copy of the 2000 Form 1040 is also

enclosed for your reference.” 

In connection therewith, the Fresno Service Center assessed the

reported total income tax of $562,040, the reported failure to

pay estimated income tax addition to tax of $44, the reported

failure to pay timely addition to tax of $5,620, and section 6601

interest of $6,193 (reflecting a total assessment of $573,897),

and refunded the $499,757 balance5 as an overpayment of

decedent’s 2000 income tax (plus interest of $1,316) to the

estate through a check payable in the amount of $501,073. On

August 17, 2001, after the estate had received the refund check,

an accountant for the estate notified respondent that the estate

believed that respondent in issuing the check had mistakenly not

taken into account the section 1291 interest. Approximately 1

week later, the estate voided the refund check and sent it back

to respondent with a letter stating that the funds reflected in

that check were apparently attributable to section 1291 interest

connected with decedent’s final income tax return.6

On September 3, 2001, respondent assessed the $1,963,261

shown as tax on the estate tax return and assessed as to that

return additions to tax totaling $520,264 and interest of
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7 Beforehand, on Sept. 12, 2001, the Fresno Service Center

notified the estate that it had received the refund check. The

estate received no further correspondence from the Fresno Service

Center concerning decedent’s 2000 income tax. 

$138,757. Later in September 2001, after receiving the voided

check, the Fresno Service Center recorded $499,757 of the funds

(i.e., the total amount of the check less the interest of $1,316)

as an August 13, 2001, payment of decedent’s 2000 Federal income

tax, thus showing in respondent’s records that decedent had

overpaid his 2000 income tax by a similar amount.7 In June 2002,

the Fresno Service Center applied the just-referenced $499,757

overpayment as a payment made on June 4, 2001, with respect to

the estate’s estate tax liability. Beforehand, respondent’s

records showed an estate tax liability greater than $499,757; the

amount showed as owing consisted of the failure to file and pay

additions to tax and accrued interest thereon. Immediately after

this application, respondent’s records reported that decedent

owed nothing as to his 2000 Federal income tax.

In or about March 2003, the estate learned from respondent

that $499,757 of the funds remitted with decedent’s 2000 income

tax return had been applied to the estate’s estate tax liability. 

Approximately 4 months later, in July 2003, the Philadelphia

Service Center reversed the June 2002 transaction so that

immediately afterwards the $499,757 was recorded by respondent as

a June 4, 2001, payment of decedent’s 2000 income tax rather than
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8 The record does not reveal how the Philadelphia Service

Center became involved in this case.

of estate tax.8 After the July 2003 reversal, respondent’s

records again reported that decedent had overpaid his 2000

Federal income tax by $499,757. In March 2004, the Fresno

Service Center reapplied to the estate’s unpaid assessed estate

tax liability $498,386 of the $499,757 shown in respondent’s

records as an overpayment of decedent’s 2000 income tax,

effective as of June 4, 2001, and removed the remaining $1,371

($499,757 - $498,386) from decedent’s 2000 income tax account. 

Beforehand, respondent’s records reported that the estate owed

more than $498,386 in estate tax; the amount showed as owing

consisted of the failure to file and pay additions to tax and

accrued interest thereon. After the transfer, respondent’s

records reported that decedent owed nothing in 2000 income tax. 

On July 7, 2004, respondent issued to the estate the notice

of deficiency underlying this action. The parties ultimately

settled all issues raised in that notice. In finalizing the

settlement, one of respondent’s Appeals officers observed that

the $498,386 reported on decedent’s final income tax return as

section 1291 interest had not been assessed and that a

corresponding amount of the funds included in the check tendered

with the return was recorded as a payment of the estate’s estate

tax. In November 2005, more than 4 years after the estate filed
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decedent’s final income tax return, the Fresno Service Center

added $498,386 to decedent’s 2000 income tax payments and

subtracted $499,757 from the estate’s estate tax payments. The

service center did so purportedly to reflect the estate’s intent

in tendering the latter funds that they be a payment of

decedent’s 2000 income tax. Immediately after the November 2005

transaction, respondent’s records reported that the estate owed

more than $499,757 in estate tax and that decedent had overpaid

his 2000 income tax by $498,386. As of December 19, 2005, the

Fresno Service Center assessed $498,386 of “restricted interest”

as to decedent’s 2000 Federal income tax. The term “restricted

interest” connotes interest that cannot be calculated by

respondent’s computer system. 

Discussion

We decide whether the estate in calculating its overpayment

in estate tax may treat the disputed funds of $499,757 as a

payment of Federal estate tax. Respondent argues at the outset

that the Court lacks jurisdiction to decide this issue because,

respondent states, this case arises from an estate tax deficiency

and any decision as to the characterization of the disputed funds

as other than decedent’s 2000 Federal income tax requires that we

decide whether decedent overpaid his 2000 Federal income tax. 

For three reasons, we disagree with respondent’s assertion that

we lack jurisdiction over this issue.
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First, in a case such as this, where petitioner is

challenging whether estate tax was overpaid, we have jurisdiction

to determine the amount of any such overpayment. See sec.

6512(b)(1). In making that determination, we must decide whether

the estate made “any payment [of estate tax] in excess of that

which is properly due.” Jones v. Liberty Glass Co., 332 U.S.

524, 531 (1947); see also United States v. Dalm, 494 U.S. 596,

610 n.6 (1990) (stating that “The commonsense interpretation is

that a tax is overpaid when a taxpayer pays more than is owed,

for whatever reason or no reason at all.”). Given that the

disputed funds, if considered a payment of estate tax, would

enter into the calculation of whether the estate has paid more

estate tax than is properly due, we must by necessity decide

whether those funds are a payment of estate tax.

Second, contrary to respondent’s assertion, we need not and

do not determine the amount of decedent’s 2000 Federal income tax

for which the estate is liable, or whether decedent’s 2000

Federal income tax was overpaid. We focus simply on whether the

disputed funds are a payment of estate tax. While our decision

may tangentially affect the amount of the payments that decedent

made as to his 2000 Federal income tax, we do not determine the

status of that tax or whether it has been paid in full.

Third, we have considered sua sponte whether we lack

jurisdiction on account of section 6512(b)(4). Although neither
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9 Sec. 6512(b)(4) provides: “The Tax Court shall have no

jurisdiction under this subsection to restrain or review any

credit or reduction made by the Secretary under section 6402.”

10 Nor does respondent claim that respondent, in ultimately

recharacterizing the funds as a payment of income tax rather than

of estate tax, was crediting an overpayment pursuant to sec.

6402.

party claims that we lack jurisdiction under that section,

jurisdiction is fundamental and must be considered by the Court

in the first instance whenever our jurisdiction is subject to

reasonable doubt. See, e.g., Stewart v. Commissioner, 127 T.C.

109, 112 (2006); Urbano v. Commissioner, 122 T.C. 384, 389

(2004). Pursuant to section 6512(b)(4), the Court lacks

jurisdiction in a deficiency case such as this to review a credit

made by the Commissioner under section 6402(a).9 See also Ryals

v. Commissioner, 127 T.C. 178, 182 (2006); Savage v.

Commissioner, 112 T.C. 46 (1999). Section 6512(b)(4) does not

apply to this case because we do not find in the limited record

before us that respondent, in most recently recharacterizing the

disputed funds as the payment of income tax rather than estate

tax, was crediting an overpayment pursuant to section 6402.10

Nor does section 6512(b)(4) deprive the Court of jurisdiction in

essence to review the reversal of the overpayment credit made by

respondent in the first place; i.e., respondent had credited to

the estate’s estate tax the disputed funds shown in respondent’s

records as an overpayment of decedent’s 2000 Federal income tax. 
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Section 6512(b)(4) applies to a “credit or reduction made by the

Secretary under section 6402” and the “reversal” at hand was not

made by the Commissioner under section 6402.

As to the substantive issue at hand, respondent argues that

his current treatment of the disputed funds as a payment of

decedent’s 2000 income tax carries out the estate’s intent in

tendering those funds to him in the first place. We disagree. 

The expressed intent of the estate was that respondent treat the

funds as a payment of decedent’s 2000 income tax upon receipt of

the funds. Respondent carried out that intent when he initially

recorded the funds as a payment of decedent’s 2000 income tax. 

Respondent asserts that he “twice failed to credit the decedent’s

income tax payment in a manner consistent with * * * [the

estate’s] designation” and that the estate now wants to

redesignate the funds as estate tax. We disagree on both counts. 

Consistent with the estate’s designation of the disputed funds as

income tax, respondent recorded those funds upon their receipt as

an income tax payment made by decedent for 2000. Only after that

recording did respondent credit the estate’s estate tax with the

amount shown in respondent’s records as an overpayment of 2000

income tax. See United States v. Ryan, 64 F.3d 1516, 1523-1524

(11th Cir. 1995). Nor is the estate now asking for a

redesignation of the disputed funds. The estate simply asks that

it get credit for all payments that it made as to its estate tax,
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whether the payments were made directly by the estate or

indirectly through any overpayment that respondent credited to

its estate tax.

In his posttrial brief, respondent discusses Lewis v.

Reynolds, 284 U.S. 281 (1932), and its progeny, including Bachner

v. Commissioner, 109 T.C. 125 (1997), affd. without published

opinion 172 F.3d 859 (3d Cir. 1998). As noted by the Court in

Bachner, the principles of Lewis v. Reynolds, supra, require that

a taxpayer’s claim for refund be reduced by the amount of the

correct tax liability for the taxable year, regardless of the

fact that the Commissioner can no longer assess a deficiency for

the taxable year. See Bachner v. Commissioner, supra at 130. 

Respondent observes that his records currently list the disputed

funds as a payment of decedent’s 2000 Federal income tax and

asserts that the estate is precluded by the referenced principles

from now applying any of the funds to the estate’s estate tax as

a refund for lack of an income tax overpayment for 2000. 

Respondent’s observation and assertion are misplaced. Contrary

to respondent’s desired current characterization of the disputed

funds as a payment of decedent’s 2000 Federal income tax, we find

and conclude as discussed above that the disputed funds currently

represent a payment of the estate’s Federal estate tax. Thus, as

also discussed above, the question of whether decedent may or may

not have overpaid his 2000 Federal income tax (and any related
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application of the principles of Lewis v. Reynolds, supra), is

not before us.

Nor are our finding and conclusion altered by the fact that

respondent’s records currently list the disputed funds as a

payment of decedent’s 2000 Federal income tax. Respondent

unilaterally changed his records to reflect as much after the

expiration of the 3-year period of limitations for assessment as

to decedent’s 2000 Federal income tax. Given the timing of that

change, i.e., after the referenced 3-year period of limitations

had expired, we consider the change to have been made too late to

have any effect. Although not mentioned by either party, we are

mindful of the case of Commissioner v. Newport Indus., Inc.,

121 F.2d 655 (7th Cir. 1941), revg. 40 B.T.A. 978 (1939). There,

the court allowed the Commissioner to correct an erroneous credit

of an overpayment where the period of limitations remained open

as to an earlier year to which the credit had been erroneously

credited. See id. at 656-657. The court emphasized, however,

that the Commissioner could properly make such a correction

because the limitations period remained open for the earlier

year. See id. at 656. The court noted that “Good sense commands

that the correction of errors be barred after the expiration of

the period of limitations relative to assessments and

collections.” Id. at 657. Where, as here, respondent concedes

(in his posttrial brief) that the applicable 3-year period of
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11 The estate’s estate tax return claims a deduction of

$1,067,990 for taxes paid on decedent’s final income tax return. 

Of that amount, we find that $499,757 was credited to the estate

as a payment of estate tax. The parties’ computation(s) under

Rule 155 should adjust the deduction so that the estate’s

deduction for income taxes paid does not include the $499,757.

limitations for assessment expired before he most recently

recharacterized the disputed funds as a payment of decedent’s

2000 Federal income tax, respondent is (and was as of the time of

the recharacterization) bound by his previous recording of the

disputed funds as a credit to the estate’s estate tax and is (and

was as of the time of the recharacterization) precluded from

undoing that credit to change his recorded characterization of

the disputed funds to that of a payment of decedent’s 2000 income

tax.

We hold that the disputed funds now represent a payment of

the estate’s Federal estate tax and are taken into account in

calculating any overpayment of that tax.11 We have considered

all arguments for a contrary holding (including respondent’s

argument that the duty of consistency applies to treat the

disputed funds as a payment of income tax), and we reject all

arguments not discussed herein as without merit. To reflect the

aforementioned additional deductions for interest and legal fees,

Decision will be entered

under Rule 155.