1 Unless otherwise noted, section references are to the

Internal Revenue Code of 1986, as amended.

T.C. Summary Opinion 2005-151

UNITED STATES TAX COURT

SIMON L. AND PATRICIA M. RICHARD, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 1216-03S. Filed October 13, 2005.

Simon L. and Patricia M. Richard, pro sese.

Scott T. Welch, for respondent.

GALE, Judge: This case was heard pursuant to the provisions

of section 74631 providing for small tax case proceedings. The

decision to be entered is not reviewable by any other court, and

this opinion should not be cited as authority.
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Petitioners filed a timely petition for review under section

6330(d)(1)(A) of respondent's determination to proceed with

collection of their 1993 and 1997 Federal income tax liabilities

by means of a lien. 

Background

Some of the facts have been stipulated and are so found. 

The stipulation of facts and the accompanying exhibits are

incorporated herein by this reference. Petitioners were married

and resided in Baton Rouge, Louisiana, when they filed their

petition.

Petitioners timely filed a joint Federal income tax return

for 1991. On April 13, 1992, respondent assessed the $8,943 tax

reported as due, and, as petitioners had withholding and excess

FICA credits totaling $10,090.60, an overpayment of $1,147.60

resulted. The overpayment was initially applied to tax

liabilities for 1986 and 1987, but a substantial portion of this

application was subsequently reversed, and most of the

overpayment for 1991, plus interest, was refunded to petitioners

on July 19, 1993.

The Form 4340, Certificate of Assessments, Payments, and

Other Specified Matters, for petitioners' 1991 taxable year

records that the period of limitations on assessment was extended

to September 12, 1995, on July 17, 1995. According to the Form
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2 A "quick assessment" is an internal administrative term

the Commissioner uses to denote assessments made in delineated

circumstances, including where the period of limitations on

assessment will expire within 60 days. See generally Dallin v.

United States 62 Fed. Cl. 589, 599, 601-602 (2004); Koss v.

United States, 81 AFTR 2d 98-2049, 98-1 USTC par. 50,428 (E.D.

Pa. 1998); 1 Audit, Internal Revenue Manual (CCH), sec. 4.4.25 at

8477. 

3 The Form 4340 for 1991 further records assessments in 1998

and 1999 totaling $1,217.36.

4340, respondent made a "quick assessment"2 on August 28, 1995,

of $4,941 in tax and an interest assessment of $1,096.13 with

respect to petitioners' 1991 taxable year (1991 quick

assessment).3

Petitioners did not timely file a joint return for 1992.

Respondent prepared a substitute for return and on September 25,

1995, assessed income tax of $11,913, interest of $2,363.09, and

a late filing addition to tax of $2,183.

Petitioners did not timely file a joint return for 1993. 

Respondent prepared a substitute for return and on March 4, 1996,

assessed income tax of $7,652, additions to tax for late filing

and failure to pay estimated tax, and interest. The parties have

stipulated that respondent issued a notice of deficiency for

1993; petitioners thereafter submitted a 1993 joint Federal

income tax return on April 17, 1996, which respondent treated as

an amended return. The amended return reported income,

withholding credits, and tax due in larger amounts than had been

initially assessed. Respondent therefore on August 12, 1996,
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4 Respondent also abated the addition to tax for failure to

pay estimated tax and partially abated the late filing addition

to tax and interest to bring the assessments into conformity with

the amounts petitioners reported on the amended return.

made an additional tax assessment of $6,500 (bringing the total

assessment to the $14,152 petitioners reported as due on the

amended return) and allowed an additional withholding credit to

conform those credits to the amount petitioners reported. 

Petitioners did not pay the entire tax reported as due on the

amended return, and there was an outstanding liability for 1993

after respondent made the assessments just described.4 

In 1998, petitioners entered into an installment agreement

with respondent to satisfy their 1993 tax liability (1993

installment agreement). Petitioners made periodic payments

totaling $2,617 pursuant to the 1993 installment agreement from

July 1998 to April 1999. However, respondent applied $2,219.76

of these payments to the 1991 quick assessment and the $397.24

balance to a 1992 assessment. 

Petitioners received an extension to June 15, 1995, for

filing their return for 1994 and on June 20, 1995, filed a joint

Federal income tax return for 1994 reporting a tax due of $4,114. 

After withholding credits of $3,923, petitioners had a balance

due of $191. They submitted a payment of $195.84 on August 21,

1995, which satisfied all outstanding assessments for 1994.
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Petitioners timely filed a joint Federal income tax return

for 1995 reporting a tax due of $1,586. Because petitioners had

a withholding credit of $3,435, an overpayment of $1,849

resulted, which respondent applied to the 1991 quick assessment. 

On October 28, 1996, respondent collected and applied a levy

of $387.49 to the 1991 quick assessment. 

Petitioners timely filed a joint Federal income tax return

for 1996 reporting tax due of $418. Because petitioners had

withholding and earned income credits totaling $2,247.58, an

overpayment of $1,829.58 resulted, which respondent applied to

the 1991 quick assessment.

On January 21, 1997, respondent collected and applied a levy

of $120.43 to the 1991 quick assessment. 

Petitioners timely filed a joint Federal income tax return

for 1997 reporting tax due of $6,887. As petitioners'

withholding and excess FICA credits totaled only $2,696.69,

respondent assessed the reported tax as well as a failure to pay

addition to tax of $31.57 and interest of $43.38. On July 13,

1998, respondent abated $1,033 of the previously assessed tax. 

On September 8, 2000, respondent sent petitioners a Letter

3172, Notice of Federal Tax Lien Filing and Your Right to a

Hearing Under I.R.C. 6320, indicating income tax owed of

$3,337.24 and $3,232.26 for the 1993 and 1997 taxable years,

respectively. Petitioners subsequently submitted a Form 12153,
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Request for a Collection Due Process Hearing, requesting a

hearing for taxable years 1991, 1992, 1993, 1994, and 1997, that 

respondent deemed timely. On December 5, 2001, a hearing with an

Appeals officer of respondent was conducted by telephone. 

Petitioner Simon Richard brought to the Appeals officer's

attention his claim that the payments he made pursuant to the

1993 installment agreement had been improperly applied to a

purported liability for 1991. Mr. Richard further advised the

Appeals officer of his contention that the 1991 liability, to

which the 1993 installment agreement payments were applied, had

been assessed beyond the 3-year period of limitations on

assessment. In her subsequent determination, the Appeals officer

concluded that the Appeals Office lacked jurisdiction over

petitioners' 1991 taxable year and that petitioners' foregoing

contentions could therefore not be considered as part of the

hearing.

On October 23, 2002, a Notice of Determination Concerning

Collection Action(s) Under Section 6320 and/or 6330 was mailed to

petitioners in which the Appeals officer determined that all

requirements of any applicable law or administrative procedure

had been met and that the lien was appropriate to collect 
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5 The petition sought review of taxable years 1991, 1992,

1993, and 1997 (but not 1994). On July 2, 2003, we granted

respondent's motion to dismiss for lack of jurisdiction with

respect to taxable years 1991 and 1992, as no notice of

determination to proceed with a collection action had been issued

with respect to those periods.

outstanding liabilities for 1993 and 1997. Petitioners timely

filed a petition seeking review of the determination.5

Discussion

Section 6321 imposes a lien in favor of the United States on

all property and rights to property of any person who fails to

pay a tax after demand. Such a lien arises when an assessment is

made and generally becomes effective against third parties upon

the filing of notice thereof by the Secretary. Secs. 6322 and

6323. Section 6320 provides that the Secretary shall furnish the

person described in section 6321 (taxpayer) with written notice

of the filing of a lien under section 6323 not more than 5

business days after the day of filing the notice. Section 6320

further provides that the taxpayer may request administrative

review of the matter (in the form of an Appeals Office hearing)

within 30 days beginning on the day after the 5-day period. Sec.

6320(a)(3)(B), (b)(1). Section 6320(c) provides that the Appeals

Office hearing shall be conducted consistent with the procedures

set forth in subsections (c), (d), and (e) of section 6330. 

Section 6330(c)(1) provides that the Appeals officer shall

verify that the requirements of any applicable law or
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administrative procedure have been met. Section 6330(c)(2)(A)

provides that the taxpayer may raise "any relevant issue related

to the unpaid tax" including spousal defenses, challenges to the

appropriateness of collection actions, and alternatives to

collection. The taxpayer may also raise challenges to the

existence or amount of the underlying tax liability if he did not

receive a statutory notice of deficiency with respect to the

underlying tax liability or did not otherwise have an opportunity

to dispute that liability. Sec. 6330(c)(2)(B).

At the conclusion of the hearing, the Appeals officer must

determine whether and how to proceed with collection and shall

take into account (I) the verification that the requirements of

any applicable law or administrative procedure have been met,

(ii) the relevant issues raised by the taxpayer, (iii) challenges

to the underlying tax liability by the taxpayer, where permitted,

and (iv) whether any proposed collection action balances the need

for the efficient collection of taxes with the legitimate concern

of the taxpayer that the collection action be no more intrusive

than necessary. Sec. 6330(c)(3).

We have jurisdiction to review the Appeals officer's

determination where we have jurisdiction over the type of tax

involved in the case. Sec. 6330(d)(1)(A); see Iannone v.

Commissioner, 122 T.C. 287, 290 (2004). Generally, we may

consider only those issues that the taxpayer raised during the
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6 Petitioners' claim that the 1993 and 1997 taxes have been

paid is the only relevant issue that they raised at the hearing

or herein; they have not raised any spousal defenses or offered

any collection alternatives. See sec. 6330(c)(2)(A).

section 6330 hearing. See sec. 301.6330-1(f)(2), Q&A-F5, Proced.

& Admin. Regs.; see also Magana v. Commissioner, 118 T.C. 488,

493 (2002). Where the underlying tax liability is properly at

issue, we review the determination de novo. E.g., Goza v.

Commissioner, 114 T.C. 176, 181-182 (2000). Where the underlying

tax liability is not at issue, we review the determination for

abuse of discretion. Id. at 182. Whether an abuse of discretion

has occurred depends upon whether the exercise of discretion is

without sound basis in fact or law. See Ansley-Sheppard-Burgess

Co. v. Commissioner, 104 T.C. 367, 371 (1995).

Petitioners do not appear to dispute the underlying tax

liabilities for 1993 and 1997 as originally assessed by

respondent. In any event, the assessments for those years match

the amounts petitioners reported as due on their returns, and

petitioners have offered no basis for a conclusion that the

assessments are in error. See Montgomery v. Commissioner, 122

T.C. 1 (2004). Instead, petitioners contend that the taxes due

for 1993 and 1997 have been paid.6

More specifically, petitioners contend that the $3,337.24

liability that respondent asserts exists for 1993 has been paid

because $2,617 in payments they made pursuant to the 1993
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installment agreement were instead applied by respondent to a

1991 liability which was itself invalidly assessed after

expiration of the period of limitations on assessment for 1991. 

Moreover, petitioners contend, overpayment credits from their

1995 and 1996 taxable years of $1,849 and $1,829.58,

respectively, as well as levies in 1996 and 1997, were likewise

applied by respondent against the invalidly assessed liability

for 1991, and those credits and levies should have been available

to satisfy the 1993 liability that respondent now asserts.

Our review of the record in this case, including the Forms

4340 covering petitioners' 1991 through 1997 taxable years,

persuades us that petitioners are correct in asserting that

respondent improperly applied their 1993 installment agreement

payments against a 1991 liability (and, to a small extent, a 1992

liability). The parties have stipulated that petitioners had an

installment agreement to pay their 1993 income tax liability and

that petitioners made some payments thereunder (although neither

party produced a copy of the agreement). The Form 4340 for 1993

does not record any payments' having been credited against that

year's liability, however. Mr. Richard's uncontradicted

testimony was that the 1993 installment agreement was entered

into in 1998. The Form 4340 for 1991 records a payment credited

against that year's liability of $337 on July 19, 1998, followed
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7 A portion ($17.24) of the penultimate payment (Mar. 8,

1999) and all ($380) of the last payment (Apr. 11, 1999) were

treated by respondent as overpayments for 1991 and were

transferred to and credited against petitioners' 1992 liability.

8 Respondent also argues that petitioners may not contest

the application of the 1993 installment agreement payments to

1991 because the issue was not raised in their petition or pretrial memorandum. However, the notice of determination indicates

that petitioners raised this issue at the Appeals hearing. 

Issues raised at the Appeals hearing or otherwise brought to the

attention of the Appeals Office are within our jurisdiction for

review. Magana v. Commissioner, 118 T.C. 488, 493 (2002).

by the crediting of 6 payments of $380 each at roughly monthly

intervals from August 21, 1998, through April 11, 1999.7

Respondent argues on brief that petitioners have not "shown

that any payments designated for 1993 * * * were applied to

another year".8 We disagree. We are persuaded on the basis of

the foregoing evidence that petitioners made payments pursuant to

the 1993 installment agreement that respondent credited against

their 1991 and 1992 liabilities. The payments that respondent

has stipulated petitioners made under the 1993 installment

agreement are otherwise unaccounted for in the Forms 4340 in the

record covering petitioners' taxable years 1991 through 2000.

To the extent respondent may be suggesting that the payments

made pursuant to the 1993 installment agreement were

undesignated, or that respondent was otherwise free to apply them

to petitioners' 1991 or 1992 liabilities, we also disagree. 

Installment agreements are devices for the collection of the

liability to which they relate. Section 6159(a) authorizes the
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9 Although the Internal Revenue Manual states that all

outstanding liabilities of a taxpayer should be included in an

installment agreement, there is no evidence or suggestion in this

case that the 1993 installment agreement covered liabilities in

other years. To the contrary, the parties have stipulated that

the 1993 installment agreement was an agreement "to pay the 1993

income tax liabilities". 

Secretary to enter into installment agreements with any taxpayer

"to satisfy liability for payment of any tax in installment

payments if the Secretary determines that such agreement will

facilitate collection of such liability." (Emphasis added.) 

Similarly, the regulations under section 6159 authorize

designated personnel of the Commissioner to enter into an

installment agreement with a taxpayer "that allows the taxpayer

to satisfy a tax liability by making scheduled periodic payments

until the liability is fully paid". Sec. 301.6159-1(a), Proced.

& Admin. Regs. (emphasis added). Installment agreements

generally entail a finite term during which the subject liability

is paid in full, coupled with an agreement by the taxpayer to an

extension of the period of limitations on collection of that

liability. See sec. 301.6159-1(b)(1)(i)(A), (2), Proced. &

Admin. Regs. The notion that the Commissioner may apply an

installment payment to satisfy a liability other than that for

the period covered by the installment agreement contravenes the

statute and regulations governing such agreements.9 Respondent's

application of petitioners' payments under the 1993 installment

agreement to their 1991 and 1992, rather than 1993, liabilities
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10 Respondent notes in this regard that we granted his

motion to dismiss for lack of jurisdiction with respect to

(continued...)

was therefore improper, and the Appeals officer's disregard of

their claim that those payments had been misapplied was an abuse

of discretion. In so doing, the Appeals officer failed to

satisfy the mandate of section 6330(c)(1) that she verify that

the requirements of any applicable law or administrative

procedure had been met. The $3,337.24 liability for 1993 that

respondent seeks to collect herein must be offset by the $2,617

in payments petitioners made under the 1993 installment agreement

that respondent improperly applied to their 1991 and 1992

liabilities.

Petitioners also contend that respondent improperly applied

their 1995 and 1996 overpayments to 1991 because the 1991

assessment to which they were applied (i.e., the 1991 quick

assessment) was invalid, having been made after the period of

limitation on assessment for petitioners' 1991 taxable year had

expired. As a consequence, petitioners contend, those

overpayments should be available to satisfy the 1993 and 1997

liabilities sought to be collected herein.

Respondent counters that this Court lacks jurisdiction to

consider whether the 1991 quick assessment was valid, because

1991 was not a subject of the notice of determination; that is,

1991 is a nondetermination year in this case.10 We held to the
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10(...continued)

petitioners' 1991 taxable year. However, we granted dismissal

for lack of jurisdiction concerning 1991 because there was no

determination concerning a collection action for that year. 

Whether any fact or issue arising in 1991 is a "relevant issue",

within the meaning of sec. 6330(c)(2), with respect to an unpaid

tax in 1993 or 1997, is a separate question. See Freije v.

Commissioner, 125 T.C. 14 (2005). 

11 Petitioners' Form 4340 for 1991 records that their 1991

Federal income tax return was filed, and the tax reported thereon

assessed, on Apr. 13, 1992. Accordingly, the period of

limitation on assessment for petitioners' 1991 income taxes

expired on Apr. 15, 1995, absent an extension. See sec. 6501(a)

and (b)(1). 

contrary in Freije v. Commissioner, 125 T.C. 14 (2005). "[O]ur

jurisdiction under section 6330(d)(1)(A) encompasses

consideration of facts and issues in nondetermination years where

the facts and issues are relevant in evaluating a claim that an

unpaid tax has been paid." Id. at 27. Under Freije,

petitioners' claim that their 1995 and 1996 overpayments should

be available to offset the unpaid liabilities for 1993 and 1997

because the overpayments were applied against an invalid 1991

assessment is a "relevant issue relating to the unpaid tax"

within the meaning of section 6330(c)(2), over which we have

jurisdiction pursuant to section 6330(d)(1).

Respondent further argues that, in the event we conclude

that we have jurisdiction, the 1991 quick assessment was valid,

notwithstanding that it was made on August 28, 1995, more than 3

years after April 15, 1992,11 because petitioners consented to an

extension of the period of limitations on assessment for 1991
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12 Less than $50 of the overpayment was also transferred to

petitioners' 1986 account.

until September 12, 1995. Petitioners deny that they agreed to

any extension of the period of limitations.

Petitioners' Form 4340 for 1991 records that their 1991

return was filed, and the tax reported as due thereon assessed,

on April 13, 1992. According to the Form 4340, petitioners'

withholding and excess FICA credits exceeded the assessed tax,

resulting in an overpayment that was initially transferred to

petitioners' 1987 account,12 but the transfer was subsequently

reversed and a $1,107.34 refund of the overpayment (plus

interest) was made to petitioners on July 19, 1993.

The Form 4340 thereafter contains the following entry, dated

July 17, 1995: "ASSESSMENT STATUTE EXPIR DATE EXTEND TO 09-12-

1995". The Form 4340 further records that a quick assessment of

$4,941, plus interest of $1,096.13, was assessed on August 28,

1995. According to the Form 4340, petitioners' 1995 and 1996

overpayments were applied against the quick assessment on April

15, 1996 and 1997, respectively.

Neither party was able to offer any explanation concerning

the circumstances giving rise to the quick assessment. 

Respondent relies exclusively on the 1991 Form 4340 in contending

that petitioners had an unsatisfied liability for that year. 

Respondent likewise relies exclusively upon the 1991 Form 4340 to
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support his contention that petitioners extended the period of

limitations on assessment for 1991 beyond April 15, 1995. Absent

a showing of irregularity in the assessment procedure, a Form

4340 is presumptive evidence that a tax has been validly

assessed. Roberts v. Commissioner, 329 F.3d 1224, 1228 (11th

Cir. 2003), affg. 118 T.C. 365 (2002); Davis v. Commissioner, 115

T.C. 35, 40-41 (2000). The difficulty with respondent's position

is that the Form 4340 on which he relies has an irregularity; on

its face, it records a purported extension of the period of

limitations some 3 months after its expiration, in apparent

violation of section 6501(c)(4). That section provides that the

period of limitation on assessment may be extended by agreement

where the Secretary and the taxpayer have consented in writing to

an extension "before the expiration of the time prescribed in

this section for the assessment of any tax imposed by this

title". Sec. 6501(c)(4). An extension signed after the

expiration of the period of limitations is without effect. 

Diamond Gardner Corp. v. Commissioner, 38 T.C. 875, 881 n.6

(1962); Parsons v. Commissioner, T.C. Memo. 1984-333, n.2. 

Accordingly, the Form 4340, rather than confirming the validity

of the quick assessment, supports the conclusion that the quick

assessment was invalid because untimely. The Form 4340

establishes a prima facie case for petitioners that the

assessment was made on August 28, 1995, after expiration of the
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13 The Form 4340 for 1991 in addition records assessments in

1998 and 1999, after the purported extension of the period of

limitations to Sept. 12, 1995. There is no entry on the Form

4340 suggesting any additional extension of the limitations

period beyond the purported Sept. 12, 1995, extension. Any such

subsequent extension would in any event also be invalid. 

Respondent has not addressed these assessments, totaling

$1,217.36, but they are likewise invalid because untimely. 

period of limitations on assessment, and the document tends to

disprove respondent's contention that the period of limitations

was lawfully extended beyond April 15, 1995. We therefore

conclude on this record that the period of limitations on

assessment for 1991 expired before the quick assessment was

made.13 The 1991 liability was therefore extinguished on April

15, 1995, before petitioners' 1995 and 1996 overpayments were

applied to it. See Hoffman v. Commissioner, 119 T.C. 140, 150

(2002); Diamond Gardner Corp. v. Commissioner, supra at 879-881. 

The same is true regarding associated interest or penalties. See

Hoffman v. Commissioner, supra.

As a consequence, petitioners' 1995 and 1996 overpayments

are available to satisfy liabilities in years other than 1991. 

Petitioners filed timely returns for 1995 and 1996 (which

respondent accepted as his basis for concluding there were

overpayments in those years). Petitioners' returns constituted

timely claims for refund of those overpayments. See sec.

301.6402-3(a)(5), Proced. & Admin. Regs. Respondent's purported

application of the overpayments to the extinguished 1991
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14 Alternatively, even if respondent were permitted to apply

petitioners' payments under the 1993 installment agreement to

liabilities arising in other years, respondent's application of

the 1993 installment agreement payments to the extinguished 1991

liability would have converted those payments to overpayments,

pursuant to sec. 6401(a), making them available to satisfy the

1993 and 1997 liabilities sought to be collected herein.

liability merely preserved their character as overpayments. See

sec. 6401(a); Ill. Masonic Home v. Commissioner, 93 T.C. 145, 150

(1989); Diamond Gardner Corp. v. Commissioner, supra at 881 ("any

payment by a taxpayer of a [time-]barred tax liability, whether

voluntary or involuntary, automatically becomes an

'overpayment'").

Finally, petitioners contend, and the 1991 Form 4340

confirms, that respondent made levies of $387.49 and $120.43

against petitioners in 1996 and 1997 that were applied against

the 1991 quick assessment liability after its April 15, 1995,

extinguishment. As a consequence, the payments made pursuant to

these levies became overpayments. See sec. 6401(a); Diamond

Gardner Corp. v. Commissioner, supra. 

Petitioners made payments of $2,617 under the 1993

installment agreement that respondent should have applied to

their 1993 liability.14 Petitioners' overpayments of $1,849 and

$1,829.58 for 1995 and 1996, respectively, are also available to

offset, as of April 15, 1996, and April 15, 1997, respectively,

all or a portion of the 1993 and 1997 liabilities that respondent

has sought to collect. The levies of $387.49 and $120.43 in 1996
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and 1997, respectively, are overpayments that are similarly

available as of the date paid. We conclude that the Appeals

officer abused her discretion in failing to take the foregoing

payments and credits into account when determining that the liens

at issue should not be withdrawn. Because the interest

computations attendant to the application of the foregoing

payments and credits cannot be made on this record, we shall

remand this case to respondent's Appeals Office for further

consideration.

To reflect the foregoing, 

An appropriate order will be

issued.