TAX COURT OPINION

Case: Scott Allan Webber
Docket Number: 14307-18L
Judge: Gustafson
Opinion Type: bench
Filed: 05/22/2023
Pages: 31

United States Tax Court Washington, DC 20217 SCOTT ALLAN WEBBER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 14307-18L ORDER OF SERVICE OF TRANSCRIPT Pursuant to Rule 152(b) of the Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit herewith to petitioner and to the Commissioner a copy of the pages of the transcript of the proceedings in this case before the undersigned judge at Washington, D.C., containing his oral ﬁndings of fact and opinion rendered at the trial session at which the case was heard. In accordance with the oral ﬁndings of fact and opinion, decision will be entered for the Commissioner. (Signed) David Gustafson Judge Served 05/22/23 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Bench Opinion by Judge David Gustafson May 12, 2023 3 Scott Allan Webber v. Commissioner of Internal Revenue Docket No. 14307-18L THE COURT: The Court has decided to render the following as its oral findings of fact and opinion in this case. This bench opinion is made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code and Tax Court Rule 152; and it shall not be relied upon as precedent in any other case. References in this opinion to rules are to the Tax Court Rules of Practice and Procedure, and references to sections are to the Internal Revenue Code (26 U.S.C.), as amended and in effect at the relevant times. Some dollar amounts are rounded. A citation of a "Doc." in this Opinion refers to a document as numbered in the Tax Court docket record of this case. The parties' stipulation with exhibits is Doc. 78, and pinpoint page citations to that document are according to the sequential pagination helpfully imposed by the parties. In composing this opinion, we assume that the reader is familiar with several of our previous orders (Docs. 28, 50, and 69). This is a collection due process ("CDP") case brought under section 6330(d)(1) in which petitioner, Scott Allen Webber, asks us to review a determination by 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 the Internal Revenue Service ("IRS") through its 4 Independent Office of Appeals ("IRS Appeals") sustaining the proposed collection by levy of Mr. Webber's unpaid tax liability for the year 2013. Trial of this case was conducted on May 9, 2023, in Washington, D.C. Mr. Webber represented himself, and Rachel L. Gregory represented the Commissioner. The issue for decision is whether Mr. Webber's 2013 tax liability should be deemed satisfied by a credit-elect from the year 2012. We hold that Mr. Webber does not have an available credit that could be applied to his 2013 tax liability. Consequently, we hold that IRS Appeals did not abuse its discretion in sustaining the decision to collect by levy Mr. Webber's unpaid 2013 tax liability. On the evidence before us, and using the burden- of-proof principles explained below, the Court finds the 17 following facts: 18 19 20 21 22 23 24 25 FINDINGS OF FACT Mr. Webber resided in Maryland at the time he filed his petition in this case. Mr. Webber's 2013 tax liability Mr. Webber filed his 2013 Form 1040, "U.S. Individual Income Tax Return", on April 14, 2017, i.e., after the due date of April 15, 2015, see § 6072(a), but within the three-year period under section 6511(a) for 1 2 3 4 5 6 7 8 9 10 11 12 13 14 claiming an overpayment. (Doc. 78 at 488.) (As we 5 explain below, Mr. Webber's routine practice has been to file his returns past their deadlines but within the period for claiming an overpayment.) Mr. Webber's 2013 return reported tax due of $5,690, and there is no dispute in this case as to the correct amount of tax due for 2013. (Doc. 78 at 469; Doc. 75 at 2.) The only item reported on Mr. Webber's 2013 return as "Payments" on lines 62 to 72 was the amount of $77,782, which he reported on line 63 as an "amount applied from 2012 return", producing a reported overpayment of $72,092. Mr. Webber did not request a refund of this claimed overpayment on line 74a but instead indicated on line 75 that he wanted the entire amount to be "applied to your 2014 estimated tax". (Doc. 78 at 15 469.) 16 17 18 19 20 21 22 23 24 25 Mr. Webber's claim of a cascade of credit elects Mr. Webber derives the credit elect claimed on his 2013 return from a cascade of credit elect claims going back to at least as early as 2003 (and apparently earlier). The parties have stipulated (see Doc. 78, paras. 38-47, Exs. 99-P-113-P) that his returns for 2004 through 2013 constitute a series reporting an overpayment on each return and electing on each return to designate the overpayment to be applied to the following year's estimated tax as a credit elect pursuant to section 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 6402(b). (Mr. Webber alleges (see Stip. para. 17, 6 Ex. 97-P, Doc. 78 at 439), and for purposes of this opinion we can assume, that he started this practice in 1989 and continued it through at least 2014.) Mr. Webber contends that this cascading credit elect flows into 2013 (the year at issue in the CDP hearing) and resolves any balance due, so that the proposed collection by levy would be improper. The non-appearance of credit elects in IRS records However, this series of credit elects is not reflected on the IRS's transcripts for Mr. Webbers accounts. The parties have stipulated the contents of the IRS's "Literal Transcripts" for 2004 through 2013 (Doc. 78 at 390-408), and they are altogether lacking in any indication of the credit elects that Mr. Webber posits (see Doc. 78 at 439). The only references to credit elects that we can find in the IRS's records for Mr. Webber are (1) a credit elect for 2004 of $4,806 (an amount irrelevant to Mr. Webber's claims) that was refunded from that year, not credited (see Doc. 78 at 391) and (2) a TAXMOD transcript for 2004 (Doc. 78 at 412) that shows an entry of $71,012 for "EST-CR-CLMD" (evidently an estimated credit claimed) which it notes as an "EST[imated] T[A]X DISCREPANCY" and does not post it as a 25 credit. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Refunds and offsets reflected in IRS records 7 Mr. Webber contends that, in the period 2003 through 2013, he did not receive refunds of overpaid taxes but instead requested and obtained credit elects. However, the IRS's records show that in fact he did receive refunds from time to time in that period (see, e.g., Doc. 78 at 391 ($4,806 for year 2004); Doc. 78 at 392 ($2,156 refunded for year 2005); Doc. 78 at 395 ($4,048 refunded for year 2006)). Mr. Webber acknowledged such refunds to IRS Appeals but explained that he held the refund checks, rather than negotiating them, and then continued to claim those amounts as part of his credit elect, despite the amounts having been refunded. (Doc. 78 at 15.) Some of the refunds that the IRS processed for him were offset by IRS payments on Mr. Webber's behalf of his non-IRS debts. (See Doc. 78 at 395, 488.) Credit elects for 2004 and 2005 The principal difficulty with Mr. Webber's cascading credit elect contention concerns 2004 and 2005, so we focus here on those two years. The Commissioner makes no contention (nor any admission) about the existence of overpayments for Mr. Webber's tax years prior to 2004, so we assume that for 2003 Mr. Webber had, as he reported (Ex. 99-P, Doc. 78 at 441), an overpayment of $71,012 that he elected on his 2003 return to be applied 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 to his 2004 liability. 8 Mr. Webber filed his 2004 return on April 14, 2008 (almost but not quite 3 years late). On that 2004 return he reported as a payment on line 64 an "amount applied from 2003 return", claimed on line 71 the resulting overpayment of $71,012, and elected on line 73 to have that amount "applied to [his] 2005 estimated tax". (Doc. 78 at 443.) For 2005 Mr. Webber had to make a departure from his routine. In 2007 (i.e., before he had filed his 2004 return) one of his children applied for a college loan that required Mr. Webber, as parent, to present a filed tax return for 2005. He therefore filed his 2005 return on April 19, 2007 (only 1 year late), reporting only $50,000 as the "amount applied from 2004 return" and yielding an overpayment of only $52,156 (which he elected to have applied to 2006). (Doc. 78 at 499.) He had not yet filed a 2004 return, so at the time of his filing the 2005 return, there was in fact no "amount [to be] applied from 2004 return", and he considered the $50,000 amount to be a placeholder that he would correct after filing the 2004 return. After he filed his 2004 return in April 2008, he filed an amended return for 2005 on August 8, 2008. That amended return consisted of Form 1040X, "Amended U.S. Individual Income Tax Return" (Doc. 78 at 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 497), that showed the changes being made, and a revised 9 Form 1040 (Doc. 78 at 444) that presented the corrected figures. As reflected on the revised Form 1040, Mr. Webber's amendments increased the "amount applied from 2004 return" on line 65 to $71,012 (i.e., the amount he elected on his 2004 return filed in April 2008 to have "applied to [his] 2005 estimated tax"), resulting in a claimed overpayment for 2005 of $73,734 on line 72 (i.e., larger than the $52,156 he had originally claimed), which Mr. Webber elected on line 74 to have "applied to [his] 2006 estimated tax". (Doc. 78 at 445.) That amended overpayment amount was $21,578 larger than the smaller amount he had reported on the "placeholder" original 2005 return, and the Form 1040X (Doc. 78 at 497) duly reported the originally claimed amount of $52,156 on line 19 (as the "Overpayment . . . shown on original return") and on line 24 reported the amount to be "applied to your 2006 estimated tax" as $21,578. That is, the total corrected credit elect that Mr. Webber intended to claim in 2005 was stated as $73,734 on his corrected Form 1040; but that number does not appear on the Form 1040X, which states only $21,578 as the amount to be applied to 2006. Beginning in July 2008, the IRS examined Mr. Webber's returns for 2004 and 2005. (Doc. 78 at 391, 393.) At the conclusion of that examination, a Revenue 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Agent sent to Mr. Webber a Letter 3401 addressing the year 10 2004 that was dated May 26, 2010, and that stated: "I'm proposing no change to your [2004] tax return. . . . [M]y findings are subject to the Area Director's approval. We will send you a final letter when we finish processing your file". (Doc. 78 at 493.) On the same date the same Revenue Agent also sent to Mr. Webber a Letter 569 addressing the year 2005, which stated: "We examined your [2005] claim and propose: . . . Full disallowance, as shown in the enclosed examination report . . . ." (Doc. 78 at 494.) Included with the letter for 2005 was a Form 3363, "Acceptance of Proposed Disallowance of Claim for Refund or Credit" (Doc. 78 at 496), which stated that the "Amount of Claim" and the "Amount of Claim Disallowed" were both $21,578 (i.e., the amount appearing on Form 1040X, which Mr. Webber intended as an amount in addition to the $52,156 he had reported on his original Form 1040). Apparently included with both letters (for 2004 and 2005) was a Form 4549, "Income Tax Examination Changes", specifying adjustments made to Mr. Webber's 2004 and 2005 returns. (Doc. 78 at 491.) The Form 4549 lists nothing on Line 8 ("Credits"), and lists "0.00" on both Line 14 ("Deficiency-Increase in Tax or (Overassessment- Decrease in Tax)") and Line 16 ("Balance Due or (Overpayment)"). (Doc. 78 at 491.) On the second page of 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the Form 4549, under the caption "Other Information", was 11 the following explanation: "On 8/8/2008 you filed . . . an informal claim for a refund in the amount of $21,578 for 2005. As a result of our examination, we disallowed your claim in full as shown in this report. The examination has resulted in no tax being due." (Doc. 78 at 492.) The letter indicates that it also included documents referred to as "Examination Report" and "Form 2297"; however, these documents do not appear in our record. (We take judicial notice that Form 2297 is entitled "Waiver of Statutory Notification of Claim Disallowance".) Mr. Webber appealed the examination results to IRS Appeals, and on January 9, 2012, IRS Appeals sent to Mr. Webber a letter which stated the following: "Based on the information submitted, I am pleased to tell you we are allowing the full amount of your claim. After your claim is processed, we will send you a notice explaining any changes that we made to your tax account." (Doc. 78 at 509.) The letter specified the covered tax periods to be 2004 and 2005, the date the claim was received to be August 8, 2009, and the amount of the claim to be $21,578. (Doc. 78 at 490.) Mr. Webber maintains that this is the last correspondence that he received regarding his credit elect claim for 2005. Evidently the claim was never "processed" (as there is no such entry on his 2005 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 account), and Mr. Webber received no "notice". 12 The IRS's account transcript (also known as a "Literal Transcript") for Mr. Webber's 2004 tax year includes entries for "Credit you chose to apply from prior tax period" in an amount of $4,806 and a corresponding "Refund issued" of $4,806 (which amount we cannot account for), and for a "Disallowed claim" with no specified amount and a date of June 11, 2012. (Doc. 78 at 391.) The IRS's account transcript for Mr. Webber's 2005 tax year likewise contains entries for "Refund issued" in an amount of $2,156 and "Disallowed claim" with an entry date again of June 11, 2012. (Doc. 78 at 392-393.) Other IRS transcripts reflecting activity on Mr. Webber's 2004 and 2005 tax accounts reflect that a refund of $4,806 was issued to Mr. Webber for 2004 on June 9, 2008, and that a refund of $2,156 was issued to Mr. Webber for 2005. (Doc. 78 at 410, 412, 413, 414.) When Mr. Webber filed his 2006 return (Doc. 78 at 448) he claimed on line 65 a $73,734 credit elect from 2005. IRS records include a letter (Doc. 78 at 264) sent to Mr. Webber in September 2008 correcting that amount to zero and explaining, "We could not find the amount of $73,734.00 from the prior year." The letter further explained that the IRS was adjusting the overpayment claimed on line 73 of Mr. Webber's 2006 return from the 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 $77,782 he claimed down to $4,048-the amount reflected on 13 his Literal Transcript for 2006 (Doc. 78 at 395) as having been refunded to him in September 2008. Evidently Mr. Webber received the September 2008 letter because he responded to it with his own letter dated September 23, 2008. (Doc. 78 at 263.) IRS records also include a letter to Mr. Webber dated October 4, 2017 (i.e., more than seven years after the initial proposed disallowance by the IRS examination, and more than five years after the letter from IRS Appeals stating "we are allowing the full amount of your claim"), that identified the year at issue as 2005, the amount of the claim as $73,734 (i.e., the total overpayment from the amended 2005 return which Mr. Webber elected to apply to 2006 estimated taxes), the date the claim was received as September 26, 2017, and stated the following: We are unable to consider your claim, which was reviewed by our Examination area and disallowed. You provided a copy of their initial disallowance notice in May of 2010 and provided with a period of time for reply. The date the disallowance was recorded on your file was June 11, 2012. The 2 year period to appeal this disallowance expired on June 11, 2014 and cannot be extended. 1 2 3 4 5 6 7 8 9 10 11 12 13 (Doc. 78 at 489.) (Mr. Webber did not receive the letter 14 in October 2017 but did later see a copy that was retrieved by the office of the National Taxpayer Advocate when he invoked the aid of that office. We take the letter not as evidence of IRS communication with Mr. Webber but as evidence of the state of the information in the records of the IRS as of October 2017.) The IRS's records do not reflect that the IRS ever effectuated an allowance of Mr. Webber's claimed overpayment in 2005 by either issuing a refund or applying a credit to subsequent tax years. (However, the IRS records do not show that a formal notice of disallowance (for purposes of section 6532(a)(1)) was ever sent to Mr. 14 Webber.) 15 16 17 18 19 20 21 22 23 24 25 The IRS's processing of the 2013 return When the IRS received Mr. Webber's 2013 return in 2017, it assessed the tax due as reported on his return ($5,690). Because the IRS did not credit to 2013 any overpayment from 2012, the IRS regarded the 2013 tax due as having been unpaid, and it therefore assessed the addition to tax for late filing of the 2013 return and for late payment of the 2013 liability. (Doc. 78 at 407-408.) CDP levy notice for 2013 On February 2, 2018, the IRS sent to Mr. Webber a Notice LT11, "Notice of intent to levy and notice of 1 2 3 4 5 6 7 8 9 10 11 12 your right to a hearing" ("CDP levy notice"), proposing to 15 collect by levy the amount due for 2013 (which, by that time, totaled $9,419 including interest) and informing him of his right to request a hearing with IRS Appeals to review the proposed levy. (Doc. 78 at 155-156.) Mr. Webber responded to the CDP levy notice by timely filing a Form 12153, "Request for a Collection Due Process or Equivalent Hearing", whereon he identified the proposed levy as the basis for his hearing request and specified as his reason for disputing the levy that there was no tax due because payment had been made via credit elect from 2012 into 2013. (Doc. 78 at 158-159.) 13 CDP hearing 14 15 16 17 18 19 20 21 22 23 24 25 Mr. Webber's CDP hearing for 2013 was held by Settlement Officer Denis Walsh ("SO Walsh"). Mr. Webber did not propose any collection alternatives at the CDP hearing; the only issue he raised was his entitlement to the claimed credit elect. Decision letter from IRS Appeals On June 13, 2018, SO Walsh sent to Mr. Webber a decision letter determining to sustain the proposed levy. (Doc. 78 at 001-002.) The letter included an attachment (Doc. 78 at 003-006) explaining that SO Walsh conducted a detailed review of Mr. Webber's tax accounts dating back to the 2004 tax year and identified multiple discrepancies 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 including refunds either issued to Mr. Webber or offset 16 and applied to non-IRS debts. The attachment further explained that all materials Mr. Webber provided were reviewed by SO Walsh's manager, who agreed with her ultimate conclusion that "there is no credit elect in the 2012 account or the 2013 account". Pursuant to the requirements of section 6330(c), SO Walsh verified that an assessment was properly made for 2013, that notice and demand for payment was mailed to Mr. Webber's last known address, and that there was a balance due when the CDP levy notice was issued. Tax Court proceedings Mr. Webber filed a petition in this Court challenging the decision letter from IRS Appeals. (Doc. 1 at 1.) The Commissioner filed a motion for summary judgment (Doc. 17), which we denied (see Doc. 28) on the grounds that there was a genuine dispute of material fact as to whether the IRS had allowed the overpayment claimed for 2005. We observed that, if the IRS did allow the overpayment, and if there was a resulting unbroken series of credit elects through 2013, then that credit elect might be an available credit that would render improper the collection by levy of the 2013 liability. On October 2, 2020, we issued an order (Doc. 33) granting the parties' joint motion (Doc. 32) to remand 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 this case to IRS Appeals so that it could further consider 17 Mr. Webber's claim to a credit elect and could attempt to reconcile the conflicting letters in the administrative record. On May 20, 2021, IRS Appeals issued to Mr. Webber a "Supplemental Notice of Determination Concerning IRS Collection Actions under Internal Revenue Code Sections 6320 or 6330", determining once again to sustain the proposed levy because "[IRS] Appeals has not identified a credit elect to be applied to [Mr. Webber's] account. The documents submitted did not support an available credit elect to be applied to tax year 2013." (Doc. 78 at 007.) The Commissioner again filed a motion (Doc. 46) for summary judgment, based on additional information developed during the remand; but we denied the motion (see Doc. 69), again discerning an issue of fact requiring 16 trial. 17 Trial was held in Washington, D.C., on May 9, 18 2023. 19 20 I. Applicable legal principles OPINION 21 A. CDP procedures 22 23 24 25 If a taxpayer fails to pay any tax liability within 10 days after notice and demand, section 6331(a) authorizes the IRS to collect the tax by levy upon the taxpayer's property and rights to property. Before 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 issuing such a levy, the IRS must send the taxpayer a 18 written notice informing the taxpayer that levy will commence in thirty days and that the taxpayer has the right to request an administrative hearing before IRS Appeals with respect to the levy. §§ 6330(a), 6331(d). After receiving such notice, the taxpayer may request an administrative hearing before IRS Appeals in writing within thirty days from the date of the notice. § 6330(a)(3)(B), (b)(1). During a CDP hearing, IRS Appeals must determine whether the proposed collection action may proceed. In making that determination, the appeals officer must consider the following: (1) whether the requirements of any applicable law or administrative procedure have been met; (2) any issues raised by the taxpayer, including proposed collection alternatives and (relevant here) challenges to the appropriateness of the collection action; and (3) whether the proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the taxpayer that any collection action be no more intrusive than necessary. § 6330(c). There is no dispute in this case as to whether IRS Appeals, either in its initial or supplemental determination, failed to correctly conduct the CDP hearing in compliance with section 6330(c). 1 2 3 4 5 Once IRS Appeals issues its determination, the 19 taxpayer "may, within 30 days of a determination . . . petition the Tax Court for review of such determination (and the Tax Court shall have jurisdiction with respect to such matter)." § 6330(d)(1). 6 B. Standard of review 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 When a taxpayer petitions the Tax Court to review a determination by IRS Appeals, if the underlying liability is at issue then we review the determination de novo; otherwise, as to non-liability issues, we generally review the determination for abuse of discretion. Goza v. Commissioner, 114 T.C. 176, 181-182 (2000). Mr. Webber contends that the issue of the credit elect should be tried and decided de novo, and the Commissioner has not disagreed. We therefore proceed on that assumption, and we assume that the validity of the underlying tax liability is properly at issue because the amount unpaid after application of credits to which Mr. Webber alleges he is entitled affects the amount of tax due for 2013 that the Commissioner seeks to collect. See, e.g., Landry v. Commissioner, 116 T.C. 60, 62 (2001). We therefore review de novo the determination of IRS Appeals to sustain the proposed levy on the grounds that there was no credit elect to satisfy that liability. Furthermore, our jurisdiction in this case under section 6330(d)(1)(A) 1 2 3 4 5 6 7 8 enables us to consider the facts and issues in 20 nondetermination years (such as 2004 and 2005, which Mr. Webber contends are the source of the credit elect cascade) because the tax liability for those years affects the appropriateness of the collection action in 2013 (the determination year). Freije v. Commissioner, 125 T.C. 14, 28 (2005); see also Weber v. Commissioner, 138 T.C. 348, 371-372 (2012). 9 C. Burden of proof 10 11 12 Rule 142(a) provides that "[t]he burden of proof shall be upon the petitioner," and there is no dispute that the burden of proof in this case is with Mr. Webber. 13 D. Credits elect Section 6402 provides: In the case of any overpayment, the Secretary, within the applicable period of limitations, may credit the amount of such overpayment . . . against any liability in respect of an internal revenue tax on the part of the person who made the overpayment and shall, subject to subsections (c) [offsets of past due support], (d) [collection of debts owed to Federal agencies], (e) [collection of State income tax obligations], and (f) [collection of 14 15 16 17 18 19 20 21 22 23 24 25 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 unemployment compensation debts], refund any 21 balance to such person. That is, the IRS "may" (not must) credit an overpayment; if it does not credit the overpayment, then the IRS "shall" refund it. Subsection (b) of section 6402 provides for the so-called "credit elect" by authorizing the Secretary "to prescribe regulations providing for the crediting against the estimated income tax for any taxable year of the amount determined by the taxpayer or the Secretary to be an overpayment of the income tax for a preceding taxable year." Pursuant to that authority, the Secretary has issued Treasury Regulation 301.6402-2(c), which provides that "[i]f a particular form is prescribed on which the claim must be made, then the claim must be made on the form so prescribed." However, Treasury Regulation 301.6402-3(a)(5) provides: A properly executed individual . . . original income tax return or an amended return . . . shall constitute a claim for refund or credit within the meaning of section 6402 and section 6511 for the amount of the overpayment disclosed by such return (or amended return). . . . If the taxpayer indicates on its return (or amended return) that all or part of the overpayment shown by its return (or amended return) is to be 1 2 3 4 5 6 7 8 9 applied to its estimated income tax for its 22 succeeding taxable year, such indication shall constitute an election to so apply such overpayment . . . . The credit elect is discretionary with the IRS. "[A] taxpayer may request a credit elect overpayment, but the IRS has discretion whether to allow it or instead to credit the overpayment to another liability owed by the taxpayer or to refund it." Weber v. Commissioner, 138 10 T.C. at 357. 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Although we may determine in a CDP case whether (in the words of Freije, 125 T.C. at 26) an "available credit" from another tax year should be applied to resolve the taxpayer's liability in the determination year before the Court, that credit must "indisputably exist[]", see Del-Co. Western v. Commissioner, T.C. Memo. 2015-142, at *6-7 (citing Weber v. Commissioner, 138 T.C. 348, 366 (2012). As we explained in Weber, 138 T.C. at 371-372: An overpayment of a * * * [tax liability] that has been determined by the IRS or a court but has not been either refunded or applied to another liability may be an "available credit" that . . . could be taken into account in a CDP hearing to determine whether the tax at issue remains "unpaid" and whether the IRS can proceed 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 with collection. But a mere claim of an 23 overpayment is not an "available credit" but is instead a claim for a credit; and such a claim need not be resolved before the IRS can proceed with collection of the liability at issue. Therefore, to defeat the proposed levy in this case, Mr. Webber must prove that the claimed overpayment from 2005 was in fact allowed by the IRS as a credit elect. That is, Mr. Webber's burden is not simply to show that he is entitled to an overpayment that we should then direct the IRS to credit against his liability; rather, he must show that the IRS did allow a credit. If this seems like an unfairly difficult project, we must bear in mind the alternative-i.e., that a taxpayer might halt IRS collection of his liability in one year merely by claiming that he overpaid his liability in a different year. If that were so, then any CDP case could be expanded to become a comprehensive audit of a taxpayer's plenary situation with the IRS. Tax could not be collected in any year until all claims had been resolved for all years. This is not the nature of a CDP case. Rather, in a CDP case we are generally restricted to the determination year but may take note of a credit that has been allowed by the IRS and that therefore "indisputably exists" (not a mere claim of a credit by the taxpayer). 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 II. Analysis 24 When Mr. Webber filed his 2004 return and his original and amended returns for 2005, he claimed overpayments and thereby made formal claims for refunds or credits. See Treas. Reg. 301.6402-3(a)(5). And by designating that the claimed overpayments in 2004 and 2005 be applied to the respective subsequent tax year's liability, he elected to have the overpayments be applied as credits to the succeeding tax years. Id. There is no dispute in this case that Mr. Webber filed formal refund claims for 2004 and 2005. The decisive issue is whether those claims for refunds and credit elects in 2004 and 2005 were allowed by the IRS such that they could be applied to 2013 either through a cascade or otherwise as an "available" credit. 16 A. Credit elect from 2012 to 2013 17 18 19 20 21 22 23 24 25 The IRS's transcript for Mr. Webber's 2012 income tax liability (Doc. 78 at 406) shows no allowance of an overpayment for 2012 and shows no credit of any overpayment to 2013. Likewise, the IRS's transcript for Mr. Webber's 2013 income tax liability (Doc. 78 at 407- 408) shows no credit elect from 2012 against the 2013 liability. Arguably, our analysis should stop there. Mr. Webber's argument that he should prevail by showing an overpayment he made ten years earlier probably posits "a 1 2 3 4 5 6 7 8 cascading series of multiple credit elect overpayments 25 [that] implicate[s] years . . . so remote from the year at issue that they should not fall within a CDP case" and that probably exceeds "the outer limits of our CDP jurisdiction." Weber, 138 T.C. at 372. However, if we do proceed further, we find that Mr. Webber did not show an unbroken cascade. Rather, that cascade stopped before it started-in 2004. 9 B. Credit elect for 2004 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 The basis for Mr. Webber's maintaining that the IRS allowed his credit elect for 2004 is the Letter 3401 (Doc. 78 at 69) stating that the Revenue Agent was "proposing no change to your tax return" and the Form 4549 showing a zero in the lines for "Balance Due or (Overpayment)". Mr. Webber assumes the Revenue Agent to be the authoritative spokesman for the IRS, takes his "propos[al]" as a determination, construes "no change to your tax return" to mean no change to any item (including the credit elect) reported on the return, interprets the zero on Form 4549 (Doc. 78 at 492) to indicate zero change in his claimed overpayment and credit elect for 2004, and concludes that the IRS thereby allowed his claimed overpayment and credit elect of $71,012. Mr. Webber's interpretation of the letter and the Form 4549 is not tenable. The letter and the attached form both present a "propos[al]" that is "subject to the 26 Area Director's approval". Moreover, although the letter does indeed use the phrase "no change", the letter in fact does propose changes, because multiple adjustments are listed in Boxes 1 and 2. A zero in Box 7 ("Corrected Tax Liability") apparently does mean zero change to that liability; but Box 8 (for listing "Credits")-presumably the place (if there was any) for noting change or no change in the credit elect-was simply left blank for both tax years 2004 and 2005. The zero in Box 16 ("Balance Due or (Overpayment)") apparently means at most that there is no balance due or overpayment as a result of the examination-not that the claimed overpayment is not being adjusted. The Form 4549 therefore does not suggest the allowance of Mr. Webber's claimed overpayment in 2003 as a credit elect into 2004-and if the Form 4549 had suggested that, it was only a Revenue Agent's "proposal". Was such a proposal followed by the agency? Did it allow his credit elect? No. As we have shown, the Literal Transcript for Mr. Webber's 2004 year (Doc. 78 at 390) shows no allowed (or claimed) credit of $71,012 (or any similar amount) and no application of any credit to 2005. There is no evidence for a 2004 overpayment and credit elect being allowed by the IRS. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 27 1 C. Credit elect for 2005 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 As to 2005, Mr. Webber received a Letter 569 (Doc. 78 at 494) proposing "full disallowance" of his claimed credit elect, but he makes two apparent contentions against the significance of that disallowance. First, he stresses that the amount "full[y] disallow[ed]" was only $21,578, not the entire $73,734 that he claimed. He evidently contends that this means that the remaining $52,156 must have been allowed. For two reasons this contention cannot carry the day: (1) He must show that the IRS affirmatively allowed a credit (so that it can now be said to be available). It is not enough to show that the IRS did not expressly disallow it. (2) It appears that the Revenue Agent considering his 2005 claim in 2010 thought that a disallowance of $21,578-the amount claimed on Mr. Webber's Form 1040X for 2005-was a "full disallowance" because he mistakenly thought that that was the entire amount claimed. Mr. Webber had filed his original Form 1040 for 2005 claiming a $50,000 credit elect from a 2004 return that in fact had not yet been filed; and the last line on his later Form 1040X-calling for the amount "you want applied to your 2006 estimated tax"-gave the amount $21,578. Someone who puzzled through the original Form 1040, the amended Form 1040, and the Form 1040X might indeed realize that the full intended 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 amount of the claim was $73,734 (an amount that was not on 28 the Form 1040X) rather than the stated amount of $21,578. But we see no reason to suppose anything other than that the Revenue Agent who proposed "full disallowance" and stated that the "Amount of Claim" was $21,578 thought that $21,578 was the "full" amount of the claim. There is no reason to read into this action an implicit allowance of $52,176. Second, Mr. Webber contends that he successfully reversed the Revenue Agent's "full disallowance" in IRS Appeals, as evidenced by the January 2012 letter he received from IRS Appeals stating that "we are allowing the full amount of your claim." Mr. Webber interprets this language as allowing not only the $21,578 amount (derived from the Form 1040X and the Revenue Agent's "full disallowance") that was shown on IRS Appeals's January 2012 letter but also the additional (unstated) $52,156 (claimed on his original return for 2005), for a total allegedly allowed credit elect from 2005 of $73,734. The correspondence from the IRS regarding Mr. Webber's claim of an overpayment and credit elect in 2005 falls far short of showing that the credit "indisputably exists" but rather sends, at best, mixed signals. On the one hand, the letter did explicitly state that "we are allowing the full amount of your claim" (with the "Amount 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 of Claim" given as $21,578); on the other hand, the letter 29 was equivocal in stating that "After your claim is processed [that is, it had not yet been "processed"], we will send you a notice"-but no notice ever came. Moreover, all other evidence from the IRS records suggests that no credit elect was ever actually applied to his 2005 account and carried forward. To the contrary, the Literal Transcript for 2005 (Doc. 78 at 392) shows no allowed (or claimed) credit of $73,734 (or $52,156, or $21,578, or any similar amount) and no application of any credit to 2006. And far from showing the allowance of any claim, the IRS account transcripts for Mr. Webber's 2004 and 2005 tax years show explicit entries on June 11, 2012, for "Disallowed claim". See also Ex. 25-J (Doc. 78 at 116, Case Activity Record entry of 05/08/2012: "case sent back to appeals office for review. Transcripts indicated no payments were made by taxpayer for tax year 2005. Claim disallowed in full for 2005.") Consequently, when Mr. Webber filed a 2006 return (Doc. 78 at 448) trying to claim on line 65 a $73,734 credit elect from 2005, the IRS sent him a letter (Doc. 78 at 264) in September 2008 correcting that amount to zero and explaining, "We could not find the amount of $73,734.00 from the prior year." To the same effect, a Literal Transcript for 2006 (Doc. 78 at 394), generated as 1 2 3 4 5 6 7 8 9 10 11 12 13 recently as June 2020, shows no credit of $73,734 (or any 30 similar amount) from 2005. The only credit elect visible on Mr. Webber's transcripts is an anomalous credit of $4,806 supposedly from 2003 that was applied to his 2004 account (and refunded therefrom, not credited to 2005). (Doc. 78 at 391.) Otherwise, as far as the eye can see, no credit elect is allowed on Mr. Webber's accounts. On the basis of the record before us, we cannot determine that an available credit arising from 2004 and 2005 indisputably exists such that it could be applied to Mr. Webber's 2013 liability, and that is the determination we would have to make in order to grant Mr. Webber relief in this CDP case. We cannot do so. 14 D. The status of Mr. Webber's claimed overpayment 15 16 17 18 19 20 21 22 23 24 25 We do not address the question whether Mr. Webber overpaid his tax for the 2004 and 2005 years, nor whether the IRS erred in failing to allow those claims. Rather, we hold that the IRS, whether rightly or wrongly, in fact did not allow those claims, so that no resulting credit exists to preempt collection by levy of Mr. Webber's unpaid 2013 tax. If the IRS does err in failing to allow a claim of an overpayment, then the remedy is a suit for refund in the U.S. District Court or the Court of Federal Claims (not the Tax Court). The evidence shows, and the Commissioner does not dispute, 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 that Mr. Webber filed claims, proper in form (on Forms 31 1040 and 1040X), for overpayments for 2004 and 2005 that he elected to be applied as credits elect. The IRS admits that it has not yet issued to Mr. Webber notices of disallowance that would start the two-year period for filing a refund suit under section 6532(a). Thus, for all we know, Mr. Webber retains the right to file a refund suit for the 2004 and 2005 years (or perhaps subsequent years in the chain) pursuant to section 7422(a) in an appropriate forum. In so saying we do not mean to hint that such a suit would have merit. In this case the Commissioner was evidently willing to have us assume-but he did not admit- that an overpayment existed in 2003. Possible impediments to Mr. Webber's recovery of an overpayment in a later refund suit are apparent: Mr. Webber previously filed a deficiency case for the year 2001, Webber v. Commissioner, No. 140-05S, that concluded with a stipulated decision holding that for 2001 he had an overpayment of $12,398-not the $58,531 (Doc. 78 at 439) that his credit elect cascade requires (a fact that the Commissioner did not press in this case). Moreover, Mr. Webber apparently received refunds that presumably would have drained or eliminated his credit elect cascade. But such considerations- pertinent to determining whether he might be entitled to an overpayment that has never been allowed-are not 32 critical to our determining whether the IRS ever allowed the credit he claims. Plainly it did not. III. Conclusion Our jurisdiction in the CDP context limits us to considering in this case only whether an available credit from a prior tax year indisputably exists such that it could be applied to the determination year. Having reviewed this issue de novo, we hold that the evidence does not establish that an available credit from either 2004 or 2005 exists such that it may be applied to Mr. Webber's outstanding 2013 liability, because the status of these claims as available credits elect is far from clear, and the preponderance of the evidence proves that the IRS did not allow the credit elect into or out of 2004 or 2005, and not into 2013. Because the only issue raised by Mr. Webber in his CDP hearing was his entitlement to a credit, we must uphold the determination by IRS Appeals to sustain the proposed levy action to collect Mr. Webber's unpaid 2013 tax liability. This concludes the Court's oral findings of fact and opinion in this case. (Whereupon, at 3:42 p.m., the above-entitled matter was concluded.) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25