At the section 6330 hearing in Phoenix, Arizona, on September 21, 2005, the settlement officer described to petitioner the attempts she had made to accommodate his request concerning his 1999 credit or refund claim. Petitioner responded that he had been informed by a settlement officer in Fresno, California, that under special circumstances, "refunds 2008 Tax Ct. Memo LEXIS 103">*110 can be pulled out of excess collections". The settlement officer explained that this avenue had already been explored and that petitioner's claim had been rejected because he had not provided sufficient information. At that point, petitioner reiterated that he had been treated for mental illness and provided additional information and documentation in support of his claim.

In the light of this new information and documentation, the settlement officer decided to recommend that the Statute Unit reconsider petitioner's request concerning his 1999 credit or refund claim. The settlement officer's recommendation, made on or about September 21, 2005 (immediately following the section 6330 hearing), cited a provision of the IRM which "allows a taxpayer to file a claim after the statute expiration date if the taxpayer was physically or mentally disabled in financial matters." ⁹ The settlement officer attached to her recommendation two supporting documents that petitioner had provided. The settlement officer's letter closed with the following paragraph:

Please review this information and advise me if you can reconsider this taxpayer's claim for a refund offset. If additional information is required, 2008 Tax Ct. Memo LEXIS 103">*111 please call the taxpayer and request the necessary documentation. He is cooperative.

One of the two supporting documents described the services provided to petitioner by Saint Vincent Hospital Primary Care Network on four separate occasions between April 19 and June 11, 2002. These services consisted of an initial visit with a therapist followed by a psychiatric interview on May 3, 2002, one session of psychotherapy on May 28, 2002, and one session of individual therapy on June 11, 2002. The other supporting document was a copy of a lab work order form reflecting petitioner's office visit to Dr. Rupa Kneip on November 30, 2003, and noting petitioner's symptoms of anxiety and depression.

Before the Statute Unit responded to the settlement officer's request for reconsideration, the Field Director of respondent's accounts management office in Holtsville, New York (Holtsville office), responded to petitioner's claim for credit or refund in a letter dated February 1, 2006. That letter informed petitioner that his claim was not 2008 Tax Ct. Memo LEXIS 103">*112 allowed because "to claim that overpayment as a credit or to obtain a refund, you have to file your tax return within 3 years from its due date." The letter explained that if petitioner could show that he was financially disabled, he might qualify for relief "from the time limitations for filing a claim set by law." Petitioner was advised that he could appeal the Holtsville office's denial of his claim, and that the Holtsville office would consider petitioner's explanation before forwarding petitioner's request to respondent's Office of Appeals (which, the letter noted, is separate from the Holtsville office).

On February 17, 2006, the Statute Unit notified petitioner that it had forwarded the request for reconsideration to the Ogden, Utah, Office of Appeals, but that the request had been returned to it because a specific request from petitioner (rather than from the settlement officer) was required. The letter stated: "If you feel the financial disability criteria is applicable you will need to specifically request an appeal on that basis." Petitioner replied in writing: "Please consider this letter a specific request from me to consider a reinstatement of refund for Tax Period Dec. 2008 Tax Ct. Memo LEXIS 103">*113 31, 1999 for a reasonable cause for filing late (exception -- illness)."

Petitioner, on March 3, 2006, submitted all of the correspondence he had received from respondent's various offices to the settlement officer in Phoenix, Arizona. The settlement officer's notes indicate: "It appears both Brookhaven and Ogden are working the same issue and giving [the taxpayer] conflicting information." In a conversation with a representative at the Ogden, Utah, office, on the same day, the settlement officer was told that "the communication lines really broke down on this."

Respondent's Phoenix Office of Appeals ultimately denied petitioner's claim concerning his 1999 overpayment. The Appeals team manager's letter of disallowance, dated June 8, 2006, states that petitioner's claim was denied because "you did not file your 1999 return within 3 years of its due date, and you could not show that you were financially disabled on the due date." The case notes of the Appeals officer assigned to evaluate petitioner's claim for credit or refund reflect a conversation, on February 6, 2006, ¹⁰ between petitioner and the Appeals officer and contain the note: "I spoke w/ Richard Perkins. He was treated for 2008 Tax Ct. Memo LEXIS 103">*114 mental illness in 2003. He was not financially disabled on 4/15/2000. Nor could he show why [petitioner's spouse] couldn't file the 1999 return timely."

On June 29, 2006, respondent issued a notice of determination sustaining the proposed levy, signed by the same Appeals team manager who had sustained the denial of petitioner's claim concerning his 1999 overpayment. The notice of determination reiterates that the Appeals officer who denied the claim concerning the 1999 overpayment "decided that the taxpayer was not treated for mental illness until 2003 and he could not show why his spouse couldn't have filed the 1999 return timely." No other basis for the denial of petitioner's claim concerning the 1999 overpayment is articulated in the Appeals officer's notes or in the notice of determination.

Petitioner timely petitioned this Court for review of respondent's determination. In his petition, petitioner requests abatement of penalties and interest for 2000, and refund of the overpayment 2008 Tax Ct. Memo LEXIS 103">*115 for 1999. The petition reiterates that petitioner moved six times between 1999 and 2004, that petitioner asked respondent to apply his 1999 overpayment to his 1995 and 2000 taxes, and that petitioner had been diagnosed and treated for depression, anxiety, and other mental illness during 2002 through 2003.

At trial petitioner introduced additional evidence pertaining to his claim of mental disability, consisting of notes compiled by a therapist and a psychiatrist at Saint Vincent Behavioral Health Clinic. The notes contain detailed descriptions of petitioner's mental health difficulties, and reflect a diagnosis of bipolar disorder and depression. The notes describe the medication that was prescribed to treat these conditions and petitioner's progress and setbacks as he used the medication. Petitioner had not submitted these medical records to respondent before trial because he was embarrassed by their contents and believed that the documents he had already submitted were sufficient substantiation of his claim that he had been financially disabled. Petitioner testified that he had also been treated by another psychiatrist from whom he had never requested substantiating documentation.

Section 6331(a)2008 Tax Ct. Memo LEXIS 103">*116 authorizes the Secretary to levy upon property and property rights of a taxpayer liable for taxes who fails to pay those taxes within 10 days after notice and demand for payment. Section 6331(d) provides that the levy authorized in section 6331(a) may be made with respect to any unpaid tax only after the Secretary has notified the person in writing of his intention to make the levy at least 30 days before any levy action is begun. Section 6330 elaborates on section 6331 and provides that upon a timely request a taxpayer is entitled to a collection hearing before the IRS Office of Appeals. Sec. 6330(a)(3)(B), (b)(1). A request for a collection hearing must be made within the 30-day period commencing on the day after the date of the section 6330 notice. Sec. 6330(a)(3)(B); sec. 301.6330-1(b)(1), Proced. & Admin. Regs.

If a section 6330 hearing is requested, the hearing is to be conducted by the Office of Appeals, and, at the hearing, the Appeals officer conducting it must verify that the requirements of any applicable law or administrative procedure have been met. Sec. 6330(b)(1), (c)(1). The taxpayer may raise at the hearing "any relevant issue relating to the unpaid tax or the proposed 2008 Tax Ct. Memo LEXIS 103">*117 levy". Sec. 6330(c)(2)(A).

At the conclusion of the hearing, the Appeals officer must determine whether and how to proceed with collection and take into account: (i) The relevant issues raised by the taxpayer, (ii) challenges to the underlying tax liability by the taxpayer, where permitted, and (iii) 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).

Within 30 days after the Office of Appeals issues a notice of determination, the taxpayer may appeal the determination to the Tax Court if we have jurisdiction over the underlying tax liability, sec. 6330(d)(1), as we do in the instant case. ¹¹ Our review will be de novo where the underlying tax liability is at issue. Sego v. Commissioner, 114 T.C. 604">114 T.C. 604, 114 T.C. 604">610 (2000). For purposes of these provisions, "underlying tax liability" includes additions to tax. Katz v. Commissioner, 115 T.C. 329">115 T.C. 329, 115 T.C. 329">339 (2000). Where the underlying tax liability is not at issue, we review the Commissioner's determination for abuse of discretion. Goza v. Commissioner, 114 T.C. 176">114 T.C. 176, 114 T.C. 176">181 (2000). An abuse 2008 Tax Ct. Memo LEXIS 103">*118 of discretion is defined as any action that is unreasonable, arbitrary or capricious, clearly unlawful, or lacking sound basis in law, taking into account all the facts and circumstances. See, e.g., Thor Power Tool Co. v. Commissioner, 439 U.S. 522">439 U.S. 522, 439 U.S. 522">532-533, 99 S. Ct. 773">99 S. Ct. 773, 58 L. Ed. 2d 785">58 L. Ed. 2d 785 (1979). If infected by an error of law, the determination of the Appeals officer may be set aside irrespective of the standard of review. Swanson v. Comm'r, 121 T.C. 111">121 T.C. 111 (2003).

As discussed infra, the outcome in this case is not affected by the standard of review or by whether we consider the evidence petitioner submitted at trial, consisting of notes compiled by a therapist and a psychiatrist pertaining to petitioner's mental health, or petitioner's testimony that he was also treated by another psychiatrist from whom he had not requested substantiating documentation.

In this proceeding, petitioner seeks abatement 2008 Tax Ct. Memo LEXIS 103">*119 of the section 6651(a)(1) addition to tax for late filing, the section 6651(a)(2) addition to tax for failure to pay the tax when due, and the 6654 addition to tax for failure to pay estimated taxes, all pertaining to tax year 2000. We construe petitioner's position in this regard to be that he should not be held liable for the additions to tax for 2000. ¹²

Section 301.6330-1(f)(2), A-F5, Proced. & Admin Regs., provides that in seeking Tax Court review of a notice of determination, the taxpayer can ask the Court to consider only an issue that was raised in the taxpayer's section 6330 hearing. See Giamelli v. Comm'r, 129 T.C. 107">129 T.C. 107, 129 T.C. 107">113 (2007); Magana v. Comm'r, 118 T.C. 488">118 T.C. 488, 118 T.C. 488">493 (2002). Petitioner did not dispute his liability for the underlying tax for either 1995 or 2000; indeed, he conceded his liability for the underlying 2008 Tax Ct. Memo LEXIS 103">*120 tax in his correspondence of May of 2004 (with respect to 2000), and again in his November 2004 request for a section 6330 hearing (with respect to both 1995 and 2000). Therefore, we cannot consider petitioner's liability for the underlying tax for either 1995 or 2000 even though raised in the petition.

In evaluating respondent's determination, we have jurisdiction to consider the taxpayer's tax liabilities for years that were not the subject of the notice of determination insofar as they are relevant to computing the taxpayer's tax liability for years that are the subject of the notice of determination. Freije v. Comm'r, 125 T.C. 14">125 T.C. 14, 125 T.C. 14">27 (2005). Indeed, in this case, respondent, in sustaining the proposed levy to collect taxes for tax years 1995 and 2000 (and throughout the development of petitioner's case), considered petitioner's claim that he was financially disabled in 1999 (so that his 1999 overpayment, otherwise barred by the period of limitations, was available to pay the 1995 and 2000 liabilities), and it is respondent's determination that we review.¹³ See sec. 6330(d)(1)(A).

Section 6511(a) provides:

SEC. 6511. LIMITATIONS ON CREDIT OR REFUND.

(a) Period of Limitation on 2008 Tax Ct. Memo LEXIS 103">*121 Filing Claim. -- Claim for credit or refund of an overpayment of any tax imposed by this title in respect of which tax the taxpayer is required to file a return shall be filed by the taxpayer within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such period expires the later * * *

Petitioner's 1999 return, filed February 26, 2004, constituted his claim for credit or refund. Thus, the 3-year period of section 6511(a) was met although, as discussed infra, the 2-year period of section 6511(a) was not. See Commissioner v. Lundy, 516 U.S. 235">516 U.S. 235, 116 S. Ct. 647">116 S. Ct. 647, 133 L. Ed. 2d 611">133 L. Ed. 2d 611 (1996). ^{142008 Tax Ct. Memo LEXIS 103">*122}

Section 6511(b)(2)(A) provides:

SEC. 6511. LIMITATIONS ON CREDIT OR REFUND.

(b) Limitation on Allowance of Credits and Refunds. --

* * * * * * *

(2) Limit on amount of credit or refund. --

(A) Limit where claim filed within 3-year period. -- Ifthe claim was filed by the taxpayer during the 3-year period prescribed in subsection (a), the amount of the credit or refund shall not exceed the portion of the tax paid within the period, immediately preceding the filing of the claim, equal to 3 years plus the period of any extension of time for filing the return. * * *

All of petitioner's 1999 tax was paid through wage withholdings, which, under section 6513(b)(1), are deemed to have been paid "on the 15th day of the fourth month following the close of his taxable year with respect to which such tax is allowable as a credit under section 31", i.e.; on April 15, 2000. Therefore, unless an exception applies, none of petitioner's 1999 tax overpayment is subject to credit or refund because the tax was deemed paid more than 3 years before the claim for credit or refund was filed. Petitioner fails to satisfy the provisions of section 6511(b)(2)(A) by approximately 10 months and 11 days.

Section 6511(h)(1) provides that the running of the period specified in section 6511(b) shall be suspended during any period of an individual's life in which the individual is financially disabled. See Brosi v. Comm'r, 120 T.C. 5">120 T.C. 5 (2003). Section 6511(h)(2) provides:

SEC. 6511. LIMITATIONS ON CREDIT OR REFUND.

(h) Running of Periods of Limitation Suspended While Taxpayer Is Unable to Manage Financial Affairs Due to Disability. --

* * * * * * *

(2) Financially disabled. --

(A) In general. -- 2008 Tax Ct. Memo LEXIS 103">*124 * * * [A]n individual is financially disabled if such individual is unable to manage his financial affairs by reason of a medically determinable physical or mental impairment of the individual which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. An individual shall not be considered to have such an impairment unless proof of the existence thereof is furnished in such form and manner as the Secretary may require.

(B) Exception where individual has guardian, etc. -- An individual shall not be treated as financially disabled during any period that such individual's spouse or any other person is authorized to act on behalf of such individual in financial matters.

As directed by section 6511(h), the Commissioner has prescribed guidelines that are to be used in deciding whether a taxpayer is financially disabled. According to Rev. Proc. 99-21, sec. 4, 1999-1 C.B. 960, 960, the taxpayer must provide a physician's written statement that includes: (1) The name and description of the taxpayer's physical or mental impairment, (2) the physician's medical opinion that the impairment prevented the taxpayer from 2008 Tax Ct. Memo LEXIS 103">*125 managing his financial affairs, (3) the physician's medical opinion that the impairment was or can be expected to result in death, or lasted or can be expected to last for 12 months or more, and (4) the specific time period during which the taxpayer was prevented by such physical or mental impairment from managing the taxpayer's financial affairs. ¹⁵ The physician's statements must be submitted with the credit or refund claim. Id.

Respondent's denial of petitioner's claim for relief from the period of limitations of section 6511(b)(2)(A) was based on the supposition that petitioner was not treated for mental illness (and did not suffer from mental illness) until 2003, rather than at the time the return was due. Not only was this supposition incorrect, because petitioner was in fact treated for mental illness beginning in April of 2002 (and had submitted substantiation of this fact), but it is an insufficient basis, as a matter of law, upon which to deny petitioner relief from the period of limitations 2008 Tax Ct. Memo LEXIS 103">*126 of section 6511(b)(2)(A).

Section 6511(h) suspends the period of limitations set forth in section 6511(b)(2)(A)during any period of an individual's life in which he is financially disabled. Whether petitioner filed his 1999 return within 3 years of the date the return was due, whether petitioner was financially disabled on the date the return was due, and whether petitioner's spouse could have filed a timely return might all be relevant to an inquiry as to whether petitioner is liable for additions to tax for failure to timely file a return and/or to pay the tax when due, see sec. 6651(a), but none of these considerations sufficiently addresses the relevant issues encompassed by section 6511(h). ^{162008 Tax Ct. Memo LEXIS 103">*127} Respondent's Appeals officer should have ascertained: (1) Whether and for how long petitioner was financially disabled at any time between February 26, 2001, and February 26, 2004, ¹⁷ and; (2) whether petitioner's financial disability, if any, suspended the period of limitations under section 6511(b)(2)(A) for a sufficient amount of time to enable petitioner to obtain a credit or refund for taxes paid on April 15, 2000. ¹⁸

At trial respondent contended that petitioner did not present satisfactory evidence of his treatment for mental illness as prescribed by the Secretary in Rev. Proc. 99-21, 1999-1 C.B. 960. However, this lack of substantiation did not appear to play any role in respondent's Appeals officer's decision to deny petitioner's 2008 Tax Ct. Memo LEXIS 103">*128 claim concerning his 1999 overpayment. There is no evidence that respondent's Appeals officer, in denying petitioner's claim that his 1999 overpayment should be applied to 1995 and 2000, ever inquired as to whether the requirements of Rev. Proc. 99-21, supra, had been met or advised petitioner of the existence of Rev. Proc. 99-21, supra, in order to permit petitioner to comply with its provisions.

It is possible that petitioner would have been able to produce the physician's attestation and otherwise comply with the provisions of Rev. Proc. 99-21, supra, to show that he was financially disabled. Respondent's Appeals officer apparently did not consider this possibility because he misapprehended the applicable law (i.e., the Appeals officer believed that petitioner's financial disability would have to have existed on April 15, 2000, when the 1999 return was due and that petitioner, in order to obtain a credit or refund for 1999, was required to file the return within 3 years of the date the return was due or show reasonable cause why the return was not timely filed).

The Appeals officer's verification that the requirements of applicable law had been met was incorrect. Accordingly, respondent's 2008 Tax Ct. Memo LEXIS 103">*129 proposed enforcement action to collect by levy the 1995 and 2000 assessments may not proceed.

We shall remand the determination for 1995 and 2000 to respondent's Office of Appeals for reconsideration of petitioner's claim that he was financially disabled within the meaning of section 6511(h), so that his overpayment of tax for 1999 should have been applied to offset his 1995 and 2000 tax liabilities. ¹⁹ We express no opinion as to whether petitioner was financially disabled within the meaning of section 6511(h) and if so, the effect on petitioner's entitlement to an offset of his 1999 overpayment against his 1995 and 2000 tax liabilities.

To reflect the foregoing,

An appropriate order will be issued.