T.C. Memo. 2008-216



                       UNITED STATES TAX COURT



                 ELLIS AND NORMA CRUM, Petitioners v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 22607-06L.              Filed September 18, 2008.



     Joe Alfred Izen, Jr., for petitioner.

     Derek W. Kaczmarek, for respondent.



                          MEMORANDUM OPINION


     SWIFT, Judge:    Petitioners challenge respondent’s proposed

levy action relating to petitioners’ approximate $133,000 in

outstanding assessed Federal income taxes for 1994 through 2002,

including additions to tax, penalties, and interest.

     All section references are to the Internal Revenue Code, and

all Rule references are to the Tax Court’s Rules of Practice and

Procedure.
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     The issue for decision is whether respondent’s Appeals

Office abused its discretion in concluding that petitioners’

offer-in-compromise (OIC) was not acceptable because, among other

things, alleged overpayments of $2,111 for 1989, $4,561 for 1991,

and $6,879 for 1992 were barred by the refund period of

limitations under section 6511 and not available for credit

against petitioners’ outstanding Federal income taxes for 1994

through 2002.

                         Background

     This case has been fully submitted under Rule 122.   The

stipulated facts are so found.

     For 1989, 1991, and 1992 petitioners late filed their

Federal income tax returns, and respondent prepared for

petitioners substitute tax returns on which respondent determined

tax balances.

     Respondent mailed petitioners notices of deficiency for

1989, 1991, and 1992 reflecting the tax deficiencies, and

petitioners did not respond to the notices of deficiency.    On May

13, 1996, respondent assessed the tax deficiencies for 1989,

1991, and 1992.

     Over the years petitioners made a number of payments to

respondent, and respondent collected by levy funds that were

applied against the Federal income taxes respondent had assessed

against petitioners for 1989, 1991, and 1992.   The last payments
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and levies made that were applied against petitioners’ 1989,

1991, and 1992 Federal income taxes are shown below:


                                       Last Payment
                  Year                   or Levy

                  1989                    7/06/98
                  1991                    5/05/99
                  1992                   12/03/99


     On January 15, 2004, petitioners late filed their 1994

through 2002 joint Federal income tax returns and reported the

balances shown below on each respective return:


                                           Reported Tax
                  Year                     Balance Due

                  1994                        $9,011
                  1995                         3,729
                  1996                        12,957
                  1997                         5,172
                  1998                        10,443
                  1999                         2,452
                  2000                        13,443
                  2001                         1,541
                  2002                         2,697


     On February 22, 2005, petitioners late filed their joint

Federal income tax returns for 1989, 1991, and 1992 on which they

claimed the overpayments at issue herein (namely, $2,111 for

1989, $4,581 for 1991, and $6,879 for 1992).    These late-filed

income tax returns for 1989, 1991, and 1992 on which tax

overpayments were reported constitute petitioners’ claims for

refund.   See sec. 301.6402-3(a)(1), Proced. & Admin. Regs.
                               - 4 -

     On July 18, 2005, respondent mailed to petitioners a notice

of intent to levy with regard to the $133,000 balance in

petitioners’ Federal income taxes for 1994 through 2002.

     On November 8, 2005, petitioners requested an Appeals Office

collection hearing under section 6330 with regard to respondent’s

notice of intent to levy.   In connection with petitioners’

Appeals Office collection hearing, on or about February 24, 2006,

petitioners submitted to respondent an OIC with regard to their

outstanding Federal income taxes for 1994 through 2002.

     As the basis for their OIC, petitioners alleged that they

had made overpayments of their Federal income taxes for 1989,

1991, and 1992 which now should be available to offset a portion

of petitioners’ outstanding 1994 through 2002 Federal income tax

liabilities.   This was the only collection alternative

petitioners suggested to respondent’s proposed levy action.

Also, with their OIC petitioners enclosed a $9,000 payment.

     During their Appeals Office hearing, petitioners did not

submit any other financial information to respondent’s Appeals

officer.

                            Discussion

     During the Appeals Office collection hearing petitioners

contended that their offer-in-compromise should be accepted

because their alleged overpayments for 1989, 1991, and 1992

should be applied to their outstanding taxes for 1994 through
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2002.   However, under section 6402(a) the application of

overpayments of a taxpayer from other years to a particular year

of the taxpayer is subject to the applicable refund period of

limitations.

     The period of limitations applicable to petitioners’

entitlement to the claimed overpayments from 1989, 1991, and 1992

is found in section 6511(a), as follows:


     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 periods expires the later, or if no
     return was filed by the taxpayer, within 2 years from
     the time the tax was paid * * *.


     In this case the 3-year look-back period applies.      Sec.

6511(a) and (b)(2)(A).

     When petitioners late filed their 1989, 1991, and 1992 joint

Federal income tax returns on February 22, 2005 (which as stated

constituted petitioners’ claims for refund at issue herein), the

3-year period provided in section 6511 had long expired, and

their claimed overpayments were not available for refund or for

offset against petitioners’ outstanding Federal income taxes for

1994 through 2002.   Accordingly, petitioners’ OIC, based on

unavailable claims for refund, was properly rejected by

respondent’s Appeals Office.
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     Without citing any authority petitioners argue that to the

extent the overpayments for 1989, 1991, and 1992 were collected

by respondent’s prior levies, payment thereof should not be

treated as made until petitioners had the opportunity to

designate where and how the levied funds should be applied or at

least until petitioners were notified of the fact of the levies

and of how respondent allocated and applied the levied funds to

their outstanding tax accounts and for which years.     The law is

well established that funds seized by the Commissioner by way of

levy are treated as paid as of the date of the levy and that as

involuntarily seized funds they may be allocated by the

Commissioner to a taxpayer’s delinquent tax account as the

Commissioner sees fit.   Secs. 6342, 6402; see Landry v.

Commissioner, 

, 62-63 (2001).

     We sustain respondent’s proposed levy action.1



                                       Decision will be entered

                               for respondent.




     1
      The parties also raise an issue as to whether we have
jurisdiction to consider the effect of petitioners’ alleged
overpayments in the nonsuit years (i.e., 1989, 1991, and 1992) on
the appropriateness of the collection action for 1994 through
2002. In Freije v. Commissioner, 

(2005), we held
that we had jurisdiction to consider whether an alleged erroneous
application of a payment to a nonsuit year should have been
applied to the year before the Court. Herein, we decline to
reconsider Freije.