Check 10376 stands 2009 Tax Ct. Memo LEXIS 160">*170 by itself because the Kovaceviches did not put that check in front of the Appeals officer during the CDP hearing -- meaning we have no determination to review on that question. The Commissioner argues in his brief that we shouldn't consider that check because it was not part of the administrative record. We have already held, however, that we are not limited to the administrative record in reviewing CDP determinations. Robinette v. Commissioner, 123 T.C. 85">123 T.C. 85 (2004), revd. 439 F.3d 455">439 F.3d 455 (8th Cir. 2006). As a reviewed opinion, Robinette remains good law in our Court unless a case is to be appealed to the Eighth Circuit; this case is not. See Golsen v. Commissioner, 54 T.C. 742">54 T.C. 742, 54 T.C. 742">757 (1970), affd. 445 F.2d 985">445 F.2d 985 (10th Cir. 1971). ⁸

Because we do not follow the record rule, we will consider evidence not produced at the CDP hearing if it is relevant to issues raised 2009 Tax Ct. Memo LEXIS 160">*171 during the hearing and is admissible under the Federal Rules of Evidence. The Commissioner, however, will often object to evidence that a taxpayer introduces for the first time at trial in our Court on the ground that evidence not put before the Appeals officer during the CDP hearing is irrelevant to the question of whether that officer abused her discretion. Murphy v. Commissioner, 125 T.C. 301">125 T.C. 301, 125 T.C. 301">313-14 (2005), affd. 469 F.3d 27">469 F.3d 27 (1st Cir. 2006). But in this case, the Commissioner did not object to entry of this check into evidence, so we can dodge any further analysis -- an evidentiary objection unmade at trial is waived. Fed. R. Evid. 103(a); Fuller v. Commissioner, 20 T.C. 308">20 T.C. 308, 20 T.C. 308">314 (1953), affd. 213 F.2d 102">213 F.2d 102 (10th Cir. 1954).

The Commissioner next concedes on brief that the Appeals officer was wrong to conclude that she need not, or could not, or should not, investigate whether the checks should have been credited against the Kovaceviches' unpaid 1992 liability. We need to explain this concession to explain the problems that it creates.

The concession springs from the Commissioner's reading of section 6330(c), which lists what 2009 Tax Ct. Memo LEXIS 160">*172 a taxpayer may raise during a CDP hearing:

SEC. 6330(c). Matters Considered at Hearing. -- In the case of any hearing conducted under this section --

Because the Kovaceviches received a notice of deficiency for 1992, their "underlying liability" 2009 Tax Ct. Memo LEXIS 160">*173 could not have been properly at issue in the CDP hearing. The Appeals officer clearly understood this as a general principle. The Kovaceviches do not, as is plain from their reliance on Perkins v. Commissioner, 129 T.C. 58">129 T.C. 58, 129 T.C. 58">64 (2007), a case in which the taxpayers could challenge the underlying deficiency because "no statutory notice of deficiency was sent to petitioner" for the year at issue. But the application of this general principle requires an answer to a more precise question: Is a dispute about whether a particular check should have been credited toward a particular tax liability a prohibited "challenge to the underlying tax liability?"

Our analysis requires a brief detour into tax jargon: liability, deficiency, and assessment. A tax liability is the tax imposed by the Code on a particular taxpayer for a particular tax year. Sec. 26(b)(1). For an individual who correctly reports his taxes, that liability is the amount of tax shown on his return. A deficiency is the difference between the amount of a taxpayer's liability and the amount shown on his return -- in other words, the difference between a taxpayer's liability under the Code and what he admits that he owes on his return. 2009 Tax Ct. Memo LEXIS 160">*174 Sec. 6211. An assessment is the recording of a liability in the Commissioner's books. Sec. 6203.

With these definitions in place, it might seem at first reading that challenges to the proper crediting of checks that a taxpayer sends to the IRS are not "challenges to the underlying liability," because they don't raise questions of the amount of tax imposed by the Code for a particular tax year. They raise, instead, questions of whether that liability remains unpaid. The Commissioner agrees, arguing that "the very structure of section 6330 reinforces the distinction between liability and payment of unpaid tax." The Commissioner points out that section 6330(c)(2)(A) starts by saying, "the [taxpayer] may raise at the hearing any relevant issue relating to the unpaid tax . . . ," whereas section 6330(c)(2)(B) says the taxpayer may raise challenges "to the existence or amount of the underlying tax liability" if the taxpayer has not received a notice of deficiency. ⁹ (Emphasis added.) In Freije v. Commissioner, 125 T.C. 14">125 T.C. 14, 125 T.C. 14">26 (2005), we reasoned:

considering the terms of the statute in their ordinary meaning, a "relevant issue relating to the unpaid tax or the proposed levy" surely includes 2009 Tax Ct. Memo LEXIS 160">*175 a claim, such as the one here, that the "unpaid tax" has in fact been satisfied by a remittance that the Commissioner improperly applied elsewhere.

So we agree with the Commissioner on this one, and hold that questions about whether a particular check was properly credited to a particular taxpayer's account for a particular tax year are not challenges to his underlying tax liability. ¹⁰ The consequence here is that we review the Appeals officer's determination for abuse of discretion:

Where the validity of the tax liability was properly at issue in the hearing . . . The amount of the tax liability will in such cases be reviewed by the appropriate court on a de novo basis. Where the validity of the tax liability is not properly part 2009 Tax Ct. Memo LEXIS 160">*176 of the appeal, the taxpayer may challenge the determination of the appeals officer for abuse of discretion. H. Conf. Rept. 105-599, at 266 (1998).

See also, e.g., Sego v. Commissioner, 114 T.C. 611">114 T.C. 611; Goza v. Commissioner, 114 T.C. 182-83">114 T.C. 182-83. This means that we look to see if the Appeals officer's decision was grounded on an error of law or rested on a clearly erroneous finding of fact, or whether 2009 Tax Ct. Memo LEXIS 160">*177 he applied the correct law to fact findings that weren't clearly erroneous but ruled in an irrational manner. Indus. Investors v. Commissioner, T.C. Memo. 2007-93 (citing United States v. Sherburne, 249 F.3d 1121">249 F.3d 1121, 249 F.3d 1121">1125-26 (9th Cir. 2001)); see also Cooter & Gell v. Hartmarx Corp., 496 U.S. 384">496 U.S. 384, 496 U.S. 384">402-03, 110 S. Ct. 2447">110 S. Ct. 2447, 110 L. Ed. 2d 359">110 L. Ed. 2d 359 (1990).

Our agreement with the Commissioner on this point, though, may end up causing him a problem -- it means that the Appeals officer committed an error of law when she labeled the check-crediting argument a challenge to the underlying liability. This means that she necessarily abused her discretion, unless her error was harmless. See Perkins, 129 T.C. 58">129 T.C. 70-71. The Commissioner points out to us two paths to a finding of harmlessness: that the Kovaceviches are barred from raising the check-crediting issue by section 6330(c)(4) and the doctrine of res judicata, and that they would still lose because the IRS did correctly credit the checks against liabilities other than their unpaid 1992 individual income-tax liability.

Section 6330(c)(4) precludes a taxpayer from raising in a CDP hearing any "issue" that "was raised and considered at a previous hearing 2009 Tax Ct. Memo LEXIS 160">*178 under section 6320 or in any other previous administrative or judicial proceeding." The Kovaceviches raised -- and we did consider -- the issue of check 3747 during their deficiency trial. Kovacevich v. Commissioner, No. 12815-99 (T.C. Jan. 15, 2004) (decision). Therefore, the Code itself would preclude us from addressing this check during the collections stage. But Rule 39 requires a party to specially plead "any matter constituting an avoidance or affirmative defense, including res judicata." Whether preclusion under section 6330(c)(4) is "a matter" that must be pleaded as an affirmative defense is unclear. If it is, then there's a problem, because the Commissioner didn't raise the issue in his answer. But we'll just note the problem as one we'll save for a later case -- it would affect at most only one of the disputed checks.

The Commissioner next argues that the Kovaceviches could have raised the proper crediting of these checks in previous litigation, even though they didn't. This is an argument about res judicata. But applying res judicata in this case turns out to be quite complicated. The first problem for the Commissioner is that, as with his section 6330(c)(4) argument, he 2009 Tax Ct. Memo LEXIS 160">*179 raised it for the first time in his posttrial brief. Res judicata is definitely an affirmative defense, yet it is nowhere in the Commissioner's answer and didn't come up at trial. ¹¹ A second problem is that it's not at all clear that questions of whether the IRS credited particular checks correctly have to be raised in a deficiency case. ¹² And even in the Kovaceviches' 1992 deficiency case only one check, number 3747, was actually mentioned in the computations, when we found that it was a check "credited to previous years for employment taxes owed by the corporation's liabilities relating to 1988, 1989, and 1990." Kovacevich v. Commissioner, No. 12815-99 (T.C. Jan. 15, 2004) (decision). (The Kovaceviches presumably could have also raised the crediting of check 7438, because they wrote it in 1995.)

The check numbered 10161 was written in September 2009 Tax Ct. Memo LEXIS 160">*180 2003, after the trial but before entry of the Rule 155 computations, and the last two checks, 7461 and 10376, were written after we had already entered decision. So it's not at all clear that questions about the proper crediting of particular payments are part of the same "claim," and so precluded by res judicata, as is the proper computation of tax liability. It is clear that in the circumstances of this case -- where at least some of the checks could not have been brought to our attention because they hadn't been written yet -- we would still need to proceed to the question of whether the IRS properly credited them. So we will sidestep this question too.

That leaves us with the decisive question of whether the IRS properly credited the disputed checks. The Kovaceviches make two arguments. The first is that the checks were credited to the wrong tax years. The second is that overpayments of employment taxes for some years should have been carried over to reduce their 1992 income-tax liability.

A taxpayer who makes a voluntary payment may designate which liability he or she wishes to pay. Tull v. United States, 69 F.3d 394">69 F.3d 394, 69 F.3d 394">396 (9th Cir. 1995); 2009 Tax Ct. Memo LEXIS 160">*181 see also Rev. Proc. 2002-26, 2002-1 C.B. 746. We find that all the Kovaceviches' payments were voluntary, so their designation controls.

Check 3747, for $ 21,985.48, was written on the account of Robert E. Kovacevich, P.S., on March 30, 1991. The check bears the employer identification number of Robert E. Kovacevich, P.S., and directs that it should be credited for "Employment tax 3-3188-9/30/88, 1989, 3/31/89-9/30/89, 3/31/90, 9/30/90." The Appeals officer did not research this check, and the Commissioner entered no transcripts for tax years before 1992 into evidence at trial. However, the Appeals officer wrote in the Notice of Determination that this check pertained to "years outside the CDP." This finding was not an abuse of discretion; it was not clear error for her to determine that this check was meant to pay for years before 1992 and was meant to reduce the firm's own unpaid tax liabilities. And, if it is up to us to make a finding of our own on the basis of the trial record, we find it more likely than not that the check was credited as the Kovaceviches wished.

Check number 7438, for $ 22,583.20, was written on the account of Robert E. Kovacevich, P.S., on September 30, 1995. 2009 Tax Ct. Memo LEXIS 160">*182 It reads "941 taxes 3/31/92-12/31/92; 941 taxes 3/31/93-12/31/93. For payment of 941 taxes only no interest or penalties." This check also has the firm's employer identification number on it. The back of this check bears an obscured document locator number (DLN) ¹³ which reads in part "291172772." This matches an October 4, 1995 IRS computer-transcript entry labeled "payment" for Western Management's tax period ending March 1992. This makes it highly likely that check 7438 is the very same check that triggered the refund litigation in the Court of Federal Claims. As the opinion in that case states:

On September 30, 1995, a check in the amount of $ 22,530.20 from account no. *** [XXXXX-XXX] was paid to the Internal Revenue Service. *** The check was paid on amounts billed by the IRS for alleged FICA, FUTA, and other employment taxes solely on a dispute of one worker Robert Kovacevich for the calendar year 1992.

Western Management, 45 Fed. Cl. 543">45 Fed. Cl. at 548. This reading is confirmed by the 1992 Western Management transcript, 2009 Tax Ct. Memo LEXIS 160">*183 which indicates that the Kovaceviches began refund litigation for that year in May 1997. The transcript shows that Western Management got a refund of $ 3,961.04 for 1992; this corresponds to the amount of check 7438 less the additional tax assessed plus interest and penalties. ¹⁴ We therefore find that the Appeals officer committed no clear error in concluding that the IRS did credit this check according to the taxpayer's wishes; all the facts strongly indicate it was meant to pay the firm's tax debt, not the Kovaceviches'.

The Kovaceviches wrote check 10161 September 29, 2003. They directed that this $ 7,682 check be put toward "Payment of employment tax Western Management Inc. For 6672 penalty to withholding tax only. No interest or penalty payment. Directed payment for 1994 taxes of Robert E. Kovacevich classified as employee." Analyzing the crediting of this check is complicated; although Western Management's employer identification number is handwritten at the top, Robert's Social Security number and the words "1994 tax" are typed at the 2009 Tax Ct. Memo LEXIS 160">*184 bottom. This makes the job of discerning the Kovaceviches' intended crediting very confusing. On the one hand, they designated it for payment of the "6672 penalty." On the other, it also has Robert's Social Security number typed on the check and a second note directing that it should be put toward "1994 taxes of Robert E. Kovacevich." This suggests it should pay his tax. If we had a third hand, we could also point out that it's designated for "payment of employment tax Western Management Inc.," indicating payment of 941 taxes, reinforced by the handwritten employer identification number on the check.

The Commissioner apparently resolved this issue by crediting the checks to Western Management's account. The DLN on the back of the check is 29117282040043; this matches an October 3, 2003 entry on Western Management's account transcript showing a $ 1,920 payment for the firm's first quarter 1994 taxes. The Appeals officer found that the IRS had credited the remainder of the check to the rest of Western Management's 1994 tax year. The following payment entries appear in the transcripts:

Based 2009 Tax Ct. Memo LEXIS 160">*185 on the evidence, the Appeals officer did not abuse her discretion in finding that the check was credited across all four quarters of Western Management's 1994 tax year. It was also not clear error for her to find that this accorded with the taxpayer's confusing directions -- those directions as stated on the check could have supported any one of three different conclusions as to their intentions. "Where there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous." Anderson v. City of Bessemer City, 470 U.S. 564">470 U.S. 564, 470 U.S. 564">574, 105 S. Ct. 1504">105 S. Ct. 1504, 84 L. Ed. 2d 518">84 L. Ed. 2d 518 (1985). And, of course, none of the three plausible interpretations of the ambiguous directions has anything at all to do with the Kovaceviches' 1992 income tax.

Check 10376 was for $ 7,514.40 and dated April 28, 2004. It was drawn from the personal account of Robert and Yvonne Kovacevich, but written on it is "Payment of employment tax ONLY Western Management Inc. Directed payment for TAX ONLY 1994 for Robert E. Kovacevich classified as employee." The only identification number on the check is Western Management's. And that is what we find was done: On Western Management's transcript for March 1994, there is an entry 2009 Tax Ct. Memo LEXIS 160">*186 for a "subsequent payment" of $ 7,514.40. Although some of the numbers on the back of the check are obscured, the digits "31105004" are clear and match the DLN on the transcript corresponding to the May 3, 2004 payment. The Appeals officer didn't analyze where this check went -- remember, it was the check the Kovaceviches introduced only at trial. But it's plain to us that when they wrote it, the Kovaceviches designated the check to pay 1994 taxes. The 1994 tax quarters for Western Management do not overlap with the Kovaceviches' 1992 individual tax year, so we find that the Commissioner properly did not credit it to the Kovaceviches' individual account.

The Appeals officer addressed the last of these five checks, number 641 for $ 8,276.50, by verifying that it had been applied to Western Management's deficiency for the first quarter of 1995. The Kovaceviches wrote this on November 23, 2004, directed that it should be put toward the "6672 penalty on 3/27/1995," and wrote Robert Kovacevich's Social Security number on it. The Western Management transcript for the period ending March 31, 1995 has an entry on November 23, 2004 for a "subsequent payment -- trust fund" in the amount of $ 2009 Tax Ct. Memo LEXIS 160">*187 8,276.50. The number printed on the back of the check again matches the "DLN" indicated on Western Management's transcript.

The Kovaceviches plausibly argue that they wanted this payment applied to Robert's 1995 trust-fund-recovery penalty under section 6672, not to Western Management's 941 taxes for 1995. But their argument misses the point -- this case is about the Kovaceviches' unpaid 1992 tax liability. We simply lack jurisdiction over 1995 taxes when they do not affect the tax year covered by the notice of determination in front of us. Freije, 125 T.C. 14">125 T.C. 25.

Robert even admitted at trial that he wanted this applied to the 1995 section 6672 penalty, but stressed that he also asked the Appeals officer to credit it to his 1992 income tax deficiency. The Kovaceviches made no coherent argument as to why this amount should be applied to both the 1995 penalty and their 1992 income tax. The only possible question is whether the check should have been applied to cover 941 taxes or 6672 penalties for 1995, but 1995 isn't the year in front of us and doesn't directly affect the year that is. Any mistake the Appeals officer made in finding that the check was credited according to the Kovaceviches' 2009 Tax Ct. Memo LEXIS 160">*188 wishes is harmless error. We also find no support for Robert's somewhat puzzling general assertion that the payments should be applied toward both Western Management's liability and to his individual liability. Section 6521 does mitigate the effect of the statute of limitations if self-employment income is recharacterized as wage income, so that self-employment taxes already paid can be credited toward the employer's liability. Robert, however, seems to think that the taxes owed by Western Management exactly equal the taxes paid by him, amounting to a wash. This isn't the case; Robert underreported his income in 1992 by $ 45,000. Nobody has yet paid the taxes -- either employment or income tax -- on this extra income. The deficiency for 1992 also reflected a higher liability because the Commissioner denied some of the Kovaceviches' Schedule C deductions. So any error committed by the Appeals officer was doubly harmless -- not only were the checks properly credited to years other than 1992, but they wouldn't have satisfied the Kovaceviches' unpaid tax liability for that year even if they had been applied to 1992.

The Kovaceviches briefly argue about something called 2009 Tax Ct. Memo LEXIS 160">*189 "contribution basis." They believe the Commissioner overcollected employment taxes for 1988, 1989, and 1990 by applying check number 3747 to that debt, and should therefore credit the overpayments toward their 1992 deficiency.

The Kovaceviches are partly correct about the "contribution basis;" section 3121(a) exempts from wages subject to part of the FICA tax:

that part of the remuneration which, after remuneration * * * equal to the contribution and benefit base (as determined under section 230 of the Social Security Act) with respect to employment has been paid to an individual by an employer during the calendar year with respect to which such contribution and benefit base is effective, is paid to such individual by such employer during such calendar year. * * *

We sidestep the problem (and the need to parse the passage just quoted): The short answer to the Kovaceviches' argument is that they didn't provide any evidence that they met the requirements for this exemption. They didn't enter into evidence their tax returns or other evidence of Robert's income for 1988-90. They also didn't tell us (or the Appeals officer) specific amounts that should be credited toward 1992 or how those 2009 Tax Ct. Memo LEXIS 160">*190 credits reduce the deficiency. This attack on the notice of determination must also fail.

The Kovaceviches finally urge us to find an abuse of discretion in the Appeals officer's refusal to send information about their additional income to the Social Security Administration. Although this seems like a strange line of argument, it has real-life effects on the Kovaceviches. They argue that if the Commissioner told the SSA about the additional 1992 income on which they must now pay taxes, they could increase their monthly Social Security payout by a small amount.

We are sympathetic to this desire to increase their retirement income. But a CDP hearing is not the right forum -- getting information from the IRS to the SSA about whether Social Security taxes have been paid is not an issue related to an unpaid tax and is not related to a levy. It is thus not an issue that may be raised at a CDP hearing. See sec. 6330(c)(2). ^{152009 Tax Ct. Memo LEXIS 160">*191}

Decision will be entered for respondent.