T.C. Summary Opinion 2011-40



                      UNITED STATES TAX COURT



    CYNTHIA SUSAN RUHL AND JONATHAN B. KLINCK, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 14569-09S.               Filed April 5, 2011.



     Cynthia Susan Ruhl and Jonathan B. Klinck, pro sese.

     Kevin W. Coy, for respondent.



     GERBER, Judge:   This case was heard pursuant to the

provisions of section 7463 of the Internal Revenue Code in effect

when the petition was filed.1   Pursuant to section 7463(b), the

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




     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year under
consideration.
                                - 2 -

this opinion shall not be treated as precedent for any other

case.

     Respondent determined a $1,106 income tax deficiency for

petitioners’ 2006 tax year.    The parties now agree that the

statutory deficiency is $906.99.    Petitioners disagree with

respondent’s computation of the amount of their deficiency in

payment.    We must decide whether we have jurisdiction in this

case to consider the amount, if any, of tax due.

                              Background

     Petitioners resided in California when their petition was

filed.    Pursuant to an extension, they timely filed their 2006

joint Federal income tax return (2006 return) on October 15,

2007.    By a correspondence audit respondent examined petitioners’

2006 return and on December 22, 2008, mailed petitioners a notice

of proposed changes.    The proposed changes resulted in a $1,106

increase in tax for 2006 which was to be reduced by an “Amount

Previously Paid” of $500, resulting in $606 of tax due without

considering interest.

     In a notice of deficiency (2006 deficiency notice)

respondent determined that there was a $1,106 deficiency in

petitioners’ 2006 Federal income tax.      The 2006 deficiency notice

did not reference or give petitioners credit for the $500 “Amount

Previously Paid” that was explained in the December 22, 2008,

notice of proposed changes.
                               - 3 -

     On their 2006 return petitioners reported an income tax

liability of $61,950, which included $4,414 of alternative

minimum tax (AMT).   Petitioners also reported that they were

liable for a $528 addition to tax under section 6654 for failure

to pay estimated tax.   Petitioners reported $67,983 in payments

attributable to 2006, as follows:

     Tax withholding                          $24,964
     Application of 2005 overpayment           10,019
     Estimated tax payments                    13,000
     Paid with extension to file return        20,000
       Total payments                          67,983

The net result of their reporting $67,983 in payments and $62,478

in tax and the addition to tax ($61,950 + $528) was a claimed

overpayment of $5,505 which petitioners requested be applied

toward their 2007 estimated tax liability.

     Respondent’s accounts agree with petitioners’ reported

payments with the exception of the $10,019 application of the

2005 overpayment. Instead of the $10,019 from the 2005 year,

respondent’s accounts reflected an overpayment of $9,014.70, or

$1,004.30 less, resulting in $66,978.70 in total payments and,

ultimately, resulting in a $5,143.69 overpayment to be credited

by respondent to petitioners’ 2007 estimated payments.   When

petitioners’ 2006 return was processed at the Internal Revenue

Service Fresno Service Center, respondent reduced the $4,414 of

AMT reported by petitioners to $3,771, a difference of $643.     The

$643 decrease in AMT resulted in respondent’s reducing
                              - 4 -

petitioners’ claimed $5,505 overpayment by approximately $360 to

$5,143.69 instead of reducing it by the $1,004.30 difference in

payments between petitioners and respondent.

     The parties now agree that respondent’s reduction of

petitioners’ AMT was in error and that respondent should have

assessed the $61,950 of tax petitioners originally reported. The

parties’ disagreement focuses solely upon the $1,004 difference

in payments.

     The $1,004 difference derives from a somewhat complex

computation of the amount of overpayment that should have been

applied from petitioners’ 2005 tax year, which, in turn, concerns

applications of other overpayment credits.   Petitioners directed

the application of a $6,882.94 overpayment for 2004 as an

estimated payment on their 2005 income tax year.   Subsequently,

in a November 21, 2005, notice, respondent notified petitioners

that $1,007.242 of their 2004 overpayment was being applied to an

outstanding tax liability3 for their 2002 tax year.   Petitioners

disagreed with respondent’s application of the $1,007.24 as being

in contravention of their direction and claimed the entire

$6,882.94 overpayment from 2004 as a prepayment on their 2005


     2
      The small difference between the $1,007.24 and the $1,004
that is in dispute is attributable to an unrelated adjustment
about which there is no disagreement.
     3
      Petitioners do not agree that they had an outstanding 2002
income tax liability. Respondent countered that the period for
seeking a refund of the offset has expired.
                               - 5 -

income tax return.   Conversely, respondent applied a credit of

only $5,875.70 ($6,882.94 - $1,007.24) from 2004 for use as a

payment in 2005.

     After petitioners’ 2006 return was audited, respondent, on

September 22, 2008, sent petitioners an initial notice of

adjustments.   The notice contained the following two

noncomputational proposed increases to income:   Nonemployee

compensation of $2,500 and interest income of $48.   The

adjustments, according to respondent’s computation, resulted in a

$1,527 income tax deficiency along with $142 of interest for a

total amount due of $1,669.

     In response to the September 22, 2008, notice, petitioners

on October 24, 2008, sent a letter to respondent along with a

2006 Form 1040X, Amended U.S. Individual Income Tax Return.

Petitioners included the $2,500 of nonemployee compensation in

income and deducted $920 in expenses connected with the income

for a net increase in income of $1,580.   Petitioners also

explained that they had included the $48 of interest on their

original 2006 return and they did not include it again on their

Form 1040X for 2006.   Petitioners also submitted a $500 payment

with their Form 1040X to pay the self-reported deficiency of

$447, plus interest.   Respondent did not process or formally

accept petitioners’ Form 1040X and instead on December 22, 2008,

mailed petitioners a notice of proposed changes that would result
                                - 6 -

in a $1,106 income tax deficiency and proposed to allow

petitioners a $500 credit for their payment so that the amount

due including $105 in interest was $711.      On March 16, 2009,

respondent issued a notice of deficiency in which he determined a

deficiency of $1,106.   After issuing the deficiency notice,

respondent admitted that the $1,106 deficiency was incorrect and

reduced the deficiency by $199.01 to $906.99.      The reduction is

attributable to the allowance of expenses against the $2,500 of

nonemployee compensation.

                             Discussion

     The question we consider is a simple one, although the

underlying factual predicate is complex.      Ultimately, the

question posed by petitioners is whether respondent was entitled

to disregard their explicit instructions to credit their entire

2004 overpayment as a prepayment for 2005 and, in turn, a

prepayment for 2006.    If petitioners’ request had been honored,

they would have no tax due for 2006.      If, on the other hand,

respondent was entitled to ignore petitioners’ request, then

petitioners are liable for the $447 unpaid portion of the $906.99

deficiency.

     We begin by considering the definition of a deficiency.

Under section 6211(a) a “deficiency” is the amount by which the

tax imposed exceeds the excess of the sum of the amount shown as

tax by the taxpayer upon the return plus the amounts previously
                                 - 7 -

assessed (or collected without assessment) as a deficiency over

the amount of rebates made.    This definition has been described

as the “statutory deficiency”.    The parties do not disagree about

the amount of the statutory deficiency.   See supra p. 2.

     Respondent argues that this Court’s jurisdiction is limited

to redetermining the amount of the income tax deficiency and that

the Court has no authority to consider any payment credits in

connection with the determination of the statutory deficiency.

     Petitioners believe that the Court has jurisdiction to

consider any aspect of the 2006 tax year, including the

composition or amount of credits that may affect the amount of

the statutory deficiency that remains unpaid.

     Petitioners’ and respondent’s arguments are, in some

respects, generally correct.   Before this Court’s authorization

to hear collection matters, the credits, payments, and

collection-related matters were without this Court’s statutory

jurisdiction.   With the enactment of sections 6320 and 6330, this

Court acquired jurisdiction to hear collection matters where the

Commissioner issues certain notices and taxpayers file petitions

seeking review of the Commissioner’s proposed collection action.

     Unfortunately for petitioners the predicate for collection

consideration is an administrative collection proceeding, a

notice of determination, and a petition to this Court with
                                 - 8 -

respect to the notice of determination.4       We also agree with

petitioners that it may be inefficient to require two separate

proceedings to resolve the deficiency determination and

collection aspects for the same taxable year.       In many collection

proceedings, it is first necessary to decide the amount of any

deficiency before collection issues can arise.       In this case,

however, the subject of the collection-related dispute arose

before the deficiency determination.       Irrespective of that

distinction, Congress has not empowered this Court to consider

petitioners’ collection matters in this deficiency proceeding.

     To reflect the foregoing,


                                         Decision will be entered for

                                 respondent in the amount of the

                                 agreed deficiency.




     4
      We note, however, that sec. 301.6402-3(a)(6), Proced. &
Admin. Regs., in accord with sec. 6402, authorizes the
Commissioner to override a taxpayer’s instructions to apply
overpayments or credits and to apply them against “any
outstanding liability for any tax”. Accordingly, it is
questionable whether petitioners would be successful in pursuing
respondent’s decision to override their overpayment directions on
their 2004 Federal income tax return.