Opinion
8706-20S
10-04-2021
Gerald H. Toney & Evelyn P. Toney, Petitioners v. Commissioner of Internal Revenue, Respondent
ORDER AND DECISION
Joseph W. Nega, Judge
On August 5, 2021, respondent filed a Motion for Entry of Decision. Respondent moves, pursuant to Rule 50, that the Court enter a decision in this case, which reflects a deficiency of $2, 955 in petitioners' 2017 Federal income tax on the grounds that: (1) petitioners do not dispute the sole underlying adjustment that gave rise to the proposed deficiency for 2017; (2) pursuant to section 6512(b)(4), the Court lacks jurisdiction to review any credit made by respondent under section 6402(a); and (3) petitioners' request to redetermine interest on the proposed deficiency for 2017 is not ripe for the Court's review because the conditions under Rule 261(a) have not been met. By Order dated August 17, 2021, the Court directed petitioners to file a response to respondent's motion on or before September 7, 2021. On September 9, 2021, petitioners filed a response objecting to respondent's motion for entry of decision.
Unless otherwise indicated, all statutory references are to the Internal Revenue Code, Title 26, U.S.C., in effect at all relevant times and all Rule references are to the Tax Court Rules of Practice and Procedure.
On September 27, 2021, the Court held a hearing on respondent's Motion for Entry of Decision. Petitioners and counsel for respondent appeared and were heard. For the reasons stated below, we will grant respondent's Motion for Entry of Decision.
Background
Petitioners timely filed a Form 1040, U.S. Individual Income Tax return, for the 2017 taxable year on April 15, 2018. On their 2017 tax return, petitioners reported taxable social security benefits of $6, 557, a Federal income tax liability of $3, 616, a Federal income withholding credit of $3, 414, and a balance due of $202. On April 16, 2018, petitioners made a payment to the Internal Revenue Service (IRS) against their 2017 tax liability in the amount of $202.
On June 11, 2018, the IRS issued to petitioners a Notice CP16 advising them that it had made changes to their 2017 tax return because there was a miscalculation on the return affecting the tax on social security benefits. The Notice CP16 informed petitioners that the changes made to correct this error reduced their 2017 tax liability to $3, 436, resulting in an overpayment of $180. The Notice CP16 further informed petitioner that the IRS applied the $180 overpayment to their outstanding tax liability for 2007.
On July 29, 2019, respondent issued to petitioners a Notice CP2000 proposing changes to their 2017 tax return. The Notice CP2000 notified petitioners that the information the IRS received from third parties that did not match the income petitioners reported on their return. Specifically, the Notice CP2000 indicated that petitioners failed to report an additional $19, 698 of taxable social security benefits that they received from the Social Security Administration during 2017. As a result, the Notice CP2000 proposed an additional tax liability of $2, 955 for 2017 plus interest of $225, resulting in a total amount due of $3, 180.
On a date not specified in the record, petitioners sent to respondent a response to the Notice CP2000, in which they apparently agreed that they had miscalculated the amount of taxable social security benefits but raised other issues, concerns, and corrections. By letter dated October 30, 2019, respondent acknowledged that respondent received petitioners' response but indicated that respondent was not able to secure the document and requested that petitioners resend it. Petitioners response to the Notice CP2000 is not contained in the record in this case.
On January 6, 2020, respondent issued to petitioners a Notice of Deficiency, in which respondent determined a deficiency of $2, 955 in petitioners' 2017 Federal income tax. On July 10, 2020, petitioners timely filed a petition for redetermination in response to the Notice of Deficiency dated January 6, 2020.On August 5, 2021, respondent filed a Motion for Entry of Decision. On September 9, 2021, petitioners filed a response objecting to respondent's motion for entry of decision. On September 27, 2021, the Court held a hearing on respondent's Motion for Entry of Decision.
The petition, bearing a U.S. Postal Service postmark date of April 4, 2020, was timely mailed. See sec. 7502.
Discussion
The Tax Court is a court of limited jurisdiction and may exercise jurisdiction only to the extent authorized by Congress. Naftel v. Commissioner, 85 T.C. 527, 529 (1985). We nevertheless have jurisdiction to determine whether we have jurisdiction. Hambrick v. Commissioner, 118 T.C. 348, 350 (2002); Pyo v. Commissioner, 83 T.C. 626, 632 (1984); Kluger v. Commissioner, 83 T.C. 309, 314 (1984). Generally, the Commissioner's determinations set forth in a notice of deficiency are presumed correct, and the taxpayer bears the burden of proving them erroneous. Rule 142(a)(1); Welch v. Helvering, 290 U.S. 111, 115 (1933).
Respondent determined that petitioners failed to report on their 2017 tax return $19, 698 of taxable social security benefits that they received from the Social Security Administration during 2017. Petitioners did not dispute this sole underlying adjustment that gave rise to the deficiency for 2017 in their petition or at trial. Accordingly, petitioners are deemed to have conceded this issue. See Rule 34(b)(4).
Overpayment Credited to Prior Year and Notice CP2000
Petitioners argue that respondent erred in crediting the $180 overpayment for 2017 against their outstanding tax liability for 2007 and request that the amount be returned and credited against their 2017 income tax deficiency. Respondent contends that, pursuant to section 6512(b)(4), this Court lacks jurisdiction to review any credit made by respondent under section 6402(a). We agree with respondent.
Section 6402(a) permits the Secretary to credit the amount of any overpayment, including any interest allowed thereon, against "any liability in respect of an internal revenue tax on the part of the person who made the overpayment". In this case, respondent issued to petitioners a Notice CP16, dated June 11, 2018, informing them that, after respondent corrected an error on their 2017 tax return, they had an overpayment of $180. Pursuant to the authority conferred by section 6402(a), respondent credited the $180 overpayment for 2017 against petitioners' outstanding tax liability for 2007. Petitioners account transcript for 2007 confirms that, on April 15, 2018, respondent credited the full amount of the overpayment against petitioners' outstanding tax liability for 2007.
Subsequently, respondent issued to petitioners a Notice CP2000, dated July 29, 2019, informing them that they failed to report an additional $19, 698 of taxable social security benefits for 2017. To the extent petitioners argue that the Notice CP2000 was invalid or untimely because they reasonably relied on the prior Notice CP16 advising them that they had an overpayment for 2017 and not a deficiency, petitioners are mistaken. After applying an overpayment against the taxpayer's liability for another taxable year, the Commissioner is not precluded from subsequently determining a deficiency for the taxable year in respect of which the overpayment was originally claimed and allowed. Terry v. Commissioner, 91 T.C. 85, 87 (1988); Savage v. Commissioner, 112 T.C. 46, 48-49 (1999).
Section 6512(b) defines this Court's jurisdiction to determine overpayments. Section 6512(b)(4) explicitly provides that "[t]he Tax Court shall have no jurisdiction under this subsection to restrain or review any credit or reduction made by the Secretary under section 6402." Respondent's decision to apply an offset to 2007 in lieu of issuing a refund was wholly discretionary. Sec. 6402(a). Accordingly, pursuant to section 6512(b)(4), we conclude this Court is without jurisdiction to review respondent's decision to credit the overpayment for 2017 against petitioners outstanding tax liability for 2007.
Interest Accrual
Petitioners argue that no interest should accrue on their 2017 income tax deficiency from the time the IRS notified them of the overpayment until the date the IRS issued the notice of deficiency because they could not be expected to pay a liability that they were not aware of. Respondent contends that petitioners' request to redetermine interest on the proposed deficiency for 2017 is not ripe for the Court's review because the conditions under section 7481 and Rule 261(a) have not been met. We agree with respondent.
Section 6601(a) requires that "[i]f any amount of tax imposed by this title * * * is not paid on or before the last date prescribed for payment, interest on such amount * * * shall be paid for the period from such last date to the date paid." Generally, this Court lacks jurisdiction over issues involving interest. See Med James, Inc. v. Commissioner, 121 T.C. 147, 152 (2003). However, we do have jurisdiction to redetermine interest in certain limited circumstances. Section 7481(c) provides, in pertinent part, that "if, within 1 year after the date the decision of the Tax Court becomes final * * * the taxpayer files a motion in the Tax Court for redetermination of the amount of interest involved, then the Tax Court may reopen the case solely to determine whether the taxpayer has made an overpayment of such interest * * * and the amount thereof." See also Rule 261(a). This Court has not entered a final decision in this case. Accordingly, we conclude that this Court is without jurisdiction to determine petitioners' liability for interest under section 6601.
Upon due consideration and for cause, it is
ORDERED that respondent's Motion for Entry of Decision filed August 5, 2021, is granted. It is further
ORDERED AND DECIDED that there is a deficiency in Federal income tax in the amount of $2, 955.00 due from petitioners for the taxable year 2017.