Amos v. Comm'r of Internal Revenue
| Citation | 47 T.C. 65 |
| Decision Date | 19 October 1966 |
| Docket Number | Docket Nos. 4880-64,4949-64. |
| Parties | JOHN A. AMOS, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENTJOHN A. AMOS AND GERTRUDE P. AMOS, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | United States Tax Court |
OPINION TEXT STARTS HERE
Alfred B. Teton, for the petitioners.
William J. Gerard, for the respondent.
Held, that amounts received by a district director, as agent for respondent, from notices of levy served on a bank and an insurance company to reach property of petitioner-husband constitute involuntary payments which the district director has a right to apply as he chooses to outstanding assessments of tax, penalty, and interest. O'Dell v. United States, 326 F.2d 451 (C.A. 10, 1964), followed. Since such amounts were applied to tax rather than interest, petitioners are not entitled to an interest deduction under sec. 163(a), I.R.C. 1954. Held, further, that petitioner-husband realized income from an annuity contract in 1961 which is includable in gross income under secs. 61(a)(9) and 72(a).
In these consolidated cases respondent determined against petitioners the following deficiencies in income tax and additions to tax:
+---------------------------------------------+
¦ ¦ ¦ ¦Addition to ¦
+----------+------+----------+----------------¦
¦Docket No.¦Year ¦Deficiency¦tax(sec.6653(a),¦
+----------+------+----------+----------------¦
¦ ¦ ¦ ¦I.R.C.1954) ¦
+----------+------+----------+----------------¦
¦ ¦( 1959¦$7,069.83 ¦$353.49 ¦
+----------+------+----------+----------------¦
¦4949-64 ¦( 1960¦7,574.83 ¦378.74 ¦
+----------+------+----------+----------------¦
¦4880-64 ¦1961 ¦8,410.78 ¦428.32 ¦
+---------------------------------------------+
Certain adjustments have been disposed of by agreement of the parties and will be given effect in the Rule 50 computations. The two issues remaining for our decision are: (1) Whether claimed interest deductions in the amounts of $747.83 and $523.40 are allowable under the provisions of section 163(a), I.R.C. 1954; 1 and (2) whether petitioner John A. Amos realized income under an annuity contract in the amount of $6,280.80 for the year 1961 which is includable in his gross income under sections 61(a)(9) and 72(a).
All of the facts have been stipulated by the parties and are adopted as our findings to the extent that they are relevant and material to the issues we must decide.
John A. Amos and Gertrude P. Amos (hereafter referred to as petitioners), formerly husband and wife, resided in Wilmette, Ill., during the years 1959 and 1960. They filed their joint Federal income tax returns for such years with the district director of internal revenue at Chicago. They executed consents (Form 872), extending the statute of limitations for assessment to June 30, 1964, for the year 1959, and to September 30, 1964, for the year 1960.
John A. Amos (hereafter sometimes referred to singularly as petitioner) filed his individual income tax return for the year 1961 with the district director of internal revenue at Chicago, Ill.
On their income tax return for 1960 the petitioners claimed a deduction for interest paid to the United States in the amount of $1,271.23, consisting of (a) $523.40 (through pension) and (b) $747.83 (through bank).
As to the $747.83 item, notices of levy dated December 1, 1960, notified the Wilmette State Bank, Wilmette, Ill., that there was then due, owing, and unpaid from petitioners John A. Amos and/or Gertrude P. Amos of Wilmette, Ill., to the United States of American the sum of $189,501.08; and that there was then due, owing, and unpaid from petitioner John A. Amos of Wilmette, Ill., to the United States of America the sum of $795,553.11. By letter dated December 9, 1960, the Wilmette State Bank advised a revenue officer of the Internal Revenue Service that they are holding $747.83 under the notices of levy. The amount of $747.83 received by the Internal Revenue Service from the Wilmette State Bank pursuant to such notices of levy was applied on December 19, 1960; to the tax liability of petitioner John A. Amos for the taxable year 1944.
As to the $523.40 item, notices of levy dated December 6, 1960, notified the John Hancock Mutual Life Insurance Co., Boston, Mass., that there was then due, owing, and unpaid from petitioners John Amos and/or Gertrude P. Amos of Wilmette, Ill., to the United States of America the sum of $189,501.08; and that there was then due, owing, and unpaid from petitioner John A. Amos of Wilmette, Ill., to the United States of America the sum of $795,553.11. By letter dated December 20, 1960, the insurance company advised the Internal Revenue Service that under the terms of a group annuity contract John A. Amos started receiving monthly payments of $523.40 each beginning September 1, 1951; that there would be due the amount of $523.40 on January 1, 1961, and a like amount on the first day of any subsequent month, if the petitioner was living; and that they had marked their records so that no payments of any kind would be made with respect to the contract until they heard further from the Service. By letter dated December 28, 1960, the Internal Revenue Service requested the insurance company to forward the monthly annuity remittances of petitioner directly to the district director pursuant to such notices of levy. By letter dated January 5, 1961, the insurance company forwarded to the district director a check for $523.40 representing the annuity installment due petitioner as of January 1, 1961. Such amount was applied by the district director on January 9, 1961, to the tax liability of petitioner John A. Amos for the taxable year 1944.
On January 13, 1961, the John Hancock Mutual Life Insurance Co. advised the district director by letter that the terms and conditions of the petitioner's contract provide that such sum is only payable if the annuitant is surviving on the first day of the month. And on January 26, 1961, the insurance company advised the district director that upon receipt of evidence that the annuitant survives on or after the first day of each month, a check for the monthly installment due on that date would be forwarded in accordance with their letter of January 13. Attached to the letter of January 26, 1961, was a copy of a letter from the petitioner to the insurance company dated January 19, 1961, requesting that any payments made by the insurance company to the Internal Revenue Service should be accompanied by a letter of transmittal which would include the following sentence: ‘Mr. John A. Amos has requested us to advise you that he wishes this payment applied to the interest accruals on the unpaid balance of assessed tax.’
By letter dated June 6, 1961, the insurance company supplemented its letters of January 13, 1961, and January 26, 1961, by requesting the present status of the matter. By letter dated June 8, 1961, the district director replied to the insurance company as follows:
Our position in this matter is unchanged from the date of the service of our levy upon you. As we explained in our letter of December 28, 1960, the levy makes it mandatory that all monthly remittances due the annuitant be directed to this office for application to his tax liabilities. Your office remitted the check due on January 1, 1961, in the amount of $523.40 and made the request that we furnish you with a simple statement signed by Mr. Amos on or after the first of each month in order to permit you remitting subsequent checks.
This office appreciates the fact that you must have definite knowledge that Mr. Amos is living on the first of each month for which a payment is due but the request which you make of us in your letter of January 13th makes it extremely difficult for us to comply with. As you may understand, our taxpayer is somewhat grieved because of our levy actions and he is therefore reluctant to extend much co-operation our way with regard to the monthly payments. With such being the case we have been unable to supply you with the evidence you seek of the taxpayer being alive each month.
What our present plan was in this regard was to merely await a period of approximately 1 year and then furnish you with some type of evidence of the taxpayer's being alive and request that you remit the full accrual, otherwise the amount might be accrued monthly and held by you until the taxpayer's death and then remitted by you upon receipt of a copy of the death certificate. We would prefer receiving the payments each month if this is possible but the best we can offer you in this regard is our statement to the effect that we have knowledge of the taxpayer being alive. If you will accept such and arrange for monthly remittances we shall be pleased to follow such a program. Your co-operation in this entire matter is sincerely appreciated.
By letter dated June 16, 1961, the insurance company acknowledged the district director's letter of June 8, 1961.
On or about July 19, 1962, the district director received a check drawn to the order of the Internal Revenue Service from John Hancock Mutual Life Insurance Co. for $8,897.80, pursuant to the notices of levy which represented monthly installments due from February 1, 1961, through June 1, 1962.
Petitioners seek to justify their claimed interest deductions under section 163(a)2 by stressing four points, viz: (1) Where an account due consists of principal and interest, partial payments must first be applied to interest; (2) the debtor may direct the method for applying payments; (3) neither the debtor nor the creditor has a right to direct the application of involuntary payments; and (4) where neither the debtor nor the creditor can direct the application, the payments must be applied first to interest.
Respondent, on the other hand, contends that since the payments received from the bank and insurance company were involuntary,...
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