Washington v. Comm'r of Internal Revenue
| Decision Date | 06 March 2003 |
| Docket Number | No. 11152–01L.,11152–01L. |
| Citation | 120 T.C. 114,120 T.C. No. 8 |
| Parties | Howard and Everlina WASHINGTON, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Taxpayers petitioned for review of IRS' determination to proceed with collection on taxes allegedly discharged in bankruptcy. The Tax Court, Chiechi, J., held that: (1) Tax Court had jurisdiction to determine whether Bankruptcy Court discharged taxpayers from their unpaid income tax liabilities; (2) Bankruptcy Court did not discharge taxpayers from such liabilities; (3) application of overpayment for recent taxable year to unpaid tax liability for prior year was proper; and (4) IRS was entitled to proceed with collection action as determined in notice of deficiency.
Decision for IRS.
Vasquez, J., concurred in written opinion, in which Laro, J., joined. Howard Washington and Everlina Washington, pro sese.
Marie E. Small, for respondent.
Held: The Court has jurisdiction to determine whether the U.S. Bankruptcy Court discharged petitioners from their respective unpaid Federal income tax (tax) liabilities for their taxable years 1994 and 1995. Held, further, The U.S. Bankruptcy Court did not discharge petitioners from such liabilities.
Held, further, Respondent's application of petitioners' overpayment for their taxable year 1997 as a credit against their unpaid tax liability for their taxable year 1990, and not 1998, was proper. See sec. 6402(a), I.R.C.
Held, further, Respondent may proceed with the collection action as determined in the notice of determination with respect to each of petitioners' taxable years 1994, 1995, and 1998.
The petition in this case was filed in response to a notice of determination concerning collection action(s) under section 6320 and/or 6330 1 (notice of determination).
Most of the facts have been stipulated and are so found.
At the time petitioners filed the petition in this case, they resided in New York, New York.
On December 12, 1996, petitioners jointly filed late Form 1040, U .S. Individual Income Tax Return (Form 1040), for each of their taxable years 1994 (1994 return) and 1995 (1995 return).2 In their 1994 return, petitioners reported that they owed $6,680 in tax. In their 1995 return, petitioners reported that they owed $8,874 in tax. When petitioners filed Forms 1040 for their taxable years 1994 and 1995, they did not pay the respective amounts of tax that they owed for those years.
On February 3, 1997, respondent assessed petitioners' tax, as well as any penalties and interest as provided by law, for each of their taxable years 1994 and 1995.
In April 1998, petitioners jointly filed Form 1040 for their taxable year 1997 (1997 return). In their 1997 return, petitioners claimed a refund of $1,741 (petitioners' 1997 overpayment).
On April 15, 1998, when petitioners' 1997 return was due, petitioners' unpaid tax liability for 1990 (petitioners' unpaid 1990 liability) exceeded $1,741, the amount of petitioners' 1997 overpayment. On a date after April 15, 1998, and before June 8, 1998, that is not disclosed by the record, respondent applied petitioners' 1997 overpayment as a credit against petitioners' unpaid 1990 liability; i.e., respondent used that overpayment to offset part of that liability.3
On May 18, 1998,4 petitioners filed a petition (bankruptcy petition) in the U.S. Bankruptcy Court for the Southern District of New York, thereby commencing a bankruptcy proceeding under Chapter 7 of Title 11 of the United States Code. Attached to petitioners' bankruptcy petition was a document entitled “Schedule E—Creditors Holding Unsecured Priority Claims” (petitioners' bankruptcy Schedule E). Petitioners' bankruptcy Schedule E listed the Internal Revenue Service as a creditor with respect to a claim totaling $20,000 relating to petitioners' “TAXES FOR 1991, 1992, 1993, 1994, 1995, & 1996.” 5
On September 25, 1998, the U.S. Bankruptcy Court for the Southern District of New York entered a “DISCHARGE OF DEBTOR, ORDER OF FINAL DECREE” (September 25, 1998 discharge order). The September 25, 1998 discharge order provided in pertinent part:
IT IS ORDERED THAT:
1. The Debtor is released from all dischargeable debts.
2. Any judgment not obtained in this court is null and void as to the personal liability of the Debtor(s) regarding the following:
(a) debts dischargeable under 11 U.S.C. § 523(a);
(b) debts alleged to be excepted from discharge under 11 U.S.C. § 523(a)(2),(4),(6) or (15) unless determined by this court to be nondischargeable;
(c) debts determined by this court to be discharged.
On April 15, 1999, petitioners jointly filed Form 1040 for their taxable year 1998 (1998 return). In their 1998 return, petitioners (1) reported a total tax of $3,390.24, (2) reduced that amount by (a) $399.96, which represented tax previously withheld, and (b) $1,741, which represented petitioners' 1997 overpayment,6 and (3) reported that they owed $1,249.28 in tax for their taxable year 1998. When petitioners filed Form 1040 for their taxable year 1998, they did not pay the amount of tax that they owed for that year.
On June 21, 1999, respondent assessed petitioners' tax, as well as any penalties and interest as provided by law, for their taxable year 1998.
On January 26, 2001, respondent filed a notice of Federal tax lien in New York County, New York, with respect to petitioners' taxable years 1994, 1995, and 1998. That notice showed in pertinent part:
+-----------------------------------------+
¦Taxable Year¦Unpaid Balance of Assessment¦
+------------+----------------------------¦
¦1994 ¦$ 9,850.51 ¦
+------------+----------------------------¦
¦1995 ¦11,938.14 ¦
+------------+----------------------------¦
¦1998 ¦1,568.62 ¦
+-----------------------------------------+
(We shall refer to the foregoing unpaid balance of assessment for each of petitioners' taxable years 1994, 1995, and 1998, as well as any accrued interest thereon not yet assessed, as petitioners' unpaid liability for each of those years.)
On January 31, 2001, respondent mailed to petitioners a notice informing them that respondent had filed a Federal tax lien with respect to petitioners' unpaid liability for each of their taxable years 1994, 1995, and 1998 and that they had a right to a hearing (Appeals Office hearing) with respect to that lien.
On February 8, 2001, petitioners filed Form 12153, Request for a Collection Due Process Hearing (Form 12153). In an attachment to Form 12153, petitioners stated in pertinent part:
First, may we state for the record that your intent to enact a lien against any assets, jobs, or personal property or finances that we may have is a grave error. We insist that you cease from any impending actions to avert any embarrassment or possible legal consequences, which can thus be avoided. We trust that you will fax us a statement immediately of your intent to suspend action as outlined in your (collection appeals rights).
Second, we are eager to finally put closure to this outstanding tax matter for the years indicated, and we trust that you will work fairly and cooperatively with us in reaching a mutual resolution. We feel our position of not owing the outstanding balance for which payment is being requested is based on the bankruptcy court decree under case number (98–43339) AJG, dated September 25, 1998. (see attached copy).
The tax years 1994 and 1995 were part of this charge off through bankruptcy and were granted along with other years that have already been resolved. The IRS was well informed of our intent to charge off the aforementioned years, and had ample time to question, refute, or object to our intent to charge off said years. A period of 4 months passed without objection either in writing or in person prior to the final decree being rendered on 9/25/98 by the Honorable Judge Arthur J. Gonzalez. Therefore, once the charge off was finalized, we were under the complete understanding that these tax years were no longer an issue and that the entire matter had been acceptably resolved.
On June 17, 1999, a hand written communiqué was sent to our attention by a customer service representative * * * instructing us to send you a copy of our discharge papers to the IRS * * *. We were left with the understanding that once we complied with this request, the necessary adjustment to our accounts would be made and this matter would no longer be an issue.
Well, we complied with this request and to no avail; we are still dealing with this matter almost two years later. So, let me make our position very clear, we do not wish to battle with you over what seems to be a major misunderstanding. If in fact the amounts in question have been legally charged off for the years 1994 and 1995, then a letter of acknowledgement indicating that the charge is acceptable will satisfy our request for resolution. If in fact you do not agree with the charge off and you wish to discuss this with us in person, we will comply with a prearranged visit in order to reach an amicable resolve that both sides can live with. However, it must be understood upon receipt of this letter that all actions to implement a lien, garnishment of income, seizure of assets or any other punitive actions are immediately suspended without prejudice, and a notice acknowledging such will be forthcoming to abate any undue concern.
With regard to tax year 1998, this year was not part of the bankruptcy charge off, however, the amount in question arises from a deduction taken from a refund due us that was used to pay for taxes for one of the years that was charged off. When we filed our taxes for 1998, the refund due us from...
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