Weber v. Comm'r of Internal Revenue

• Decision Date: 07 May 2012
• Docket Number: Docket No. 27369-10L
• Parties: HERSHAL WEBER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: U.S. Tax Court

HERSHAL WEBER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 27369-10L

UNITED STATES TAX COURT

Filed May 7, 2012

138 T.C. No. 18

In 2007 P filed a Federal income tax return for 2006 reporting an overpayment and electing to have it applied to his 2007 estimated income tax. However, in 2007 R determined that P was liable for an I.R.C. sec. 6672 penalty (attributable to unpaid trust fund taxes of C) and applied P's 2006 income tax overpayment to that penalty liability instead. In 2008 the balance of C's trust fund tax liability was satisfied by third-party payments. When P thereafter filed his 2007 Federal income tax return in 2008, he claimed a credit thereon for the overpaid 2006 income tax, thereby reporting a 2007 income tax overpayment, and elected to have that asserted 2007 overpayment applied to his 2008 estimated income tax. The IRS notified P that it adjusted his 2007 credits downward to eliminate the claimed 2006 income tax overpayment, thereby eliminating any overpayment for 2007, and yielding a balance due. When P filed his 2008 Federal income tax return in 2009, he nonetheless claimed a credit thereon for overpaid 2007 income tax (which consisted solely of the previously disallowed credit elect overpayment from 2006). The IRS notified P that it adjusted his 2008 credits downward to eliminate the claimed 2007 income tax overpayment, yielding a balance duegreater than he had reported. When P did not pay the balance due for 2008, R issued to P a notice of proposed levy, and P requested a hearing under I.R.C. sec. 6330(b). At the hearing P contended that his I.R.C. sec. 6672 penalty was overpaid and that his 2008 liability would be satisfied if that overpayment were applied to his 2008 liability. R determined to proceed with the levy to collect P's 2008 Federal income tax liability.

Held: P is not entitled to apply a credit elect overpayment from 2007 toward his 2008 income tax liability, because after application of his 2006 income tax overpayment to his I.R.C. sec. 6672 penalty liability, he had no 2006 overpayment available for crediting to 2007 and therefore no 2007 overpayment available for crediting to 2008.

Held, further, in a hearing under I.R.C. sec. 6330 concerning collection of P's unpaid 2008 income tax liability, we do not have jurisdiction to adjudicate P's claim of an I.R.C. sec. 6672 penalty overpayment.

Donald Jay Pols, for petitioner.

Deborah Aloof, for respondent.

OPINION

GUSTAFSON, Judge: This is a "collection due process" (CDP) appeal pursuant to section 6330(d),¹ in which petitioner Hershal Weber asks us to review adetermination by the Office of Appeals (Appeals) of the Internal Revenue Service (IRS) to proceed with a levy in order to collect his income tax for the year 2008. The issue is whether the tax that the IRS proposes to collect has already been paid by Mr. Weber's alleged overpayment of a section 6672 penalty liability. Respondent, the Commissioner of Internal Revenue, moved for summary judgment, and Mr. Weber filed an opposition supported by exhibits. We will grant the Commissioner's motion.

Background

For purposes of the Commissioner's motion, we assume correct the facts asserted by Mr. Weber and supported by his exhibits, as well as facts demonstrated by the Commissioner that Mr. Weber did not dispute.

2006 income tax

In 2006 Mr. Weber earned income from which Federal income tax was withheld. In October 2007 Mr. Weber filed his 2006 Federal income tax return. On that return he reported an overpayment of $46,717 (consisting entirely of amounts withheld in 2006) and elected (pursuant to 26 C.F.R. section 301.6402-3(a)(5), Proced. & Admin. Regs.) to have that overpayment applied to his estimated incometax for the succeeding year, i.e., 2007. We assume that he had in fact overpaid his 2006 liability in this amount. (Tax year 2006 is not at issue here, but the 2006 overpayment is relevant to the 2008 tax that is at issue.)

Trust fund penalty liability

Mr. Weber evidently had some connection to S&G Services, Inc. (S&G). The IRS determined that in three quarters of calendar year 2005, S&G had failed to pay over "trust fund" taxes withheld from its employees' wages pursuant to sections 3102 and 3402. By July 2007 the IRS determined that Mr. Weber had been a "responsible person" of S&G in 2005; and on July 17, 2007, the IRS therefore assessed penalties against Mr. Weber under section 6672(a) in amounts totaling $1,002,339.² The record indicates that the IRS determined that one or more other individuals were also responsible persons of S&G and assessed section 6672 penalties against them, as against Mr. Weber.

Mr. Weber's liability for that section 6672 penalty is not at issue here, but it is relevant to Mr. Weber's contentions, as we explain below. Mr. Weber states that he "neither disputes nor admits the merits of this trust Fund Recovery Penalty in thisproceeding", but in his administrative claim for refund (discussed below) he contends that the assessment was erroneous.

Satisfaction of the trust fund penalty liability

In 2007 and 2008, various payments were made against the unpaid trust fund tax liabilities of S&G or against the corresponding penalty liabilities under section 6672. Most important to this suit is a credit against Mr. Weber's section 6672 penalty liability made from his 2006 income tax overpayment: By letter dated November 12, 2007--i.e., before the end of tax year 2007 and long before Mr. Weber filed his 2007 return--the IRS advised Mr. Weber that his reported 2006 overpayment of $46,717 had been applied not to his 2007 estimated income tax but instead to his section 6672 penalty liability. Although Mr. Weber's 2006 tax return was filed in October 2007 and processed in November 2007, the IRS applied these credits with an effective date of July 17, 2007--the date on which the section 6672 penalty had been assessed.

Almost a year later, in June 2008, the IRS received, from responsible persons other than Mr. Weber, a payment of $233,000 toward S&G's liabilities. In August 2008 the IRS executed an agreement with Mr. Weber (on Form 12257, "Summary Notice of Determination, Waiver of Right to Judicial Review of a Collection Due Process Determination, and Waiver of Suspension of Levy Action"),in which Mr. Weber acknowledged that he had received collection notices concerning the section 6672 penalty liabilities but in which he waived his right to a CDP hearing before Appeals concerning those liabilities. The agreement stated as follows the IRS Office of Appeals' determination with regard to Mr. Weber:

The trust fund portion of the liabilities have [sic] been satisfied at the corporate level by the redesignation of a $233,000 payment made on 6/19/2008.

The satisfaction of the trust fund portion of the tax at the corporate level will offset to your [section 6672 penalty] account resulting in no balance due remaining.

Levy action [as to the section 6672 penalty] is no longer needed and will not take place.

The IRS has adjusted the account for Mr. Weber's section 6672 penalty not only by payments that he made but also by payments from the other responsible persons. IRS transcripts for Mr. Weber's penalty liability for the three quarters at issue show small balances due, but for purposes of the Commissioner's motion we assume that if the "redesignation" to which the IRS agreed is properly accomplished, then the IRS has collected (through his section 6672 penalty payments, the penalty payments by other responsible persons of S&G, and S&G'sown payments of the trust fund liabilities) a total amount greater than S&G's trust fund liabilities.

On August 14, 2009, Mr. Weber filed claims for refund with the IRS by submitting Forms 843, "Claim for Refund and Request for Abatement". On February 16, 2010, the IRS disallowed those refund claims. On February 14, 2012, Mr. Weber filed a refund suit in Federal District Court challenging that disallowance. Weber v. United States, No. 1:12-CV-732 (E.D.N.Y.). Our record does not show any disposition of that refund suit.

2007 income tax

Our record does not show precisely when in 2008 Mr. Weber filed his 2007 Federal income tax return, but we assume (in his favor) that he filed it after August 2008--i.e., after Appeals had determined he had "no balance due remaining" on his section 6672 liability. On that 2007 return, Mr. Weber reported a tax liability of $75,089 that we assume to be correct. In addition to claiming withholding credits of $68,310 and excess Social Security remittances of $ 1,231, on line 65 ("2007 estimated tax payments and amount applied from 2006 return") he reported credits totaling $46,717--i.e., the amount of his claimed 2006 overpayment--and he therefore reported an overall overpayment for 2007 in the amount of $41,169. Online 75 he elected to have that claimed overpayment applied to his estimated income tax for the succeeding year (i.e., 2008).

As we have noted, however, before that time the IRS's November 2007 letter had advised him that his reported 2006 overpayment had not been applied to his 2007 estimated income tax but rather to his section 6672 penalty liability.

The IRS therefore evidently spotted as excessive the credit claimed on line 65, and it sent Mr. Weber a letter dated November 24, 2008, advising him that it had reduced the amount of his 2007 estimated tax payments and that he therefore still owed $5,962³ of the tax he had reported due for 2007. Our record does not show whether or when Mr. Weber paid that liability, and 2007 is not at issue in our case.

2008 income tax

For the year at issue--i.e., 2008--Mr. Weber filed his Federal income tax return in September 2009. He reported a tax liability that we assume to be correct. He also reported, on line 63 of that 2008 return, a credit amount of $61,169 that included a supposed overpayment of $41,169 from his 2007 return. Of course,22 months before he filed his 2008 return he had received the IRS's November 2007 letter indicating that his 2...