BARKLEY v. COMMISSIONER

¶2MEMORANDUM FINDINGS OF FACT AND OPINION

¶3ARMEN, SPECIAL TRIAL JUDGE: Respondent determined a deficiency in petitioner's Federal income tax for the taxable year 1997 in the amount of $ 994.

¶4After concessions by the parties, ¹ the issue for decision is whether respondent erred in crediting an overpayment claimed by petitioner on his 1997 return against an outstanding liability owed by him for 1988. We hold that respondent did not err.

¶5FINDINGS OF FACT

¶6Some of the facts have been stipulated, and they are so found.

¶7Petitioner resided in Gunter, Texas, at the time that his petition was filed with the Court.

A. PETITIONER'S TAX RETURN FOR THE YEAR IN ISSUE

¶8Petitioner timely filed a Federal income tax return, Form 1040A, for 1997. On his return, *129 petitioner claimed a credit for child and dependent care expenses (the childcare credit) in the amount of $ 960.

¶9In support of the childcare credit, petitioner attached to his return Schedule 2, Child and Dependent Care Expenses for Form 1040A Filers. In filling out Schedule 2, petitioner mistakenly failed to complete Part III, Dependent Care Benefits. As a consequence, the amount of the childcare credit that petitioner claimed on Schedule 2 was overstated. This resulted in petitioner's claiming an overpayment of tax on his return in the amount of $ 694. ²

¶10Respondent's service center processed petitioner's return as though petitioner were entitled to the amount of the childcare credit claimed by him on Schedule 2.

B. DISPOSITION OF THE CLAIMED OVERPAYMENT

¶11At the time that petitioner filed his 1997 return, *130 he was liable for unpaid income taxes for 1988 and 1989. Accordingly, in May 1998, respondent credited the $ 694 overpayment claimed by petitioner on his 1997 return against his 1988 liability. ³

C. PETITIONER'S OFFER IN COMPROMISE

¶12On or about February 24, 1998, petitioner submitted an offer in compromise, Form 656, seeking to compromise his outstanding income tax liabilities for 1988 and 1989 in exchange for (1) the payment of a fixed amount of money and (2) agreeing to various terms and conditions. Respondent accepted petitioner's offer in compromise on or about July 24, 1998.

¶13Paragraphs (g) and (j) of the offer in compromise provided in pertinent part as follows:

¶14   (g) The IRS will keep any refund, including interest, due to

¶15   me/us because of overpayment of*131 any tax or other liability, for

¶16   tax periods extending through the calendar year that the IRS

¶17   accepts the offer. [⁴] …

¶18   (j) I/we understand that I/we remain responsible for the full

¶19   amount of the tax liability, unless and until the IRS accepts

¶20   the offer in writing and I/we have met all the terms and

¶21   conditions of the offer. The IRS will not remove the original

¶22   amount of the tax liability from its records until I/we have met

¶23   all the terms of the offer.

D. EXAMINATION OF PETITIONER'S 1997 RETURN

¶24Sometime after respondent accepted petitioner's offer in compromise, respondent commenced an examination of petitioner's income tax return for*132 1997. The examination culminated in the issuance of the notice of deficiency in September 1999 from which petitioner appealed to this Court.

E. RESPONDENT'S CONCESSION AND CONTENTION

¶25Respondent concedes that the deficiency as determined in the notice of deficiency is overstated and that the correct amount of the deficiency is $ 709. In this regard, respondent contends that the deficiency is equivalent to the difference between the childcare credit claimed by petitioner on his return (and allowed by respondent's service center in processing petitioner's return) and the childcare credit to which petitioner is entitled, as shown by the following:

¶26   Childcare credit claimed       $ 960

¶27   Less: allowable childcare credit   -251

¶28                     ____

¶29   Deficiency               709

¶30                     ====

F. PETITIONER'S CONCESSIONS AND CONTENTIONS

¶31Petitioner concedes that he mistakenly failed to complete Part III of Schedule 2, Child and Dependent Care Expenses for Form 1040A Filers, and that, as a consequence, the amount of the childcare*133 credit shown on Schedule 2 was overstated. Petitioner also concedes (and respondent agrees) that the amount of the childcare credit to which he is entitled is $ 251. Finally, petitioner concedes that instead of claiming a $ 694 overpayment on his return, he should have reported a balance due of $ 15, as shown by the following:

¶32   Childcare credit claimed       $ 960

¶33   Less: allowable childcare credit   -251

¶34                     ____

¶35   Excess childcare credit claimed    709

¶36   Less: overpayment claimed per

¶37     return as filed         -694

¶38                     ____

¶39   Balance due               15

¶40                     ====

¶41Petitioner contends that respondent should not have credited the $ 694 overpayment claimed on his 1997 return to his tax liability for 1988 because, he contends, respondent's acceptance of the offer in compromise conclusively resolved his tax liability for 1988. Thus, petitioner contends, the $ 694 overpayment remained available to offset all but*134 $ 15 of the excess childcare credit ($ 709) to which he is admittedly not entitled.

¶42OPINION

¶43We agree with petitioner that he should not have claimed a $ 694 overpayment on his 1997 return but rather should have reported a balance due of $ 15. However, we decide issues by judging what actually happened and not by what should have happened. See Commissioner v. National Alfalfa Dehydrating & Milling Co., 417 U.S. 134, 148-149, 40 L. Ed. 2d 717, 94 S. Ct. 2129 (1974).

¶44The undisputed facts in this case demonstrate that petitioner claimed a $ 694 overpayment on his 1997 return and that respondent credited the overpayment against an outstanding income tax liability owed by petitioner for 1988.

¶45We reject petitioner's contention that respondent should not have credited the 1997 overpayment against the 1988 liability. Respondent's action was taken pursuant to statutory authority conferred by section 6402(a). ⁵That section provides in relevant part as follows:

¶46*135      (a) General Rule. -- In the case of any overpayment, the

¶47   Secretary … may credit the amount of such overpayment …

¶48   against any liability in respect of any internal revenue tax on

¶49   the part of the person who made the overpayment … .

¶50At the time that petitioner filed his 1997 return and claimed an overpayment, he owed tax for 1988. At the time that respondent credited the claimed overpayment against the outstanding liability, no contractual or other limitation constrained respondent's authority to take such action. Respondent was therefore fully justified in crediting petitioner's 1997 overpayment against petitioner's 1988 liability.

¶51We also reject petitioner's contention that respondent's acceptance of the offer in compromise served to invalidate respondent's prior action in crediting the 1997 overpayment against the 1988 liability. In order to induce respondent to accept the offer in compromise, petitioner agreed not only to pay a fixed amount of money, but also to forgo any refund attributable to an overpayment of tax for any taxable year through 1998. Thus, the premise for petitioner's contention; i.e., that the mere payment*136 of the fixed amount of money upon submission of the offer in compromise "wiped the slate clean" insofar as his 1988 tax liability was concerned, is fatally flawed. ⁶

¶52In conclusion, we hold that respondent's action in crediting the 1997 overpayment against the 1988 liability was fully consistent with the offer in compromise, as well as with operative provisions of statutory law. See Terry v. Commissioner, 91 T.C. 85, 87 (1988) (after applying an overpayment to a taxpayer's liability for another taxable year, the Commissioner is not precluded from*137 subsequently determining a deficiency for the taxable year in respect of which the overpayment was originally claimed and allowed); see also McKoin v. Commissioner, T.C. Memo 2001-62. In so holding, we are mindful of section 6512(b)(4), which serves to deny jurisdiction to the Court "to restrain or review any credit or reduction made by the Secretary under section 6402." Savage v. Commissioner, 112 T.C. 46, 49 (1999).

¶53We have carefully considered remaining arguments made by petitioner for a result contrary to that expressed herein, and, to the extent not discussed above, we consider those arguments to be without merit. ⁷

¶54*138 In order to give effect to our disposition of the disputed issue, as well as the parties' concessions,

¶55Decision will be entered for respondent in the amount of the reduced deficiency of $ 709.