                       T.C. Memo. 2004-235



                     UNITED STATES TAX COURT



          PHILIP L. AND SARA N. ECKERT, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 1437-03L.                 Filed October 13, 2004.


     Philip L. and Sara N. Eckert, pro sese.

     James A. Kutten, for respondent.



                       MEMORANDUM OPINION


     CARLUZZO, Special Trial Judge:     In a Notice of Determination

Concerning Collection Action(s) Under Section 6320 and/or 6330

dated January 10, 2003, respondent proposed to proceed with

collection of petitioners’ unpaid 1994 Federal income tax.1



     1
       Section references are to the Internal Revenue Code in
effect at the time the petition was filed.
                                 - 2 -

Petitioners object to respondent’s proposed collection activity

upon the ground that their 1994 Income tax liability has been

fully paid.

Background

     Some of the facts in this case have been stipulated and are

so found.    At the time the petition was filed, petitioners

resided in O’Fallon, Illinois.    References to petitioner are to

Philip L. Eckert.

     For years prior to 1994 petitioners owned 100 percent of the

shares of, and operated Southwestern Illinois Family and

Children’s Testing and Therapy Clinic, Inc. (Southwestern).     For

periods during 1992 through 1995, Southwestern had unpaid Federal

employment tax liabilities that totaled $26,000 (employment tax

liabilities).2

     During March 1996, petitioner delivered to respondent three

checks in the amounts of $10,000, $15,000, and $1,000, for a

total of $26,000.    Each of the three checks contained

petitioner’s Social Security number and the notation “Pay only to

IRS”.    None of the checks specifically identified the liability

to which the check related.    Respondent applied the $26,000

received from petitioner to Southwestern’s $26,000 unpaid

employment tax liabilities.




     2
         All amounts are rounded to the nearest dollar.
                                - 3 -

     On June 1, 1999, petitioners filed an untimely 1994 joint

Federal income tax return (the 1994 return) on which they

reported an income tax liability of $18,524.      Withholding credits

of $9,155, were applied against this liability, but no other

payments were made with the return.      On February 7, 2000, the tax

reported on petitioners’ 1994 return, related additions to tax,

and interest were assessed (the 1994 tax liability).

     On April 27, 2001, respondent issued to petitioners a Final

Notice--Notice of Intent to Levy and Notice of Your Right to a

Hearing, for the unpaid balance of their 1994 tax liability.      On

May 3, 2001, respondent issued to petitioners a Notice of Federal

Tax Lien Filing and Your Right to a Hearing Under IRC 6320.       On

May 8, 2001, respondent filed a Notice of Federal Tax Lien (tax

lien notice) with the Recorder of Deeds, St. Clair County,

Belleville, Illinois, with respect to the 1994 tax liability.

     During May 2001, petitioners sent to respondent two checks

in the amounts of $11,859 and $10,000, designated to be applied

to their 1994 tax liability.    Both checks were subsequently

dishonored for insufficient funds.      On June 3, 2001, before

receiving notice that the checks had been dishonored, respondent

released the tax lien notice.    The release stated, in part, that

petitioners had satisfied their 1994 tax liability.

     On or about July 25, 2001, petitioners sent to respondent a

money order in the amount of $10,200.      The money order included
                               - 4 -

petitioner’s Social Security number and the notation “1994 1040".

The $10,200 payment was applied by respondent to petitioners’

then outstanding 2000 tax liability.3

     An administrative hearing was held on August 2, 2002.

During that hearing petitioner claimed that the 1994 tax

liability had been paid in full by the three checks previously

sent by petitioners to respondent in March 1996.    As of the date

of the administrative hearing, petitioners had not filed tax

returns for 1995, 1997, 1998, 1999, or 2000.    Consequently,

respondent would not consider an installment agreement with

respect to petitioners’ 1994 tax liability.    Petitioners

subsequently filed a tax return for each of these years.

     In August 2002, petitioners submitted a Form 433-A,

Collection Information Statement for Wage Earners and Self-

Employed Individuals.   Petitioners listed their total monthly

income and living expenses as $10,320 and $7,611, respectively.

By letter dated August 8, 2002, petitioners notified respondent

that the $10,200 payment made on July 25, 2001, was intended to

be, and should have been, applied to their 1994 tax liability.

Respondent subsequently took the necessary steps to apply the

$10,200 payment to the 1994 tax liability.




     3
       At the time, it appeared that petitioners’ 1994 liability
had been paid in full.
                                 - 5 -

     On November 26, 2002, the settlement officer who conducted

the administrative hearing sent petitioners a letter inviting

petitioners to discuss an installment agreement.   Thereafter,

petitioner twice informed the settlement officer that he would

provide additional financial information in connection with an

installment agreement, but petitioner never did so.

     On January 10, 2003, respondent issued to petitioners a

Notice of Determination Concerning Collection Action(s) Under

Section 6320 and/or 6330.   In the notice of determination,

respondent determined, in pertinent part:   (1) The filing of the

tax lien notice was sustained because the 1994 tax liability

remained unpaid; (2) the notice of intent to levy was sustained

because respondent could not reach an installment agreement with

petitioners, and (3) all applicable laws and administrative

procedures had been satisfied.

     On August 12, 2003, respondent filed a motion for summary

judgment.   On November 3, 2003, the motion was denied and the

case was remanded to respondent’s Appeals Office for

reconsideration regarding whether petitioners had fully paid

their 1994 tax liability.

     On November 20, 2003, respondent revoked the release of the

tax lien notice.   In December 2003, respondent’s settlement

officer offered petitioners the opportunity for a further

administrative hearing, but petitioners did not respond.    On
                                - 6 -

February 18, 2004, respondent once again filed a Notice of

Federal Tax Lien with respect to petitioners’ 1994 tax liability.

Discussion

     Petitioners do not allege any irregularities in the

assessment process of their 1994 tax liability, and we are

satisfied that there were none.    Furthermore, petitioners do not

claim that respondent has failed to satisfy any of the

requirements of section 6320 or section 6330, and we are

satisfied that respondent has satisfied all of those

requirements.    Instead, the dispute between the parties in this

case focuses primarily on whether petitioners have fully paid

their 1994 tax liability.    According to respondent, they have

not, and respondent has determined to collect the outstanding

portion of that liability by levy and through the notice of tax

lien.    Because the amount or existence of petitioners’ 1994

liability is properly at issue, we review de novo respondent’s

determination as to the existence of that liability.4    Boyd v.

Commissioner, 117 T.C. 127, 131 (2001); Landry v. Commissioner,

116 T.C. 60, 62 (2001).

     At the administrative hearing, petitioner claimed that all

three of the checks delivered to respondent in March 1996 were

intended in satisfaction of petitioners’ 1994 tax liability and



     4
       Respondent agreed to apply the $10,200 money order sent by
petitioners in July 2001 to the 1994 tax liability.
                               - 7 -

none of the checks should have been applied to Southwestern’s

unpaid employment tax liability.    At trial, petitioner took the

position that only the $10,000 check was erroneously applied to

Southwestern’s unpaid employment tax liability.   Specifically,

petitioner testified that in March 1996 an IRS employee “came

knocking on my door * * * saying that we hadn’t submitted the ‘94

tax return”.   According to petitioner, he gave the revenue agent

the $10,000 check at that time, together with verbal instructions

to apply the $10,000 to petitioners’ 1994 tax liability.   Like

the other two checks delivered to respondent in March 1996, the

$10,000 check did not bear any indication as to the tax

liabilities to which the amount was to be applied.   Furthermore,

nothing in the record suggests that petitioners had previously

received any correspondence from respondent with respect to the

1994 tax liability.   At the time the checks were delivered to

respondent, petitioners had not yet filed their 1994 return.     The

1994 return was not filed by petitioners until June 1, 1999.

Furthermore, respondent did not assess petitioners’ 1994 tax

liability until February 7, 2000.

     Disregarding petitioner’s self-serving, uncorroborated, and

implausible testimony on the point, see Niedringhaus v.

Commissioner, 99 T.C. 202, 212 (1992), we find that petitioners

have failed to present any credible evidence that the $10,000

payment made in March 1996 was intended to have been applied to
                               - 8 -

petitioners’ 1994 tax liability.   To the extent that petitioners

were visited by an IRS employee in March 1996, we think it more

likely than not that the visit related to Southwestern’s

employment tax liabilities.   Furthermore, we think it more than

coincidence that the $26,000 paid to respondent in March of 1996

was, at the time, the amount of Southwestern’s outstanding

employment tax liability.

     Our conclusion on this point is further supported by the

payments made by petitioners in May 2001.   As noted, in May 2001,

petitioners sent two separate checks to respondent which totaled

$21,859 to be applied to their 1994 tax liability.   Both checks

were subsequently returned for insufficient funds.   Despite

petitioner’s explanation to the contrary, we find it implausible

and unlikely that petitioners would make payments in excess of

$21,000 with respect to the 1994 tax liability that they

considered to have been previously paid.

     Respondent introduced a certified transcript of account for

petitioners’ 1994 tax liability.   The transcript reflects, among

other things, petitioners’ tax liability for the taxable year

1994 and all payments received with respect to this liability.

The transcript provides that petitioners’ withholding tax credit

for 1994 was applied to their 1994 tax liability, as well as the

two checks sent by petitioners in May 2001 and the subsequent
                                 - 9 -

reversals when the two checks were returned for insufficient

funds.5

     After applying the $10,200 payment to petitioners’ 1994

taxable year, which respondent has agreed to do, a portion of

petitioners’ 1994 tax liability remains outstanding.

Accordingly, respondent’s determination to proceed with

collection of petitioners’ outstanding 1994 Federal income tax

liability is sustained.

     To reflect the foregoing,



                                              Decision will be

                                         entered for respondent.




     5
       The transcript of petitioners’ 1994 taxable year does not
reflect the $10,200 payment by petitioners in July 2001 that was
applied to petitioners’ 2000 taxable year.
