                    T.C. Summary Opinion 2011-68



                       UNITED STATES TAX COURT



         HARLEY G. WEROS AND MURIEL B. WEROS, Petitioners v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 12862-09S.              Filed June 13, 2011.



     Harley G. Weros and Muriel B. Weros, pro sese.

     John P. Healy, Reid Michael Huey, and James L. Gessford, for

respondent.



     VASQUEZ, Judge:    This case was heard pursuant to the

provisions of section 7463 of the Internal Revenue Code (Code) in

effect when the petition was filed.1   Pursuant to section

7463(b), the decision to be entered is not reviewable by any


     1
        Unless otherwise indicated, all section references are to
the Code, as amended, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
                                 - 2 -

other court, and this opinion shall not be treated as precedent

for any other case.

     Respondent determined a $4,182 deficiency in petitioners’

Federal income tax for 2006.    After concessions,2 the issues for

decision are whether respondent may use the normal deficiency

procedures to collect an erroneous refund paid to petitioners,

and whether petitioners underreported their income from capital

gains by $8,869.

        Petitioners resided in North Dakota when the petition was

filed.

                              Background

     Petitioners received $25,572 in Social Security benefits in

2006.    They also received $4,406 in capital gain distributions

from Fidelity Select Health Care Fund (Select) and $15,439 in

capital gain distributions from Fidelity Magellan Fund (Magellan)

in 2006.    Petitioners received $1,031 in dividend income in 2006

from multiple funds, including Select and Magellan.    The

dividends were reinvested in the respective funds.


     2
        Respondent concedes that petitioners are entitled to a
$12,500 standard deduction for 2006, an increase of $2,000 from
the $10,500 deduction for which they were given credit.
Petitioners concede that they understated interest income by $241
and taxable dividends by $131 in 2006. Some of the dividends may
be qualified dividends that are subject to a reduced tax rate,
and petitioners’ concession may require new computations.
Accordingly, the decision in this case will be entered under Rule
155.
                                - 3 -

      Petitioners timely filed a joint Form 1040, U.S. Individual

Income Tax Return, for 2006, and paid the $4,828.48 balance of

tax due with their return.    Petitioners reported only $10,976.85

in taxable capital gain distributions for 2006 despite receiving

combined distributions of $19,845 from Select and Magellan.

      Petitioners properly reported $21,736.20 in taxable Social

Security benefits on line 20b of their 2006 return.    However,

respondent inadvertently omitted the taxable portion of

petitioners’ Social Security benefits when processing

petitioners’ 2006 return.    In other words, an Internal Revenue

Service (IRS) employee, when entering the information from

petitioners’ return into the IRS computer system, entered zero as

the amount of petitioners’ taxable Social Security benefits.

This error lead to respondent’s issuing a refund to petitioners

of $2,873.04 on June 11, 2007.3   On March 30, 2009, respondent

issued to petitioners a notice of deficiency, adjusting

petitioners’ income from capital gains, Social Security benefits,

interest, and dividends.

                             Discussion

I.   Social Security Benefits

      Petitioners argue that respondent was grossly dishonest and

has forfeited his right to recover the amounts refunded to them.


      3
        Petitioners reported a $6,202.84 total tax on their 2006
return, but respondent assessed only $3,329.80. Accordingly, the
$2,873.04 difference refunded to petitioners was never assessed.
                              - 4 -

They believe respondent should have to pay the price for his

unilateral mistake and should be estopped from determining a

deficiency.

     The Commissioner has more than one remedy to recover

erroneous refunds; these include bringing a civil suit under

section 7405 and following the deficiency procedures under

sections 6211 through 6215.   Beer v. Commissioner, 733 F.2d 435,

437 (6th Cir. 1984), affg. T.C. Memo. 1982-735; Lesinski v.

Commissioner, T.C. Memo. 1997-234.    However, the Commissioner may

use the deficiency procedures to collect an erroneous refund only

if the refund gives rise to a deficiency.   See Interlake Corp. v.

Commissioner, 112 T.C. 103, 110 (1999); Lesinski v. Commissioner,

supra.

     Section 6211(a) defines the term “deficiency” as the amount

by which the tax actually imposed exceeds--

          (1) the sum of

               (A) the amount shown as the tax by the taxpayer
          upon his return, if a return was made by the taxpayer
          and an amount was shown as the tax by the taxpayer
          thereon, plus

               (B) the amounts previously assessed (or collected
          without assessment) as a deficiency, over--

          (2) the amount of rebates, as defined in subsection
     (b)(2), made.[4]


     4
        Reduced to mathematical terms, the statutory definition
of the term “deficiency” may be stated as follows:

                                                     (continued...)
                               - 5 -

     Section 6211(b)(2) defines a “rebate” as an abatement,

credit, refund, or other repayment made on the ground that the

tax imposed was less than the amount shown on the return and the

amounts previously assessed or collected without assessment.     See

also Groetzinger v. Commissioner, 69 T.C. 309, 314 (1977).

Accordingly, not all refunds are rebates.      See O’Bryant v. United

States, 49 F.3d 340 (7th Cir. 1995); Groetzinger v. Commissioner,

supra at 312.   Generally, a rebate refund is issued on the basis

of a substantive recalculation of the tax owed.      See O’Bryant v.

United States, supra at 342.   A nonrebate refund, however, is

issued not because of a determination by the Commissioner that

the tax paid is not owing but for some other reason, such as a

mistake made by the Commissioner.      Id.   The rebate versus

nonrebate distinction arises from the definition of the term

“deficiency” in section 6211; rebate refunds can be

included in deficiency computations, while nonrebate refunds

cannot.   Id.

     Respondent’s error in failing to include petitioners’ Social

Security benefits in income gave rise to a nonrebate refund.

Consequently, respondent may not seek to recover the erroneous


     4
      (...continued)
     Deficiency = correct tax - (tax on return + prior
     assessments - rebates) = correct tax - tax on
     return - prior assessments + rebates

See Midland Mortg. Co. v. Commissioner, 73 T.C. 902, 907 (1980);
Kurtzon v. Commissioner, 17 T.C. 1542, 1548 (1952).
                                - 6 -

refund through the deficiency procedures; respondent may pursue

recovery of the refund in U.S. District Court under section 7405

unless the appropriate limitations period has expired.   See

Lesinski v. Commissioner, supra.

II.   Capital Gains

      Petitioners argue that the adjustment to their income from

capital gains is the result of an unfair and dishonest procedure.

At trial Mr. Weros stated that “capital gains have become the

cash cow for the Federal government”.   He contended that IRS

rules and procedures are wrong and unfair, and he even expressed

his disapproval of the marriage penalty.   In their posttrial

brief petitioners state:   “It is totally unfair, bordering on

cheating.    We have paid taxes on the same dollars three times in

the last twenty years due to a fluid market and poor IRS

procedure.   We urge the IRS to study the procedure and make

honest changes.”

      Aside from making various policy arguments, which we have no

authority to entertain, petitioners do not dispute the

information reported on their Forms 1099-DIV, Dividends and

Distributions, or the fact that respondent correctly calculated

the adjustment to their income from capital gains.   Accordingly,
                                 - 7 -

respondent’s determination with respect to the adjustment in

petitioners’ income from capital gains is sustained.

     To reflect the foregoing,


                                              Decision will be entered

                                         under Rule 155.
