                  T.C. Summary Opinion 2003-112



                      UNITED STATES TAX COURT



                    JOSEF LAH, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent

                    MARIE LAH, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 15965-02S, 15966-02S.     Filed August 11, 2003.


     Josef Lah, pro se in docket No. 15965-02S.

     Marie Lah, pro se in docket No. 15966-02S.

     Donza M. Poole, for respondent.



     HAINES, Judge:   These consolidated cases were heard pursuant

to section 7463 in effect at the time the petition was filed.1




     1
        Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code for the relevant
year. Amounts are rounded to the nearest dollar.
                               - 2 -

The decisions to be entered are not reviewable by any other

court, and this opinion should not be cited as authority.

     Respondent sent separately to petitioner Josef Lah (Mr. Lah)

and petitioner Marie Lah (Mrs. Lah) (collectively, petitioners) a

Notice of Determination Concerning Collection Action(s) Under

Section 6320 and/or 6330 (notice of determination).2   The issue

for decision is whether respondent may proceed with the proposed

collection activities relating to 1990, 1991, 1992, and 1993

(years in issue).

                            Background

     Some of the facts have been stipulated and are so found.

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.   At the time they filed

the petitions, petitioners resided in Chardon, Ohio.

     Petitioners filed a chapter 11 bankruptcy petition on

November 25, 1985.   The case was subsequently converted to a

chapter 7 proceeding.

     On March 5, 1986, respondent assessed a section 6672 trust

fund recovery penalty (TFRP) against each petitioner of more than

$40,000.3   The TFRP resulted from the failure to withhold and pay

over income and Federal Insurance Contribution Act taxes for


     2
        Petitioners’ cases were consolidated for purposes of
trial, briefing, and opinion.
     3
        Respondent assessed $43,652 against Mr. Lah and $45,485
against Mrs. Lah.
                                - 3 -

Swiss Haus, Inc. for the quarter ending December 31, 1982, to the

quarter ending June 30, 1984.   See sec. 6672.

     In December 1990, the U.S. Bankruptcy Court for the Northern

District of Ohio, Eastern Division, entered an order requiring

the chapter 7 trustee to pay certain administrative claimants a

dividend, including $12,802 to respondent on its claim for

administrative taxes incurred by petitioners’ bankruptcy estate

during the chapter 11 phase of the case.   Further, the TFRP

liabilities were found not to be fully dischargeable in

bankruptcy.   See 11 U.S.C. sec. 523(a)(1)(A) (2000).

     Petitioners filed their 1990, 1991, and 1992 tax returns

with the filing status of married filing jointly and did not send

in payments for the balances due with these returns.    Mr. Lah

filed his 1993 tax return with the filing status of married

filing separately.   Mr. Lah did not send in a payment for the

balance due with his 1993 tax return.

     Prior to September 1996, petitioners sent in various partial

payments to be applied to the income tax liabilities for the

years in issue.   Petitioners would designate each payment to the

tax year that they wanted the payment to apply.   During this

period, respondent would honor petitioners’ designations and

apply the payments to the tax years specified.

     On July 12, 1996, petitioners entered into an installment

agreement with respondent that included the TFRP liabilities and
                               - 4 -

the income tax liabilities for the years in issue.   Respondent

sent petitioners a letter confirming the installment agreement,

which was silent as to whether petitioners could designate the

payments to a certain year’s liabilities under the agreement.

     On August 12, 1996, petitioners sent respondent a payment

under the installment agreement for $1,000 and stated in an

attached letter:

     The Installment Payment for August, please apply it to
     1993/[sic]

     The 1989 & 1984 assessments are disputed, because we owed 0
     for 1989.

     The 1984 taxes known as 6672, have no explanation of what
     they [are] from the Internal Revenue.

     WE have written for on [sic] explanation.

On September 26, 1996, respondent sent petitioners a response

(the September 26, 1996, letter) stating: “Since payments are

applied in the best interest of the government, we are unable to

transfer your $1,000 payment, dated August 12, 1996 as

requested.”   After receipt of this letter, petitioners no longer

designated each payment under the installment agreement.

Petitioners made payments of $1,000 under the installment

agreement monthly from September 26, 1996, to March 1, 1998.

Respondent requested in each monthly payment notice attached to

the payment voucher that petitioners include the payment voucher,

which referred to “CIVPEN 06-30-84”, with each payment and write

on each check “CIVPEN 06-30-84".   Although petitioners refused to
                                - 5 -

write “CIVPEN” on each payment because they disputed the TFRP

liabilities, they did include respondent’s payment voucher with

each payment.   Respondent applied these payments to the TFRP

liabilities.4

     On August 28, 1998, Mr. Lah attended an IRS problem-solving

day in which he argued that his income tax liabilities for the

years in issue should be abated because the payments made

pursuant to the installment agreement were intended to pay off

these income tax liabilities.   The IRS revenue agent reviewed the

payments made by petitioners and ensured that all checks

designated for application to the income tax liabilities for the

years in issue were applied, including the August 12, 1996,

payment.

     On October 26, 1998, petitioners filed a Form 843, Claim for

Refund and Request for Abatement, for a refund of the payments

made pursuant to the installment agreement that respondent

applied to the TFRP liabilities.   Respondent disallowed this

claim.

     On August 24, 2001, respondent sent a Final Notice of Intent

to Levy and Notice of Your Right to a Hearing for the years in

issue.   The taxes owed with penalties and interest, as set forth


     4
       As a result of the bankruptcy proceeding, the statute of
limitations period to collect the TFRP liabilities expired on
Oct. 26, 1998, for Mr. Lah, and Dec. 7, 1998, for Mrs. Lah. See
sec. 6503(h) (suspending the running of the period of limitations
during the period of bankruptcy).
                               - 6 -

in the final notice, were $11,035, $4,540, $5,264, and $2,798,

for 1990, 1991, 1992, and 1993, respectively.       A hearing was held

on January 3, 2002.   Subsequently, respondent sent each

petitioner a notice of determination for the years in issue.5

Respondent determined that the proposed levy action was sustained

because petitioners failed to show that they were entitled to any

additional credits or payments, and petitioners were not willing

to discuss any alternatives to the proposed levy action.

Respondent explained:

     The Service will not grant an installment agreement unless
     the agreement includes all delinquent tax liabilities. The
     Service will apply all payments on an agreement in the best
     interest of the United States. Generally, payments are
     applied to the tax period with the earliest collection
     statute expiration date. The trust fund recovery penalty
     assessment had the earliest collection statute date.
     Payments were applied to the trust fund recovery penalty
     first.

               *      *   *    *       *   *    *

     The Settlement Officer offered you an opportunity to produce
     verification of any other designated payments for
     consideration for transfer. You did not provide any
     additional canceled checks designated to specific tax
     periods.

On October 4, 2002, petitioners each filed a Petition for Lien or

Levy Action Under Code Section 6320(c) or 6330(d) for the years

in issue.



     5
        Respondent also included taxable years 1997 and 1999 in
the Final Notice of Intent to Levy and Notice of Your Right to a
Hearing and in Mr. Lah’s notice of determination, but petitioners
do not dispute those years.
                               - 7 -

                            Discussion

     In general, a taxpayer making a voluntary payment has the

right to direct its application to whatever tax liability he

chooses.6   Muntwyler v. United States, 703 F.2d 1030, 1032 (7th

Cir. 1983); O’Dell v. United States, 326 F.2d 451, 456 (10th Cir.

1964); Bierhaalder v. Commissioner, T.C. Memo. 1995-307; cf. Rev.

Rul. 73-305, 1973-2 C.B. 43 (if the taxpayer does not provide

specific instructions as to the application of the partial

payment, the Commissioner will apply the payment to tax, penalty,

and interest to the earliest period first).7

     Petitioners argue that certain payments made under the

installment agreement were improperly credited to the TFRP

liabilities rather than to their income tax liabilities for the

years in issue.   Petitioners allege that they would have

continued to designate their payments to their income tax

liabilities if they had not received respondent’s September 26,

1996, letter.   In effect, petitioners contend that respondent

should be equitably estopped from proceeding with collection




     6
        The payments made pursuant to the installment agreement
herein are voluntary payments. See Amos v. Commissioner, 47 T.C.
65, 69 (1966).
     7
        Rev. Rul. 73-305, 1973-2 C.B. 43, was superseded by Rev.
Proc. 2002-26, 2002-1 C.B. 746, which provides that unless the
taxpayer provides specific written directions as to the
application of the payment, the Commissioner will apply the
payments that “will serve its best interest.”
                               - 8 -

because their income tax liabilities would have been paid off if

they had not received respondent’s September 26, 1996, letter.

     Because the validity of the underlying tax liability, i.e.,

the amount unpaid after application of voluntary payments, is

properly at issue, we review respondent’s determination de novo.

Landry v. Commissioner, 116 T.C. 60, 62 (2001); Goza v.

Commissioner, 114 T.C. 176, 181-182 (2000).

     Equitable estoppel is a judicial doctrine that precludes a

party from denying the party’s own representations which induced

another to act to his or her detriment.    Hofstetter v.

Commissioner, 98 T.C. 695, 700 (1992).    We have recognized that

estoppel is applied against the Commissioner “with the utmost

caution and restraint.”   Id.; Kronish v. Commissioner 90 T.C.

684, 695 (1988); Boulez v. Commissioner, 76 T.C. 209, 214-215

(1981), affd. 810 F.2d 209 (D.C. Cir. 1987); Estate of Emerson v.

Commissioner, 67 T.C. 612, 617 (1977).

     The taxpayer must establish the following elements before

equitable estoppel will be applied against the Government:   (1) A

false representation or wrongful, misleading silence by the party

against whom the estoppel is claimed; (2) an error in a statement

of fact and not in an opinion or statement of law; (3) the

taxpayer’s ignorance of the true facts; (4) the taxpayer’s

reasonable reliance on the acts or statements of the one against

whom estoppel is claimed; and (5) adverse effects suffered by the
                                 - 9 -

taxpayer from the acts or statements of the one against whom

estoppel is claimed.     Norfolk S. Corp. v. Commissioner, 104 T.C.

13, 60 (1995), affd. 140 F.3d 240 (4th Cir. 1998).    If any one of

these elements is not present, equitable estoppel is not

appropriate.

     As discussed below, we sustain respondent’s determinations

to proceed with the proposed levy action because equitable

estoppel is not appropriate in these cases.

     Estoppel requires a finding that the taxpayer relied on the

Government’s representations and suffered a detriment because of

that reliance. Id.     Regardless of the designation of the payment,

petitioners paid $1,000 per month on tax liabilities that they

were legally obligated to pay.    Making payments on a legally due

tax does not constitute detrimental reliance.     Hudock v.

Commissioner, 65 T.C. 351, 364 (1975).

     Further, each monthly payment voucher enclosed with

petitioners’ payments listed “CIV PEN 06-30-84", indicating that

each payment was going toward the TFRP liabilities.    Regardless

of whether petitioners disputed the TFRP liabilities, petitioners

were aware that each monthly payment was being applied to the

TFRP liabilities by their attachment of the designated payment

voucher to each payment.    See Estate of Baumgardner v.

Commissioner, 85 T.C. 445, 460 (1985) (holding that respondent

properly allocated payments because the taxpayer received bills
                              - 10 -

for installment payments that apprised it of the allocations

between tax and interest proposed by the Commissioner).

     Moreover, respondent’s application of petitioners’ payments

was reasonable.   The letter that confirmed the installment

agreement between petitioners and respondent is the executed

written installment agreement.8   Sec. 301.6159-1(b)(2), Proced. &

Admin. Regs.   We found the installment agreement to be silent as

to whether petitioners were able to designate the application of

the payments to certain years.    As a result, it was reasonable

for respondent to apply the payments to the TFRP liabilities

first, pursuant to its own procedures.     See Rev. Rul. 73-305,

1973-2 C.B. 43.

     Further, the Court of Appeals for the Sixth Circuit, to

which this case would be appealable but for section 7463, has

held that estoppel against the Government also requires “some

affirmative misconduct by a government agent”.     United States v.

Guy, 978 F.2d 934, 937 (6th Cir. 1992).9    The evidence does not


     8
        Sec. 301.6159-1(b)(2), Proced. & Admin. Regs. provides,
in relevant part:

     (2) Form of installment agreement. A written installment
     agreement may take the form of * * * a written confirmation
     of an agreement entered into by the taxpayer and the
     director that is mailed or personally delivered to the
     taxpayer.
     9
        To define “affirmative misconduct”, the Court of Appeals
for the Sixth Circuit stated that the party claiming equitable
estoppel against the Government must establish “%more than mere
negligence, delay, inaction, or failure to follow an internal
                              - 11 -

lead us to believe that respondent’s actions rise to the level of

“affirmative misconduct”.   We sustain respondent’s determinations

to proceed with collection of the income tax liabilities for the

years in issue.

     Mrs. Lah also argued in her amended petition that the

$12,804 from the bankruptcy proceeding should have been credited

to the tax liabilities for the years in issue.    We have found

that this amount was paid to respondent for the claim of

administrative taxes incurred by petitioners’ bankruptcy estate

during the chapter 11 proceeding.   This payment was an

involuntary payment and is not allowed to be applied as

designated by the taxpayer.   Amos v. Commissioner, 47 T.C. 65, 69

(1966).

     In reaching our holdings herein, we have considered all

arguments made, and to the extent not mentioned above, we

conclude them to be moot, irrelevant, or without merit.

     To reflect the foregoing,

                                                 Decisions will be

                                         entered for respondent.




agency guideline&”, in addition to the traditional elements.
Fisher v. Peters, 249 F.3d 433, 444-445 (6th Cir. 2001) (quoting
Ingalls Shipbuilding, Inc. v. Director, Office of Workers’ Comp.
Programs, 976 F.2d 934, 938 (5th Cir. 1992)).
