                    T.C. Summary Opinion 2011-79



                       UNITED STATES TAX COURT



         LAWRENCE ALBERT WILLEY AND PHYLLIS KATHLEEN WILLEY,
                            Petitioners v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 24208-09S.              Filed July 5, 2011.



     Lawrence Albert Willey and Phyllis Kathleen Willey, pro

sese.

     Christina L. Cook, for respondent.



     ARMEN, Special Trial Judge:    This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect when the petition was filed.1   Pursuant to section



     1
        Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for the
year in issue.
                                - 2 -

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

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

for any other case.

     Respondent determined a deficiency in petitioners’ 2007

Federal income tax of $3,068.

     The only issue for decision is whether petitioners are

liable for a deficiency in income tax for the year in issue.    We

hold that they are.

                             Background

     Some of the facts have been stipulated, and they are so

found.   We incorporate by reference the parties’ stipulation of

facts and accompanying exhibits.

     Petitioners resided in the State of Minnesota when the

petition was filed.

     In 2007 petitioners received gross Social Security benefits

of $24,048.

     On their 2007 Form 1040, U.S. Individual Income Tax Return,

petitioners correctly reported on line 20b the taxable amount of

their Social Security benefits as $20,441, but left blank line

20a for the gross amount of Social Security benefits.

Petitioners also reported adjusted gross income of $77,030,

taxable income of $55,372, tax of $7,524, and an amount withheld

of $5,262.    Petitioners enclosed with their return a check for
                               - 3 -

$2,262, which is the difference between their reported liability

of $7,524 and the total withholding of $5,262.

     In processing petitioners’ 2007 return, respondent

mistakenly concluded, based on petitioners’ failure to enter an

amount on line 20a, that petitioners did not receive any Social

Security benefits and had therefore overreported their income by

$20,441 (i.e., the amount appearing on line 20b of petitioners’

return as filed).   Having so concluded, respondent then

recalculated petitioners’ tax liability and issued a refund check

for $3,077.07 on June 27, 2008.2   Petitioner Phyllis Kathleen

Willey (Mrs. Willey) endorsed the check, and the check was paid

on July 7, 2008.

     Ultimately, respondent concluded that petitioners had

correctly reported the taxable portion of their Social Security

benefits and that respondent had erred in issuing petitioners a

refund check.   Accordingly, by notice of deficiency respondent

determined a deficiency in petitioners’ income tax for 2007 equal

to the erroneous refund of $3,068.

                            Discussion3

     The parties agree that petitioners’ correct tax liability

for 2007 is $7,524, which petitioners reported as their tax


     2
        The amount of the refund check includes a $3,068 decrease
in tax and $9.07 in interest.
     3
         We decide this case without regard to the burden of
proof.
                               - 4 -

liability on their 2007 Form 1040.     Petitioners contend, however,

that they should not be liable for the deficiency because they

never received or deposited the refund check of $3,077.07.

However, the record clearly demonstrates to the contrary.

     At trial respondent introduced a copy of the refund check

with a check number of 2309 31851160 listing petitioners as the

payees and bearing on the back the endorsement of “Phyllis K.

Willey”.   In addition, respondent introduced a document titled

“TCIS Check Details”, which lists petitioners as the payee for

check number 2309 31851160, states that the status of the check

is “reconciled”, and indicates a paid date of July 7, 2008.

     Mrs. Willey admitted at trial that the endorsement on the

back of the check was in fact her signature, and the record

demonstrates that the check was paid on July 7, 2008.

Petitioners claim that they never deposited the check, and they

further claim that no deposit was reflected on their bank account

records.   However, petitioners did not introduce those records,

nor did they deny that they might have simply cashed the check

without depositing it.   In any event, we have found as facts that

the check was received by petitioners, that it was endorsed by

Mrs. Willey, and that it was paid on July 7, 2008, and we

conclude that petitioners received the proceeds.

     The law is well settled that the making of an erroneous

refund does not preclude the Commissioner from issuing a notice
                                 - 5 -

of deficiency to recover the refund.4    See Gordon v. United

States, 757 F.2d 1157, 1160 (11th Cir. 1985); Beer v.

Commissioner, 733 F.2d 435, 437 (6th Cir. 1984), affg. T.C. Memo.

1982-735; Warner v. Commissioner, 526 F.2d 1, 2 (9th Cir. 1975),

affg. T.C. Memo. 1974-243.    The Courts of Appeals have stated:

“[T]he Commissioner, confronted by millions of returns and an

economy which repeatedly must be nourished by quick refunds, must

first pay and then look.   This necessity cannot serve as the

basis of an ‘estoppel’.”     Gordon v. United States, supra at 1160

(quoting Warner v. Commissioner, supra at 2).    We must,

therefore, reject petitioners’ contention and sustain

respondent’s determination.


     4
        We note that the record demonstrates that the refund in
the instant case was a “rebate refund” and not a “nonrebate
refund”. See sec. 6211(a)(2), (b)(2); sec. 301.6211-1(f),
Proced. & Admin. Regs., and the example therein. This is because
a rebate refund is made because of a substantive recalculation by
the Commissioner that the tax due is less than the amount shown
by the taxpayer on the taxpayer’s return. Acme Steel Co. v.
Commissioner, T.C. Memo. 2003-118; Clayton v. Commissioner, T.C.
Memo. 1997-327, affd. per curiam without published opinion 181
F.3d 79 (1st Cir. 1998). In contrast, a nonrebate refund is
unrelated to a recalculation of a taxpayer’s tax liability,
Lesinski v. Commissioner, T.C. Memo. 1997-234; such a refund is
typically made because of an accounting, clerical, or computer
error by the Commissioner, i.e., “by accident”. Acme Steel Co.
v. Commissioner, supra. In short, “[i]f the refund reflects a
recalculation of the taxpayers’ tax liability, it is a rebate
refund; if the refund is unrelated to a recalculation of tax
liability, it is a nonrebate refund.” Id. In the instant case,
the refund was issued not because of some clerical mistake or
computer error but rather because of respondent’s conclusion
(albeit erroneous) that petitioners had overstated their income,
thereby necessitating a recalculation of petitioners’ tax
liability.
                                 - 6 -

     Accordingly, we hold that petitioners are liable for the

deficiency in income tax for 2007 as determined by respondent.

                           Conclusion

     We have considered all of the arguments made by petitioners

and, to the extent that we have not specifically addressed any of

those arguments, we conclude that they are without merit.

     To reflect the foregoing,


                                              Decision will be entered

                                         for respondent.
