                           T.C. Memo. 2009-160



                         UNITED STATES TAX COURT



 YVONNE R. KOVACEVICH AND ROBERT E. KOVACEVICH, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 14545-06L.                Filed July 1, 2009.



     Robert E. Kovacevich, pro se.

     Fred E. Green and Paul C. Feinberg, for respondent.




                           MEMORANDUM OPINION

        HOLMES, Judge:   Robert and Yvonne Kovacevich challenge the

Commissioner’s decision to collect their unpaid 1992 income taxes

by levy.    Their main argument is that the IRS failed to properly

credit five checks against their outstanding balance for that

year.
                                - 2 -

                             Background1

     This case is one of several arising from a long-running

dispute between Robert Kovacevich and the IRS about whether he

was an employee or an independent contractor of his law firm.

The firm changed its name during the years this dispute raged,

which can make following the cases from year to year confusing.

But the year before us is 1992, so we begin there.

     In 1992, Robert’s firm (which he had incorporated) was named

Robert E. Kovacevich, P.S., and he treated himself as an

independent contractor--meaning that the firm did not withhold

payroll taxes from what it paid him.       This was to the firm’s

advantage, because employers must generally deduct and withhold

payroll taxes--including income tax, Social Security (FICA) tax,

Medicare tax, and unemployment (FUTA) tax--from their employees’

paychecks.    The income tax withheld is a credit against the

income tax owed by the taxpayer at the end of the year.       FICA tax

has two portions, one paid by the employer and one paid by the

employee; the employer pays its portion and withholds the

employee’s.   Employers must deposit withheld income and FICA

taxes into a bank account within a short time after the


     1
       This background information comes from W. Mgt., Inc. v.
United States, 45 Fed. Cl. 543 (2000), Kovacevich v.
Commissioner, T.C. Memo. 2003-161, affd. 177 Fed. Appx. 561 (9th
Cir. 2006), W. Mgt., Inc. v. Commissioner, T.C. Memo. 2003-162,
affd. in part and remanded in part 176 Fed. Appx. 778 (9th Cir.
2006), and W. Mgt., Inc. v. Commissioner, T.C. Memo. 2007-211,
affd. 314 Fed. Appx. 65 (9th Cir. 2009).
                               - 3 -

employee’s paycheck is cut.   This is called the “trust fund”

system because it is deemed a special fund in trust for the

United States under section 7501(a).2   Slodov v. United States,

436 U.S. 238, 243 (1978).   If a corporate employer doesn’t pay

over the withheld money, the Commissioner may collect it from a

“responsible person”; i.e., an actual person who was required to

pay over the tax.   Money that’s collected this way is called a

trust-fund-recovery-penalty tax.   Sec. 6672.

     By characterizing Robert as a self-employed individual, his

firm was making him responsible for paying all those taxes

otherwise collected through payroll deductions.    When he and his

wife filed their 1992 tax return, they reported $90,000 that he

got from the firm as self-employment income, and paid $5,570 in

self-employment tax under section 1401, which is a tax equal to

the employer’s portion of the FICA tax.   Kovacevich, T.C. Memo.

2003-161; Western Management, 45 Fed. Cl. at 548.

     The Commissioner disagreed with the Kovaceviches about

whether Robert was an independent contractor.     He asserted that

Robert was an employee, and sent the Kovaceviches a notice of

deficiency based in part on that belief, but also disallowing

various deductions and claiming that Robert and Yvonne had failed



     2
       Unless otherwise indicated, references to sections in this
opinion are to the Internal Revenue Code as amended, and all
references to Rules are to the Tax Court’s Rules of Practice and
Procedure.
                               - 4 -

to report about $45,000 in additional income.     Kovacevich, T.C.

Memo. 2003-161.

     The Kovaceviches filed a petition with our Court.    After

finding in the Commissioner’s favor on most issues, we ordered a

computation under Rule 155.3   The Kovaceviches asked us to take

several checks into consideration as part of this computation

process, but we denied those requests and upheld the

Commissioner’s computations, finding a $13,329 deficiency and an

accuracy-related penalty under section 6662 of $2,160 for 1992.

Kovacevich, T.C. Memo. 2003-161, Kovacevich v. Commissioner, No.

12815-99 (T.C. Jan. 15, 2004) (order and decision).     The

Kovaceviches appealed and the Ninth Circuit affirmed.

Kovacevich, 177 Fed. Appx. 561 (9th Cir. 2006).

     The Commissioner’s recharacterization of Robert as an

employee of his law firm had a couple important effects.      The

first was to eliminate the Kovaceviches’ liability for Robert’s

self-employment tax, but also eliminate their right to deduct

half that tax as a personal deduction.

     The second important effect was to cast the entire

obligation to pay employment taxes onto Robert’s firm, which by

then had changed its name to Western Management, Inc.    The

Commissioner went after the firm for its failure to pay


     3
       Rule 155 allows the Court to issue an opinion but withhold
a final decision until the parties submit computations of the
correct amount to be included.
                                - 5 -

employment taxes for Robert’s services by issuing it a notice of

deficiency for 1994 and the first quarter of 1995.    Western

Management also filed a petition with our Court, but we again

upheld the Commissioner’s determination.     Western Management,

T.C. Memo. 2003-162.    Part of this case was another computational

dispute and the Ninth Circuit remanded it to us to review whether

the Commissioner had considered certain credits against the

company’s liability.    Western Management, 176 Fed. Appx. 778, 781

(9th Cir. 2006).   We found on remand that, as of 2004, the

Kovaceviches themselves had paid all taxes related to the wages

Robert earned during the periods at issue.    Under section

3402(d), these payments had to be credited to Western

Management’s account, reducing the firm’s deficiency to zero.

Western Management v. Commissioner, No. 12686-99 (T.C. Aug. 3,

2007) (order and decision).    Western Management appealed this

decision too, claiming we should have abated the FICA and FUTA

taxes it owed and should have awarded it attorney’s fees.     The

Ninth Circuit recently affirmed our ruling.     Western Management

v. Commissioner, 314 Fed. Appx. 65 (9th Cir. 2009).

     But the Kovaceviches’ 1992 individual income-tax case and

Western Management’s 1994-and-a-bit-of-1995 employment-tax case

were only two fronts in their war with the IRS.    The Commissioner

also determined that Western Management owed employment taxes for

1991, 1992, and 1993.   Western Management paid up and sued for a
                               - 6 -

refund in the Court of Federal Claims.   Western Management v.

United States, 45 Fed. Cl. 543 (2000).   The key issue in that

case was the same as it was in the earlier Tax Court cases:    Was

Robert an employee or an independent contractor?   And the Claims

Court answered that question the same way we had--finding that he

was an employee.   That case, however, seems to be stuck on

crediting questions.    See id. at 553 n.11.   As of June 2009,

that phase had not yet concluded.

     In 2004, the Commissioner opened another front by assessing

a trust-fund-recovery penalty under section 6672 against Robert

for all four quarters of 1994 and the first quarter of 1995.      As

mentioned above, the Code lets the IRS collect unpaid employer

taxes as a penalty from “any person required to collect,

truthfully account for, and pay over any tax imposed by this

title” in the amount of 100 percent of the unpaid tax--the

Commissioner, in other words was claiming that Robert was a

“responsible person” for his firm.

     And that brings us back to the 1992 tax year for the

Kovaceviches themselves.   We had entered decision against them in

2003 and, though they had appealed our decision, the Commissioner

assessed the amount we found due, see sec. 7485,4 and began

     4
       Section 6213 bars the IRS from assessing a tax liability
until our decision becomes final, and section 7481 makes our
decisions final only when all opportunities for appeal have been
exhausted. But section 7485 trumps this by stating that
                                                   (continued...)
                               - 7 -

trying to collect it.   In April 2005, the Commissioner sent them

a notice that he intended to levy upon their property to collect

what was by then more than $10,000.    They each mailed back a

timely request for a collection due process (CDP) hearing.

Before the hearing, the Kovaceviches sent the Appeals officer

copies of four checks they believed should be credited to their

1992 account.   The Appeals officer held the hearing and in July

2006 sent them a notice of determination upholding the levy.     In

this notice, the Appeals officer explained that she would not

consider whether the IRS had properly credited the checks the

Kovaceviches claim to have sent, reasoning that this was an

impermissible challenge to their underlying tax liability, see

sec. 6330(c)(2)(B), that the checks related to years not at issue

in the CDP hearing, or that she shouldn’t do so because the

crediting matter was in front of the Tax Court on remand from the

Ninth Circuit as part of the Western Management line of cases.

     She also rejected the Kovaceviches’ request that she contact

the Social Security Administration to ensure the proper crediting

of Robert’s SSA account once the question of his status as an

employee or independent contractor was settled, stating that this

claim could be made only via a claim for refund outside of the



     4
      (...continued)
assessment shall only be stayed during an appeal if the taxpayer
posts a bond. There is no evidence the Kovaceviches did that.
                                - 8 -

collections hearing process.5   But then, perhaps out of an

abundance of caution, she attached a table showing that she had

researched three of the four checks and found them applied to

liabilities other than the Kovaceviches’ unpaid 1992 liability.

     On appeal, the Kovaceviches argue mainly that the Appeals

officer abused her discretion in finding that the four checks

they brought to her attention did not need to be credited to

their 1992 tax debt.6   They also argue that the Commissioner

should have credited their 1992 account for the amount of a fifth

check--number 10376--which they produced at trial.




     5
       The Kovaceviches also paid a filing fee for the IRS to
consider a collections alternative. The IRS later returned the
fee after the Kovaceviches failed to provide any of the required
information.
     6
       The Kovaceviches make one meritless argument–-that it was
an abuse of discretion not to give them a certified transcript,
Form 4340, at the hearing. We routinely hold that nothing in the
Code requires an Appeals officer to furnish a taxpayer with a
Form 4340 during a CDP hearing. See, e.g., Nestor v. Commis-
sioner, 118 T.C. 162, 166 (2002).

     They also ask us to reopen the trial record so they can call
the IRS employee who they say was responsible for the audit of
their 1992 taxes. But what goes on during audits is immaterial
to the de novo record on which we decide deficiency cases.
Greenberg Express, Inc. v. Commissioner, 62 T.C. 324, 327-28
(1974). And this isn’t a deficiency case--it’s a CDP case where
the amount of the liability isn’t even an issue.
                                   - 9 -

       The checks in question are:

Check        Date       Amount       Payor             Apply to

 No.
3747       3/30/91    $21,985.48   Robert E.     “Employment tax 3-31-
                                   Kovacevich,   88-9/30/88; 1989;
                                   P.S.          3/31/89-9/30/89;
                                                 3/31/90-9/30/90”
7438       9/30/95    $22,583.20   Robert E.     “941 taxes7 3/31/92-
                                   Kovacevich,   12/31/92; 941 taxes
                                   P.S.          3/31/93-12/31/93.
                                                 For payment of 941
                                                 taxes only no
                                                 interest or
                                                 penalties”
10161      9/29/03     $7,682.00   Robert and    “Payment of
                                   Yvonne        employment tax
                                                 Western Management
                                                 Inc. For 6672
                                                 penalty to
                                                 withholding tax
                                                 only. Directed
                                                 payment for 1994
                                                 taxes of Robert E.
                                                 Kovacevich
                                                 classified as
                                                 employee”
10376      4/28/04    $7,514.40    Robert and    “Payment of
                                   Yvonne        employment tax ONLY
                                                 Western Management
                                                 Inc. Directed
                                                 payment for TAX ONLY
                                                 1994 for Robert E.
                                                 Kovacevich
                                                 classified as
                                                 employee”
7641       11/23/04   $8,276.50    Robert and    “6672 penalty on

       7
       We assume the Kovaceviches intended “941 taxes” to mean
Western Management’s quarterly employment taxes, which would have
been submitted with a Form 941, “Employer’s Quarterly Federal Tax
Return.”
                              - 10 -


     The Kovaceviches resided in Spokane, Washington when they

filed their petition.

                            Discussion

     The Kovaceviches ask us to resolve the check-crediting issue

and also object to the Appeals officer’s refusal to transmit

certain information to the Social Security Administration.    Their

case--perhaps an easy one if the Appeals officer had simply

reviewed IRS records to see whether any of the checks the

Kovaceviches showed her should have had any effect on their 1992

individual income-tax liability--instead raises some difficult

procedural questions that we need to discuss before reaching the

merits of the crediting question:

     !     Can we look at the crediting of check 10376, which the
           Kovaceviches didn’t present at the CDP hearing?

     !     Is an examination of the crediting of payments to the
           IRS a challenge to a taxpayer’s “underlying tax
           liability” or a dispute about whether the IRS followed
           an “administrative procedure?”--a question that
           determines our standard of review; and

     !     Does collateral estoppel or res judicata bar later
           administrative challenges to crediting when they could
           have been made at the computational stage of an earlier
           deficiency case?

I.   Procedural Issues

     A.   Check 10376

     Check 10376 stands by itself because the Kovaceviches did

not put that check in front of the Appeals officer during the CDP

hearing--meaning we have no determination to review on that
                              - 11 -

question.   The Commissioner argues in his brief that we shouldn’t

consider that check because it was not part of the administrative

record.   We have already held, however, that we are not limited

to the administrative record in reviewing CDP determinations.

Robinette v. Commissioner, 123 T.C. 85 (2004), revd. 439 F.3d 455

(8th Cir. 2006).   As a reviewed opinion, Robinette remains good

law in our Court unless a case is to be appealed to the Eighth

Circuit; this case is not.   See Golsen v. Commissioner, 54 T.C.

742, 757 (1970), affd. 445 F.2d 985 (10th Cir. 1971).8

     Because we do not follow the record rule, we will consider

evidence not produced at the CDP hearing if it is relevant to

issues raised during the hearing and is admissible under the

Federal Rules of Evidence.   The Commissioner, however, will often

object to evidence that a taxpayer introduces for the first time

at trial in our Court on the ground that evidence not put before

the Appeals officer during the CDP hearing is irrelevant to the

question of whether that officer abused her discretion.   Murphy

v. Commissioner, 125 T.C. 301, 313-14 (2005), affd. 469 F.3d 27

(1st Cir. 2006).   But in this case, the Commissioner did not

object to entry of this check into evidence, so we can dodge any


     8
       In a very recent decision, the Ninth Circuit cited the
Eighth Circuit’s opinion in Robinette favorably. See Keller v.
Commissioner, -- F.3d --, 2009 WL 1532197 (9th Cir. June 3, 2009)
at *4. Given the result we reach in this case, we need not
consider Keller’s effect on the continuing vitality of our
Court’s opinion in Robinette.
                               - 12 -

further analysis--an evidentiary objection unmade at trial is

waived.    Fed. R. Evid. 103(a); Fuller v. Commissioner, 20 T.C.

308, 314 (1953), affd. 213 F.2d 102 (10th Cir. 1954).

     B. Crediting as a Challenge to the Underlying Liability

     The Commissioner next concedes on brief that the Appeals

officer was wrong to conclude that she need not, or could not, or

should not, investigate whether the checks should have been

credited against the Kovaceviches’ unpaid 1992 liability.      We

need to explain this concession to explain the problems that it

creates.

     The concession springs from the Commissioner’s reading of

section 6330(c), which lists what a taxpayer may raise during a

CDP hearing:

          SEC. 6330(c). Matters Considered at Hearing.--In the
     case of any hearing conducted under this section–-

                 (1) Requirement of investigation.--The appeals
            officer shall at the hearing obtain verification from
            the Secretary that the requirements of any applicable
            law or administrative procedure have been met.

                 (2) Issues at hearing.--

                      (A) In general.--The person may raise at the
                 hearing any relevant issue relating to the
                 unpaid tax or the proposed levy, including--

                           (i) appropriate spousal defenses;

                           (ii) challenges to the appropriateness
                       of collection actions; and

                           (iii) offers of collection alternatives,
                        which may include the posting of a bond,
                      the substitution of other assets,
                               - 13 -

                     installment agreement, or an offer-in-
                     compromise.

                     (B) Underlying liability.--The person may
                  also raise at the hearing challenges to the
                  existence or amount of the underlying tax
                  liability for any tax period if the person
                  did not receive any statutory notice of
                  deficiency for such tax liability or did not
                  otherwise have an opportunity to dispute such
                  tax liability. [Emphasis added.]

     Because the Kovaceviches received a notice of deficiency for

1992, their “underlying liability” could not have been properly

at issue in the CDP hearing.    The Appeals officer clearly

understood this as a general principle.    The Kovaceviches do not,

as is plain from their reliance on Perkins v. Commissioner, 129

T.C. 58, 64 (2007), a case in which the taxpayers could challenge

the underlying deficiency because “no statutory notice of

deficiency was sent to petitioner” for the year at issue.      But

the application of this general principle requires an answer to a

more precise question:   Is a dispute about whether a particular

check should have been credited toward a particular tax liability

a prohibited “challenge to the underlying tax liability?”

     Our analysis requires a brief detour into tax jargon:

liability, deficiency, and assessment.    A tax liability is the

tax imposed by the Code on a particular taxpayer for a particular

tax year.   Sec. 26(b)(1).   For an individual who correctly

reports his taxes, that liability is the amount of tax shown on

his return.   A deficiency is the difference between the amount of
                                - 14 -

a taxpayer’s liability and the amount shown on his return--in

other words, the difference between a taxpayer’s liability under

the Code and what he admits that he owes on his return.     Sec.

6211.     An assessment is the recording of a liability in the

Commissioner’s books.     Sec. 6203.

        With these definitions in place, it might seem at first

reading that challenges to the proper crediting of checks that a

taxpayer sends to the IRS are not “challenges to the underlying

liability,” because they don’t raise questions of the amount of

tax imposed by the Code for a particular tax year.     They raise,

instead, questions of whether that liability remains unpaid.       The

Commissioner agrees, arguing that “the very structure of section

6330 reinforces the distinction between liability and payment of

unpaid tax.”     The Commissioner points out that section

6330(c)(2)(A) starts by saying, “the [taxpayer] may raise at the

hearing any relevant issue relating to the unpaid tax . . . ,”

whereas section 6330(c)(2)(B) says the taxpayer may raise

challenges “to the existence or amount of the underlying tax

liability” if the taxpayer has not received a notice of
                              - 15 -

deficiency.9   (Emphasis added.)   In Freije v. Commissioner, 125

T.C. 14, 26 (2005), we reasoned:

     considering the terms of the statute in their ordinary
     meaning, a “relevant issue relating to the unpaid tax
     or the proposed levy” surely includes a claim, such as
     the one here, that the “unpaid tax” has in fact been
     satisfied by a remittance that the Commissioner im-
     properly applied elsewhere.

     So we agree with the Commissioner on this one, and hold that

questions about whether a particular check was properly credited

to a particular taxpayer’s account for a particular tax year are

not challenges to his underlying tax liability.10   The

consequence here is that we review the Appeals officer’s

determination for abuse of discretion:



     9
       Another vocabulary problem is that “credit” can mean two
different things in tax law. It can mean amounts subtracted from
the computation of tax otherwise owed, rather than (as with
deductions) from the amount of income on which the tax is
computed. But it can also mean the reduction in unpaid liability
that occurs when a taxpayer pays his tax and his account is
“credited.” The parties, and sometimes our own cases, don’t
always make this distinction clear.
     10
       We also carefully distinguish cases like Perkins and
Landry v. Commissioner, 116 T.C. 60 (2001). In cases like these,
taxpayers argue that they are due refunds from prior years that
should be credited to their unpaid tax in a later year.
Overpayments from one tax year can, under section 6513(d) and its
regulations, be a credit toward the tax liability of the
following year. We rule on such arguments under the Code
provisions governing claims for refund, see secs. 6511, 6513, and
treat them as raising a question of liability for that following
tax year. See Landry, 116 T.C. at 62-63. If that’s an argument
the Kovaceviches are making, section 6330(c)(2)(B) bars them from
making it successfully because they already had a chance to
contest their liability when they got a notice of deficiency.
                              - 16 -

     Where the validity of the tax liability was properly at
     issue in the hearing . . . The amount of the tax liability
     will in such cases be reviewed by the appropriate court on a
     de novo basis. Where the validity of the tax liability is
     not properly part of the appeal, the taxpayer may challenge
     the determination of the appeals officer for abuse of
     discretion. H. Conf. Rept. 105-599, at 266 (1998).

See also, e.g., Sego v. Commissioner, 114 T.C. at 611; Goza v.

Commissioner, 114 T.C. at 182-83.   This means that we look to see

if the Appeals officer’s decision was grounded on an error of law

or rested on a clearly erroneous finding of fact, or whether he

applied the correct law to fact findings that weren’t clearly

erroneous but ruled in an irrational manner.   Indus. Investors v.

Commissioner, T.C. Memo. 2007-93 (citing United States v.

Sherburne, 249 F.3d 1121, 1125-26 (9th Cir. 2001)); see also

Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 402-03 (1990).

     Our agreement with the Commissioner on this point, though,

may end up causing him a problem--it means that the Appeals

officer committed an error of law when she labeled the check-

crediting argument a challenge to the underlying liability.    This

means that she necessarily abused her discretion, unless her

error was harmless.   See Perkins, 129 T.C. at 70-71.   The Com-

missioner points out to us two paths to a finding of harmless-

ness: that the Kovaceviches are barred from raising the check-

crediting issue by section 6330(c)(4) and the doctrine of res

judicata, and that they would still lose because the IRS did
                                - 17 -

correctly credit the checks against liabilities other than their

unpaid 1992 individual income-tax liability.

     C.    Section 6330(c)(4) and Res Judicata

     Section 6330(c)(4) precludes a taxpayer from raising in a

CDP hearing any “issue” that “was raised and considered at a

previous hearing under section 6320 or in any other previous

administrative or judicial proceeding.”    The Kovaceviches

raised--and we did consider--the issue of check 3747 during their

deficiency trial.     Kovacevich v. Commissioner, No. 12815-99 (T.C.

Jan. 15, 2004) (decision).    Therefore, the Code itself would

preclude us from addressing this check during the collections

stage.    But Rule 39 requires a party to specially plead “any

matter constituting an avoidance or affirmative defense,

including res judicata.”    Whether preclusion under section

6330(c)(4) is “a matter” that must be pleaded as an affirmative

defense is unclear.    If it is, then there’s a problem, because

the Commissioner didn’t raise the issue in his answer.    But we’ll

just note the problem as one we’ll save for a later case--it

would affect at most only one of the disputed checks.

     The Commissioner next argues that the Kovaceviches could

have raised the proper crediting of these checks in previous

litigation, even though they didn’t.     This is an argument about

res judicata.    But applying res judicata in this case turns out

to be quite complicated.    The first problem for the Commissioner
                                - 18 -

is that, as with his section 6330(c)(4) argument, he raised it

for the first time in his posttrial brief.    Res judicata is

definitely an affirmative defense, yet it is nowhere in the

Commissioner’s answer and didn’t come up at trial.11   A second

problem is that it’s not at all clear that questions of whether

the IRS credited particular checks correctly have to be raised in

a deficiency case.12   And even in the Kovaceviches’ 1992

deficiency case only one check, number 3747, was actually

mentioned in the computations, when we found that it was a check

“credited to previous years for employment taxes owed by the

corporation’s liabilities relating to 1988, 1989, and 1990.”

Kovacevich v. Commissioner, No. 12815-99 (T.C. Jan. 15, 2004)

(decision).   (The Kovaceviches presumably could have also raised

the crediting of check 7438, because they wrote it in 1995.)

     The check numbered 10161 was written in September 2003,

after the trial but before entry of the Rule 155 computations,

and the last two checks, 7461 and 10376, were written after we

had already entered decision.    So it’s not at all clear that

questions about the proper crediting of particular payments are


     11
       Instead, the Commissioner pleaded section 6330(c)(2)(B)
as an affirmative defense in his answer.
     12
       The application of payments is almost always part of
overpayment cases where the final decision document includes a
statement of account showing assessments and payments. See sec.
6512(b)(3); Internal Revenue Manual pt. 35.8.6.3.1.3 (Aug. 11,
2004).
                               - 19 -

part of the same “claim,” and so precluded by res judicata, as is

the proper computation of tax liability.     It is clear that in the

circumstances of this case--where at least some of the checks

could not have been brought to our attention because they hadn’t

been written yet--we would still need to proceed to the question

of whether the IRS properly credited them.     So we will sidestep

this question too.

      That leaves us with the decisive question of whether the IRS

properly credited the disputed checks.     The Kovaceviches make two

arguments.    The first is that the checks were credited to the

wrong tax years.    The second is that overpayments of employment

taxes for some years should have been carried over to reduce

their 1992 income-tax liability.

II.   Crediting of the Checks at Issue Here

      A taxpayer who makes a voluntary payment may designate which

liability he or she wishes to pay.      Tull v. United States, 69

F.3d 394, 396 (9th Cir. 1995); see also Rev. Proc. 2002-26, 2002-

1 C.B. 746.    We find that all the Kovaceviches’ payments were

voluntary, so their designation controls.

      Check 3747, for $21,985.48, was written on the account of

Robert E. Kovacevich, P.S., on March 30, 1991.      The check bears

the employer identification number of Robert E. Kovacevich, P.S.,

and directs that it should be credited for “Employment tax 3-31-

88-9/30/88, 1989, 3/31/89-9/30/89, 3/31/90, 9/30/90.”     The
                                - 20 -

Appeals officer did not research this check, and the Commissioner

entered no transcripts for tax years before 1992 into evidence at

trial.     However, the Appeals officer wrote in the Notice of

Determination that this check pertained to “years outside the

CDP.”     This finding was not an abuse of discretion; it was not

clear error for her to determine that this check was meant to pay

for years before 1992 and was meant to reduce the firm’s own

unpaid tax liabilities.     And, if it is up to us to make a finding

of our own on the basis of the trial record, we find it more

likely than not that the check was credited as the Kovaceviches

wished.

     Check number 7438, for $22,583.20, was written on the

account of Robert E. Kovacevich, P.S., on September 30, 1995.       It

reads “941 taxes 3/31/92-12/31/92; 941 taxes 3/31/93-12/31/93.

For payment of 941 taxes only no interest or penalties.”     This

check also has the firm’s employer identification number on it.

The back of this check bears an obscured document locator number

(DLN)13 which reads in part “291172772.”    This matches an October

4, 1995 IRS computer-transcript entry labeled “payment” for

Western Management’s tax period ending March 1992.     This makes it

highly likely that check 7438 is the very same check that



     13
       The IRS assigns a DLN to each document it processes. IRS
employees can then refer to the DLN to find out which taxpayer
sent the document and where the document is stored.
                              - 21 -

triggered the refund litigation in the Court of Federal Claims.

As the opinion in that case states:

     On September 30, 1995, a check in the amount of $22,530.20
     from account no. *** [XXXXX-XXX] was paid to the Internal
     Revenue Service. *** The check was paid on amounts billed
     by the IRS for alleged FICA, FUTA, and other employment
     taxes solely on a dispute of one worker Robert Kovacevich
     for the calendar year 1992.

Western Management, 45 Fed. Cl. at 548.   This reading is con-

firmed by the 1992 Western Management transcript, which indicates

that the Kovaceviches began refund litigation for that year in

May 1997.   The transcript shows that Western Management got a

refund of $3,961.04 for 1992; this corresponds to the amount of

check 7438 less the additional tax assessed plus interest and

penalties.14   We therefore find that the Appeals officer commit-

ted no clear error in concluding that the IRS did credit this

check according to the taxpayer’s wishes; all the facts strongly

indicate it was meant to pay the firm’s tax debt, not the Kovace-

viches’.

     The Kovaceviches wrote check 10161 September 29, 2003.   They

directed that this $7,682 check be put toward “Payment of employ-

ment tax Western Management Inc.   For 6672 penalty to withholding

tax only.   No interest or penalty payment.   Directed payment for

1994 taxes of Robert E. Kovacevich classified as employee.”


     14
       There is a discrepancy of $94.04 between the check and
the transcript entry, but the parties did not address it. We
find it to be immaterial.
                               - 22 -

Analyzing the crediting of this check is complicated; although

Western Management’s employer identification number is

handwritten at the top, Robert’s Social Security number and the

words “1994 tax” are typed at the bottom.    This makes the job of

discerning the Kovaceviches’ intended crediting very confusing.

On the one hand, they designated it for payment of the “6672

penalty.”    On the other, it also has Robert’s Social Security

number typed on the check and a second note directing that it

should be put toward “1994 taxes of Robert E. Kovacevich.”    This

suggests it should pay his tax.    If we had a third hand, we could

also point out that it’s designated for “payment of employment

tax Western Management Inc.,” indicating payment of 941 taxes,

reinforced by the handwritten employer identification number on

the check.

     The Commissioner apparently resolved this issue by crediting

the checks to Western Management’s account.    The DLN on the back

of the check is 29117282040043; this matches an October 3, 2003

entry on Western Management’s account transcript showing a $1,920

payment for the firm’s first quarter 1994 taxes.    The Appeals

officer found that the IRS had credited the remainder of the

check to the rest of Western Management’s 1994 tax year.    The

following payment entries appear in the transcripts:
                                - 23 -

     Period              Payment Amount             Payment Date
    3/31/94                $1,920.50                  10/3/03
    6/30/94                $1,920.50                  10/3/03
    9/30/94                $1,920.50                  10/3/03
    12/31/94               $1,920.50                  10/3/03

Based on the evidence, the Appeals officer did not abuse her

discretion in finding that the check was credited across all four

quarters of Western Management’s 1994 tax year.       It was also not

clear error for her to find that this accorded with the

taxpayer’s confusing directions--those directions as stated on

the check could have supported any one of three different

conclusions as to their intentions.       “Where there are two

permissible views of the evidence, the factfinder’s choice

between them cannot be clearly erroneous.”       Anderson v. City of

Bessemer City, 470 U.S. 564, 574 (1985).       And, of course, none of

the three plausible interpretations of the ambiguous directions

has anything at all to do with the Kovaceviches’ 1992 income tax.

     Check 10376 was for $7,514.40 and dated April 28, 2004.       It

was drawn from the personal account of Robert and Yvonne Kovace-

vich, but written on it is “Payment of employment tax ONLY Wes-

tern Management Inc.   Directed payment for TAX ONLY 1994 for Rob-

ert E. Kovacevich classified as employee.”       The only identifica-

tion number on the check is Western Management’s.       And that is

what we find was done:    On Western Management’s transcript for

March 1994, there is an entry for a “subsequent payment” of
                              - 24 -

$7,514.40.   Although some of the numbers on the back of the check

are obscured, the digits “31105004" are clear and match the DLN

on the transcript corresponding to the May 3, 2004 payment.       The

Appeals officer didn’t analyze where this check went--remember,

it was the check the Kovaceviches introduced only at trial.       But

it’s plain to us that when they wrote it, the Kovaceviches

designated the check to pay 1994 taxes.     The 1994 tax quarters

for Western Management do not overlap with the Kovaceviches’ 1992

individual tax year, so we find that the Commissioner properly

did not credit it to the Kovaceviches’ individual account.

     The Appeals officer addressed the last of these five checks,

number 641 for $8,276.50, by verifying that it had been applied

to Western Management’s deficiency for the first quarter of 1995.

The Kovaceviches wrote this on November 23, 2004, directed that

it should be put toward the “6672 penalty on 3/27/1995,” and

wrote Robert Kovacevich’s Social Security number on it.     The

Western Management transcript for the period ending March 31,

1995 has an entry on November 23, 2004 for a “subsequent payment

- trust fund” in the amount of $8,276.50.    The number printed on

the back of the check again matches the “DLN” indicated on

Western Management’s transcript.

     The Kovaceviches plausibly argue that they wanted this

payment applied to Robert’s 1995 trust-fund-recovery penalty

under section 6672, not to Western Management’s 941 taxes for
                                - 25 -

1995.   But their argument misses the point--this case is about

the Kovaceviches’ unpaid 1992 tax liability.    We simply lack

jurisdiction over 1995 taxes when they do not affect the tax year

covered by the notice of determination in front of us.    Freije,

125 T.C. at 25.

        Robert even admitted at trial that he wanted this applied

to the 1995 section 6672 penalty, but stressed that he also asked

the Appeals officer to credit it to his 1992 income tax defici-

ency.    The Kovaceviches made no coherent argument as to why this

amount should be applied to both the 1995 penalty and their 1992

income tax.    The only possible question is whether the check

should have been applied to cover 941 taxes or 6672 penalties for

1995, but 1995 isn’t the year in front of us and doesn’t directly

affect the year that is.    Any mistake the Appeals officer made in

finding that the check was credited according to the Kovacevich-

es’ wishes is harmless error.    We also find no support for Rob-

ert’s somewhat puzzling general assertion that the payments

should be applied toward both Western Management’s liability and

to his individual liability.    Section 6521 does mitigate the

effect of the statute of limitations if self-employment income is

recharacterized as wage income, so that self-employment taxes

already paid can be credited toward the employer’s liability.

Robert, however, seems to think that the taxes owed by Western

Management exactly equal the taxes paid by him, amounting to a
                                - 26 -

wash.     This isn’t the case; Robert underreported his income in

1992 by $45,000.     Nobody has yet paid the taxes--either employ-

ment or income tax--on this extra income.     The deficiency for

1992 also reflected a higher liability because the Commissioner

denied some of the Kovaceviches’ Schedule C deductions.     So any

error committed by the Appeals officer was doubly harmless--not

only were the checks properly credited to years other than 1992,

but they wouldn’t have satisfied the Kovaceviches’ unpaid tax

liability for that year even if they had been applied to 1992.

III.    Contribution Basis

        The Kovaceviches briefly argue about something called “con-

tribution basis.”     They believe the Commissioner overcollected

employment taxes for 1988, 1989, and 1990 by applying check num-

ber 3747 to that debt, and should therefore credit the overpay-

ments toward their 1992 deficiency.

        The Kovaceviches are partly correct about the “contribution

basis;” section 3121(a) exempts from wages subject to part of the

FICA tax:

        that part of the remuneration which, after remuneration * *
        * equal to the contribution and benefit base (as determined
        under section 230 of the Social Security Act) with respect
        to employment has been paid to an individual by an employer
        during the calendar year with respect to which such
        contribution and benefit base is effective, is paid to such
        individual by such employer during such calendar year. * * *

        We sidestep the problem (and the need to parse the passage

just quoted):     The short answer to the Kovaceviches’ argument is
                                 - 27 -

that they didn’t provide any evidence that they met the require-

ments for this exemption.   They didn’t enter into evidence their

tax returns or other evidence of Robert’s income for 1988-90.

They also didn’t tell us (or the Appeals officer) specific am-

ounts that should be credited toward 1992 or how those credits

reduce the deficiency.   This attack on the notice of determina-

tion must also fail.

IV.   Social Security Payments

      The Kovaceviches finally urge us to find an abuse of discre-

tion in the Appeals officer’s refusal to send information about

their additional income to the Social Security Administration.

Although this seems like a strange line of argument, it has real-

life effects on the Kovaceviches.     They argue that if the Commis-

sioner told the SSA about the additional 1992 income on which

they must now pay taxes, they could increase their monthly Social

Security payout by a small amount.

      We are sympathetic to this desire to increase their retire-

ment income.   But a CDP hearing is not the right forum--getting

information from the IRS to the SSA about whether Social Security

taxes have been paid is not an issue related to an unpaid tax and
                               - 28 -

is not related to a levy.    It is thus not an issue that may be

raised at a CDP hearing.    See sec. 6330(c)(2).15



                                     Decision will be entered for

                                respondent.




     15
       Since Western Management’s 1992 employment-tax liability
is still pending in Claims Court, Western Management may not yet
have computations sufficient to put together a revised Form W-2.
42 U.S.C. section 432 also requires the Secretary of the Treasury
to make such returns available to the Commissioner of Social
Security. See also Corkrey v. Commissioner, 115 T.C. 366 (2000).
This may be something the Kovaceviches can work on with the SSA
if and when they get a revised W-2 from their firm.
