                                              GLENN LEE SNOW, PETITIONER v. COMMISSIONER                                   OF
                                                     INTERNAL REVENUE, RESPONDENT*
                                                    Docket No. 24783–09.                  Filed September 19, 2013.

                                                The issue before us concerns a dispute over the Rule 155
                                              computation of the ‘‘underpayment’’ for purposes of applying
                                              the I.R.C. sec. 6662(a) accuracy-related penalty. In Feller v.
                                              Commissioner, 135 T.C. 497 (2010), we held that sec. 1.6664–
                                              2(c)(1), Income Tax Regs., was valid. This Opinion follows
                                              Feller and applies and explains the other provisions of sec.
                                              1.6664–2, Income Tax Regs., for determining the amount of an

                                       * This Opinion supplements our prior Memorandum Opinion, Snow v.
                                     Commissioner, T.C. Memo. 2013–114.

                                     238




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                                     (238)                           SNOW v. COMMISSIONER                                        239


                                              ‘‘underpayment’’ that were not addressed in Feller. Held:
                                              Respondent properly computed petitioner’s underpayment for
                                              purposes of I.R.C. sec. 6662(a).

                                           Glenn Lee Snow, pro se.
                                           Martha J. Weber, for respondent.
                                                  SUPPLEMENTAL FINDINGS OF FACT AND OPINION

                                        RUWE, Judge: This matter is before the Court as a result
                                     of the parties’ dispute over the proper computations for entry
                                     of decision under Rule 155 1 in connection with our Memo-
                                     randum Findings of Fact and Opinion in Snow v. Commis-
                                     sioner, T.C. Memo. 2013–114. In Snow v. Commissioner, at
                                     *5, we held that wages petitioner received as compensation
                                     for his work as a musician were includable in his income.
                                     Additionally, we held that petitioner was liable for the
                                     accuracy-related penalty under section 6662(a) due to neg-
                                     ligence and a substantial understatement of income tax. Id.
                                     at *6. We also imposed a penalty pursuant to section 6673(a)
                                     of $8,000. Id. at *7.
                                        Respondent filed a computation for entry of decision under
                                     Rule 155 on May 21, 2013. Respondent calculated that peti-
                                     tioner’s tax liability was $12,968, his section 6662(a) penalty
                                     was $3,707, and his section 6673(a) penalty was $8,000. Peti-
                                     tioner filed an objection to respondent’s computation for
                                     entry of decision under Rule 155 on June 11, 2013. Petitioner
                                     agreed that respondent correctly calculated his tax liability of
                                     $12,968 in accordance with our opinion. Petitioner did not
                                     dispute the amount of his section 6673(a) penalty. However,
                                     petitioner disputed respondent’s calculation of his section
                                     6662(a) penalty. The issue for decision is whether respondent
                                     correctly calculated petitioner’s section 6662(a) penalty.
                                                                         FINDINGS OF FACT

                                       On petitioner’s 2007 Form 1040, U.S. Individual Income
                                     Tax Return, he reported $16,684.65 on line 64, ‘‘Federal
                                     income tax withheld from Forms W–2 and 1099’’. Attached to
                                     his return were Forms 4852, Substitute for Form W–2, Wage
                                     and Tax Statement, or Form 1099–R, Distributions From
                                       1 Unless otherwise indicated, all Rule references are to the Tax Court

                                     Rules of Practice and Procedure, and all section references are to the Inter-
                                     nal Revenue Code (Code) in effect for the year at issue.




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                                     240                 141 UNITED STATES TAX COURT REPORTS                                   (238)


                                     Pensions, Annuities, Retirement or Profit-Sharing Plans,
                                     IRAs, Insurance Contracts, etc. On the Forms 4852 petitioner
                                     reported that his various employers withheld $11,122.52 of
                                     Federal income tax, $4,507.85 of Social Security tax, and
                                     $1,054.28 of Medicare tax, which totaled $16,684.65. Peti-
                                     tioner incorrectly reported his Social Security tax and Medi-
                                     care tax withholdings as Federal income tax withholdings on
                                     line 64 of his Form 1040. As a result, petitioner incorrectly
                                     increased the amount he reported as his Federal income tax
                                     withholdings by $5,562.13. Petitioner received a refund of
                                     $16,684.65.
                                        Respondent determined that only $11,117.65 of Federal
                                     income tax had actually been withheld from petitioner’s com-
                                     pensation. 2 Respondent subtracted the $11,117.65 of Federal
                                     income tax withholdings from the $16,684.65 that petitioner
                                     reported had been withheld to determine that petitioner had
                                     received a $5,567 3 refund for which there had not been any
                                     Federal income tax withholdings. In his computation for
                                     entry of decision respondent calculated that petitioner’s tax
                                     liability is $12,968. In his calculation respondent added the
                                     $5,567 to petitioner’s tax liability to determine a net under-
                                     payment of $18,535. Respondent labeled the $5,567 as ‘‘Over-
                                     statement of prepayment credit: April 15, 2008’’. Respondent
                                     then applied the 20% accuracy-related penalty under section
                                     6662(a) to the $18,535 underpayment, calculating petitioner’s
                                     section 6662(a) penalty to be $3,707.
                                        Petitioner objected to respondent including the $5,567 in
                                     the calculation of his underpayment.
                                                                                 OPINION

                                        Section 6662(a) states ‘‘[i]f this section applies to any por-
                                     tion of an underpayment of tax required to be shown on a
                                     return, there shall be added to the tax an amount equal to
                                     20 percent of the portion of the underpayment to which this
                                     section applies.’’ Section 6662 applies to the portion of any
                                       2 The notice of deficiency gave petitioner credit for the amounts that

                                     third-party payors reported as Federal income tax withholdings to the
                                     Commissioner. Petitioner did not address or raise an issue with the $5 dif-
                                     ference between the amount he reported as Federal income tax
                                     withholdings and the amount shown in the notice of deficiency.
                                       3 This amount consisted of $5,562.13 of Social Security and Medicare tax

                                     withholdings and approximately $5 that had never been withheld.




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                                     (238)                            SNOW v. COMMISSIONER                                        241


                                     underpayment which is attributable to negligence or dis-
                                     regard of rules or regulations or any substantial understate-
                                     ment of income tax. See sec. 6662(b)(1) and (2).
                                       Section 6664(a) provides the definition of the term ‘‘under-
                                     payment’’ for purposes of section 6662.
                                              SEC. 6664(a). UNDERPAYMENT.—For purposes of this part, the term
                                           ‘‘underpayment’’ means the amount by which any tax imposed by this
                                           title exceeds the excess of—
                                                (1) the sum of—
                                                  (A) the amount shown as the tax by the taxpayer on his return,
                                                plus
                                                  (B) amounts not so shown previously assessed (or collected with-
                                                out assessment), over
                                                (2) the amount of rebates made.
                                           For purposes of paragraph (2), the term ‘‘rebate’’ means so much of an
                                           abatement, credit, refund, or other repayment, as was made on the
                                           ground that tax imposed was less than the excess of the amount speci-
                                           fied in paragraph (1) over the rebates previously made.

                                       The Secretary has promulgated section 1.6664–2, Income
                                     Tax Regs., to help clarify the term ‘‘underpayment’’ in section
                                     6664. Section 1.6664–2(a), Income Tax Regs., states:
                                           The definition of underpayment also may be expressed as—
                                               Underpayment = W – (X + Y – Z), where
                                           W = the amount of income tax imposed;
                                           X = the amount shown as the tax by the taxpayer on his return;
                                           Y = amounts not so shown previously assessed (or collected
                                           without assessment); and
                                           Z = the amount of rebates made.

                                       As a result, in order to calculate a taxpayer’s under-
                                     payment we must determine:(1) the amount of income tax
                                     imposed; (2) the amount of tax reported on the return; (3) the
                                     amount of tax not shown on the return that was previously
                                     assessed (or collected without assessment); and (4) the
                                     amount of rebates made.
                                     1. The amount of tax imposed
                                       Section 1.6664–2(b), Income Tax Regs., provides that the
                                     amount of income tax imposed is ‘‘the amount of tax imposed
                                     on the taxpayer under subtitle A for the taxable year’’. 4 This
                                       4 Federal income taxes are imposed under subtit. A of the Code. Social

                                     Security and Medicare taxes are imposed under subtit. C. See sec. 3101.




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                                     242                  141 UNITED STATES TAX COURT REPORTS                                   (238)


                                     amount is determined without regard to credits for tax with-
                                     held under section 31. Sec. 1.6664–2(b)(1), Income Tax Regs.
                                     The amount of tax imposed on petitioner under subtitle A for
                                     the 2007 taxable year was $12,968.
                                     2. The amount of tax shown on the return
                                        Section 6664(a)(1)(A) instructs us to determine the
                                     ‘‘amount shown as tax by the taxpayer on his return’’. Sec-
                                     tion 1.6664–2(c)(1), Income Tax Regs., provides:
                                           For purposes of paragraph (a) of this section, the amount shown as the
                                           tax by the taxpayer on his return is the tax liability shown by the tax-
                                           payer on his return, * * * except that it is reduced by the excess of—
                                             (i) The amounts shown by the taxpayer on his return as credits for tax
                                           withheld under section 31 (relating to tax withheld on wages) * * *,
                                           over
                                             (ii) The amounts actually withheld, actually paid as estimated tax, or
                                           actually paid with respect to a taxable year before the return is filed for
                                           such taxable year.

                                       In other words, section 1.6664–2(c)(1), Income Tax Regs.,
                                     provides that for purposes of paragraph (a) the amount of tax
                                     shown on petitioner’s return is reduced by the excess of the
                                     amount shown on his return as a section 31 credit (i.e., the
                                     amount of income tax withheld) over the amounts actually
                                     withheld. 5 We have previously held that section 1.6664–
                                     2(c)(1), Income Tax Regs., is valid. Feller v. Commissioner,
                                     135 T.C. 497, 510–511 (2010). ‘‘The regulation extends the
                                     meaning of ‘underpayment’ to include a taxpayer’s overstated
                                     credits for withholding. Sec. 1.6664–2(g), Example (3),
                                     Income Tax Regs. Accordingly, if a taxpayer overstates
                                     prepayment credits, such as the credit for wages withheld,
                                     the overstatement decreases the amount of tax shown on the
                                     return and increases the underpayment of tax.’’ Id. at 503.
                                       On his Federal income tax return petitioner reported that
                                     his tax liability was zero. On line 64 of his return petitioner
                                     reported that $16,684.65 of Federal income tax was withheld.
                                     This was the amount shown by petitioner as a credit for tax
                                     withheld under section 31. However, the $16,684.65 that
                                     petitioner reported as Federal income tax withheld erro-
                                     neously included $5,562 of withheld Social Security and
                                       5 As previously explained sec. 1.6664–2(a), Income Tax Regs., provides

                                     the formula for computing the ‘‘underpayment’’.




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                                     (238)                            SNOW v. COMMISSIONER                                        243


                                     Medicare taxes and $5 for which no taxes had been withheld.
                                     Therefore, only $11,117.65 of Federal income tax was actu-
                                     ally withheld.
                                        As a result, under section 1.6664–2(c)(1), Income Tax
                                     Regs., we reduce the amount of petitioner’s tax shown on the
                                     return ($0) by the excess of the amount shown on his return
                                     as withheld ($16,684.65) over the amount actually withheld
                                     ($11,117.65). Therefore, in accordance with this regulation
                                     the amount shown as the tax on petitioner’s return for pur-
                                     poses of the underpayment formula in section 1.6664–2(a),
                                     Income Tax Regs., was negative $5,567; i.e., $0 minus
                                     ($16,684.65 minus $11,117.65).
                                        In Feller v. Commissioner, 135 T.C. at 499–500, the tax-
                                     payer included $135,000 of fictitious withholdings on his
                                     1992 Federal income tax return in which he claimed an
                                     $86,181 refund. Under section 1.6664–2(c)(1), Income Tax
                                     Regs., the taxpayer in Feller appears to have had a negative
                                     tax shown on his return. See id. at 529–530 (Gustafson, J.,
                                     dissenting). Petitioner’s negative $5,567 ‘‘amount shown as
                                     tax’’ on his return appears to be similar to the negative
                                     ‘‘amount shown as tax’’ in Feller. See id.
                                     3. Amount of tax not shown on the return that was previously
                                       assessed (or collected without assessment)
                                       In Feller we found it unnecessary to address the meaning
                                     of section 6664(a)(1)(B) regarding amounts previously
                                     assessed (or collected without assessment). Id. at 503. We
                                     think it necessary to discuss now.
                                       Section 1.6664–2(a)(1)(ii), Income Tax Regs., instructs us to
                                     determine the ‘‘[a]mounts not so shown previously assessed
                                     (or collected without assessment) (as defined in paragraph (d)
                                     of this section)’’. Section 1.6664–2(d), Income Tax Regs., pro-
                                     vides:
                                           For purposes of paragraph (a) of this section, ‘‘amounts not so shown
                                           previously assessed’’ means only amounts assessed before the return is
                                           filed that were not shown on the return * * *.For purposes of paragraph
                                           (a) of this section, the amount ‘‘collected without assessment’’ is the
                                           amount by which the total of the credits allowable under section 31 * * *
                                           and other payments in satisfaction of tax liability made before the return
                                           is filed, exceed the tax shown on the return (provided such excess has not
                                           been refunded or allowed as a credit to the taxpayer). [Emphasis added.]




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                                     244                 141 UNITED STATES TAX COURT REPORTS                                   (238)


                                        No amounts were assessed by respondent before peti-
                                     tioner’s return was filed. Petitioner had actual Federal
                                     income tax withholdings of $11,117.65. This amount was
                                     remitted to respondent from third-party payors. This amount
                                     is a section 31 credit. The $11,117.65 was remitted to
                                     respondent before petitioner’s return was filed. Therefore,
                                     petitioner had $11,117.65 of credits allowable under section
                                     31, which might qualify as amounts ‘‘collected without
                                     assessment’’. However, petitioner received a refund of
                                     $16,684.65. Section 1.6664–2(d), Income Tax Regs., provides
                                     that the excess of credits allowable over the tax shown on the
                                     return is an amount ‘‘collected without assessment’’ if the
                                     excess has not been refunded to the taxpayer. 6 The excess of
                                     the amount of credits allowable under section 31 ($11,117.65)
                                     over the tax shown on the return (negative $5,567) 7 was
                                     refunded to petitioner ($11,117.65 + $5,567 = $16,684.65);
                                     therefore, petitioner had $0 of collections without assess-
                                     ment. Therefore, under section 1.6664–2(a)(1)(ii), Income Tax
                                     Regs., petitioner had $0 amounts collected without assess-
                                     ment.
                                     4. The amounts of rebates made
                                       In Feller v. Commissioner, 135 T.C. at 503, we found it
                                     unnecessary to address the meaning of rebates in section
                                     6664(a)(2). We think it necessary to discuss now.
                                       Section 1.6664–2(a)(2), Income Tax Regs., instructs us to
                                     determine the ‘‘amount of rebates made (as defined in para-
                                     graph (e) of this section).’’ Section 1.6664–2(e), Income Tax
                                       6 In sec. 1.6664–2(g), Examples (1) and (2), Income Tax Regs., the tax-

                                     payer had $23,000 of claimed sec. 31 credits. The tax shown on the return
                                     was $18,000, and the taxpayer received a $5,000 refund. Additionally, ‘‘the
                                     taxpayer failed to claim on the return a credit of $1,500 for income tax
                                     withheld. This $1,500 constitutes an amount collected without assessment
                                     as defined in paragraph (d) of this section.’’ This is the case because the
                                     taxpayer had $24,500 of credits allowable under sec. 31 ($23,000 claimed
                                     and $1,500 unclaimed). The $24,500 of allowable credits exceeded the
                                     $18,000 tax shown on the return plus the $5,000 of refunds by $1,500
                                     ($24,500 – $18,000 – $5,000 = $1,500). Therefore, under sec. 1.6664–2(d),
                                     Income Tax Regs., the taxpayer had $1,500 of ‘‘[a]mounts not so shown
                                     previously assessed (or collected without assessment).’’
                                       7 We use ‘‘the amount shown as the tax by the taxpayer on his return’’

                                     as determined under sec. 1.6664–2(c), Income Tax Regs.




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                                     (238)                            SNOW v. COMMISSIONER                                        245


                                     Regs., provides a formula to calculate rebates for purposes of
                                     the underpayment formula in paragraph (a).
                                             (e). Rebates.—The term ‘‘rebate’’ means so much of an abatement
                                           credit, refund or other repayment, as was made on the ground that the
                                           tax imposed was less than the excess of—
                                             (1) The sum of—
                                             (i) The amount shown as the tax by the taxpayer on his return, plus
                                             (ii) Amounts not so shown previously assessed (or collected without
                                           assessment), over
                                             (2) Rebates previously made.[8]

                                        The term ‘‘rebate’’ means ‘‘so much of [i.e., that portion of]
                                     an abatement credit, refund or other repayment, as was
                                     made on the ground [i.e., on the basis of]’’ of the formula in
                                     section 6664(a) and section 1.6664–2(e), Income Tax Regs. 9
                                        That formula starts with the ‘‘tax imposed’’ and factors in
                                     the amount shown as the tax by the taxpayer on his return
                                     and amounts ‘‘previously’’ assessed or collected. See sec.
                                     6664(a). Because the term ‘‘rebate’’ is computed with ref-
                                     erence to the taxpayer’s return for purposes of defining an
                                     underpayment of tax required to be shown on a return, the
                                     term ‘‘rebates made’’ must refer to amounts claimed on the
                                     taxpayer’s return. This is also consistent with the fact that
                                     the statutory and regulatory formula for determining
                                     ‘‘rebates made’’ considers ‘‘rebates previously made’’.
                                        As we noted earlier, the tax imposed on petitioner for the
                                     2007 taxable year was $12,968.
                                        Section 1.6664–2(c)(1), Income Tax Regs., defines the
                                     amount shown as the tax by the taxpayer on the return for
                                     purposes of paragraph (a). Section 1.6664–2(a)(2), Income
                                     Tax Regs., provides that the term ‘‘amount of rebates’’ is
                                     defined in paragraph (e). As a result, for purposes of com-
                                     puting rebates pursuant to section 1.6664–2(e), Income Tax
                                     Regs., the term ‘‘amount shown as the tax by the taxpayer
                                     on his return’’ is the amount that is determined under sec-
                                           8 This
                                              regulation tracks the statutory language of sec. 6664(a), which
                                     provides: ‘‘For purposes of paragraph (2), the term ‘rebate’ means so much
                                     of an abatement, credit, refund, or other repayment, as was made on the
                                     ground that tax imposed was less than the excess of the amount specified
                                     in paragraph (1) over the rebates previously made.’’
                                       9 An abatement, credit, or other repayment was not made to petitioner.

                                     Therefore, in determining the amount of rebates we are concerned only
                                     with the refund petitioner received.




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                                     246                 141 UNITED STATES TAX COURT REPORTS                                   (238)


                                     tion 1.6664–2(c), Income Tax Regs. Therefore, as previously
                                     explained the amount shown as the tax by petitioner on his
                                     return is negative $5,567.
                                        Section 1.6664–2(d), Income Tax Regs., defines the
                                     amounts not so shown previously assessed (or collected with-
                                     out assessment) for purposes of paragraph (a). Paragraph (a)
                                     of the regulation provides that the amount of rebates is
                                     defined in paragraph (e). Thus, for purposes of computing
                                     rebates pursuant to section 1.6664–2(e), Income Tax Regs.,
                                     the term ‘‘[a]mounts not so shown previously assessed (or col-
                                     lected without assessment)’’ is the amount determined under
                                     section 1.6664–2(d), Income Tax Regs. We have previously
                                     determined that petitioner had $0 not so shown that was
                                     previously assessed or collected without assessment under
                                     section 1.6664–2(d), Income Tax Regs. We will use this
                                     amount ($0) in calculating rebates under section 1.6664–2(e),
                                     Income Tax Regs.
                                        Section 1.6664–2(e)(2), Income Tax Regs., requires us to
                                     determine ‘‘rebates previously made’’. The regulation does
                                     not define rebates previously made. The regulation provides
                                     that rebates previously made is a component of calculating
                                     rebates. The use of the phrase ‘‘previously made’’ implies
                                     that there is a point in time in which a ‘‘rebate’’ must be
                                     determined to have been made so that ‘‘rebates previously
                                     made’’ were made prior to the ‘‘rebate’’. The regulation does
                                     not explicitly state the point in time.
                                        The logical cutoff point in time to determine a ‘‘rebate’’
                                     would be at the time the return that claims a refund is filed.
                                     Therefore, we would interpret ‘‘rebates previously made’’ to
                                     mean rebates made before the return was filed. This argu-
                                     ment is supported by section 1.6664–2(d), Income Tax Regs.,
                                     which provides that the point in time to determine whether
                                     an amount has been assessed or collected without assess-
                                     ment is ‘‘before the return is filed’’. If we look to when the
                                     return was filed to determine whether an amount has been
                                     assessed or collected, then it logically follows that we should
                                     also look to the filing of the return to determine whether a
                                     rebate was previously made.
                                        Furthermore, section 1.6664–2(e)(1)(i), Income Tax Regs.,
                                     requires us to look at the tax shown on the taxpayer’s return.
                                     The use of the return under section 1.6664–2(e)(1), Income
                                     Tax Regs., supports the argument that the point in time for




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                                     (238)                           SNOW v. COMMISSIONER                                        247


                                     defining ‘‘rebates previously made’’ in section 1.6664–2(e)(2),
                                     Income Tax Regs., refers to rebates made prior to the filing
                                     of the taxpayer’s return.
                                        Although the regulation does not define ‘‘rebates previously
                                     made’’, a commonsense interpretation would define this term
                                     to mean rebates made before the return is filed.
                                        No rebates were made to petitioner before he filed his
                                     return.
                                        Since the tax imposed ($12,968) exceeded the amount
                                     shown as the tax on petitioner’s return (negative $5,567) plus
                                     amounts not so shown that were previously assessed or col-
                                     lected ($0) over rebates previously made ($0), then the
                                     amounts of rebates made under section 1.6664–2(e), Income
                                     Tax Regs., is $0.
                                     5. The amount of the underpayment
                                        Section 1.6664–2(a), Income Tax Regs., provides that the
                                     amount of the underpayment is equal to the amount of
                                     income tax imposed ($12,968) minus the amount shown as
                                     tax by petitioner on his return (negative $5,567) minus
                                     amounts of tax not shown on the return that were previously
                                     assessed or collected ($0) plus the amounts of rebates made
                                     ($0). As a result, petitioner’s underpayment for purposes of
                                     section 6664(a) was $18,535 ($12,968 plus $5,567 10 minus $0
                                     plus $0). Accordingly, under section 6662(a) petitioner is
                                     liable for an accuracy-related penalty of $3,707 (20% of
                                     $18,535).
                                        Our application of section 1.6664–2, Income Tax Regs., is
                                     consistent with Feller and produces a result that bases the
                                     section 6662 penalty on an ‘‘underpayment’’ amount that rep-
                                     resents the amount of revenue that the Government was
                                     deprived of as a result of amounts actually shown on peti-
                                     tioner’s return. Petitioner did not pay his $12,968 tax
                                     liability and received a refund of $16,684.65 that included
                                     $5,567 of reported withheld income tax that was never actu-
                                     ally withheld. As a result, $18,535 ($12,968 + $5,567) was
                                     the actual amount of money that petitioner deprived the
                                     Government of. The underpayment as defined in section
                                     1.6664–2(a), Income Tax Regs., is equal to the true amount
                                       10 Subtracting a negative subtrahend from a positive minuend results in

                                     adding the absolute value of the subtrahend to the minuend.




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                                     248                 141 UNITED STATES TAX COURT REPORTS                                   (238)


                                     the Government was deprived of as a result of petitioner’s
                                     return.
                                     Conclusion
                                       We hold that respondent correctly calculated petitioner’s
                                     section 6662(a) penalty of $3,707.
                                       To reflect the foregoing,
                                                                     An appropriate order will be issued, and
                                                                   decision will be entered for respondent.

                                                                               f




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