                         T.C. Memo. 2009-78



                      UNITED STATES TAX COURT



                 JAMES W. BRYANT, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 21133-06L.              Filed April 13, 2009.



     James W. Bryant, pro se.

     Denise A. DiLoreto and Paul J. Krazeise, Jr., for

respondent.



                        MEMORANDUM OPINION


     GOEKE, Judge:   This case is before the Court on the parties’

cross-motions for summary judgment under Rule 121.1   The issue in



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

this collection case is whether respondent abused his discretion

by setting off a portion of petitioner’s 2003 tax overpayment

against petitioner’s discharged 1997 tax liability.

       For the reasons stated below, we shall grant respondent’s

motion for summary judgment and deny petitioner’s motion for

summary judgment.

                                Background

       At the time the petition was filed, petitioner resided in

Kentucky.

       Petitioner and his spouse filed a joint Form 1040, U.S.

Individual Income Tax Return, for 1997 but failed to pay the tax

due.       Respondent assessed the amount due, and petitioner filed a

collection petition with this Court.         See Bryant v. Commissioner,

docket No. 14178-99L.      That case was closed after a stipulated

decision was entered on February 13, 2001.

       Petitioner filed a Form 1040 for tax year 2000 on which he

claimed head of household filing status.2        Petitioner again

failed to make the tax payment shown on the return, and

respondent assessed the amount due.

       On December 9, 2003, petitioner filed a chapter 7 bankruptcy

petition in the U.S. Bankruptcy Court for the Western District of

Kentucky (bankruptcy court).      The bankruptcy court issued a




       2
        Petitioner divorced his spouse in 2000.
                               - 3 -

discharge order on March 24, 2004, discharging petitioner’s 1997

income tax liability but not his 2000 income tax liability.

     On June 10, 2004, petitioner filed his Form 1040 for 2003.

The return showed an overpayment of $6,445.   Instead of issuing

petitioner a refund, respondent prorated his 2003 overpayment

according to the number of days in the year; applied a portion,

based on the number of days that had passed in 2003 before

petitioner filed his bankruptcy petition, against his 1997 tax

liability; and applied the remainder to petitioner’s 2000 tax

liability.   Of the $6,445 overpayment, $6,058.30 was set off

against petitioner’s discharged 1997 tax liability; the remaining

$386.70 was set off against petitioner’s 2000 tax liability.

     On December 3, 2005, respondent issued to petitioner a

Letter 1058, Final Notice of Intent to Levy and Notice of Your

Right to a Hearing (notice of intent to levy), with respect to

the remainder of his 2000 tax liability.

     In response to the notice of intent to levy petitioner filed

a Form 12153, Request for a Collection Due Process Hearing, for

the 2000 tax liability.   Petitioner requested that respondent

apply his entire 2003 overpayment to his 2000 tax liability.

     On September 7, 2006, a telephone hearing was held.   The

only issue petitioner raised during the hearing was that

respondent improperly set off his 2003 overpayment against his

discharged 1997 income tax liability.   Petitioner argued that the
                               - 4 -

bankruptcy court’s order discharging his 1997 liability barred

respondent’s later use of setoff.

     On September 21, 2006, respondent issued a Notice of

Determination Concerning Collection Action(s) Under Section 6320

and/or 6330 (notice of determination) to petitioner sustaining

the proposed collection action.    On October 17, 2006, petitioner

filed a petition with this Court for review of respondent’s

determination to proceed with the collection action for

petitioner’s 2000 tax liability.

     On October 16, 2007, respondent filed a motion for summary

judgment.   On November 26, 2007, petitioner filed his response to

respondent’s motion.   Because petitioner’s response also moves

for summary judgment, the response was also filed as a cross-

motion for summary judgment.

     On June 24, 2008, this Court issued an order denying

petitioner’s and respondent’s respective motions for summary

judgment without prejudice, and granting petitioner leave to seek

to reopen his bankruptcy case to determine whether respondent’s

setoff of petitioner’s prepetition 2003 overpayment against

petitioner’s 1997 tax liability violated petitioner’s discharge

order.

     On August 15, 2008, petitioner moved to reopen his

bankruptcy case in bankruptcy court.   On September 24, 2008,

petitioner filed a “Motion and Memorandum in Support of Relief
                                - 5 -

Sought from Post Discharge Set Off”.      In re Bryant, 399 Bankr.

477, 478 (Bankr. W.D. Ky. 2009).

       On January 13, 2009, the bankruptcy court denied

petitioner’s motion, holding that petitioner’s discharge did not

bar the setoff at issue and that petitioner could not exempt his

refund from his bankruptcy estate.      See In re Bryant, supra at

477.

       Petitioner also argued in his motion that respondent’s

setoff was improper because petitioner had requested that

respondent apply the 2003 overpayment to petitioner’s 2000

liability before respondent had applied it to petitioner’s 1997

liability.    The bankruptcy court, noting that the instant case

was ongoing, declined to rule on this alternative argument

because the issue was not one of bankruptcy law that had been

referred to the bankruptcy court.

       On February 11 and 12, 2009, respondent and petitioner filed

respective status reports informing the Court of the bankruptcy

court’s action.    Respondent’s status report renews his motion for

summary judgment.    Petitioner’s status report repeats the

alternative argument in petitioner’s bankruptcy motion that

respondent should have applied the 2003 overpayment in accordance

with petitioner’s request.
                               - 6 -

                            Discussion

     Summary judgment is intended to expedite litigation and

avoid unnecessary and expensive trials.    Fla. Peach Corp. v.

Commissioner, 90 T.C. 678, 681 (1988).    The Court may grant

summary judgment where there is no genuine issue of material fact

and a decision may be rendered as a matter of law.    Rule 121(a)

and (b); Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520

(1992), affd. 17 F.3d 965 (7th Cir. 1994).   The moving party

bears the burden of proving that there is no genuine issue of

material fact, and the Court will view any factual inferences in

the light most favorable to the nonmoving party.     Dahlstrom v.

Commissioner, 85 T.C. 812, 821 (1985).    Rule 121(d) provides that

where the moving party properly makes and supports a motion for

summary judgment, “an adverse party may not rest upon the mere

allegations or denials of such party’s pleading,” but must set

forth specific facts, by affidavits or otherwise, “showing that

there is a genuine issue for trial.”

     This collection review proceeding was filed pursuant to

section 6330.   Section 6330(a) provides that no levy may be made

on any property or right to property of any person unless the

Secretary has notified such person in writing of the right to a

hearing before the levy is made.   Section 6330(b)(1) and (3)

provides that if a person requests a hearing, that hearing shall

be held before an impartial officer or employee of the Internal
                               - 7 -

Revenue Service (IRS).   At the hearing a taxpayer may raise any

relevant issue relating to the unpaid tax or the proposed levy,

including appropriate spousal defenses, challenges to the

appropriateness of collection actions, and collection

alternatives, including offers-in-compromise.     Sec.

6330(c)(2)(A).   A taxpayer is permitted to contest the existence

or amount of the underlying tax liability if the taxpayer did not

receive any statutory notice of deficiency for the tax liability

in question or did not otherwise have an opportunity to dispute

the tax liability.   Sec. 6330(c)(2)(B); see also Sego v.

Commissioner, 114 T.C. 604, 609 (2000).

     Following a hearing, the Appeals Office must determine

whether the proposed levy action may proceed.     The Appeals Office

is required to take into consideration:     (1) The verification

presented by the Secretary that the requirements of applicable

law and administrative procedures have been met; (2) the relevant

issues raised by the taxpayer; and (3) whether the proposed levy

action appropriately balances the need for efficient collection

of taxes with a taxpayer’s concerns that the levy action be no

more intrusive than is necessary.    Sec. 6330(c).

     Section 6330(d) grants the Court jurisdiction to review the

determination by the Appeals officer to proceed with collection

action via levy after the hearing.     Where the validity of the

underlying tax liability is at issue in a collection review
                                - 8 -

proceeding, the Court will review the matter de novo.    Davis v.

Commissioner, 115 T.C. 35, 39 (2000).    Where the underlying tax

liability is not at issue, however, the Court will review the

determination of the Appeals Office for an abuse of discretion.

Goza v. Commissioner, 114 T.C. 176, 182 (2000).

     There is no issue of material fact that precludes summary

judgment.    The propriety of the setoff at issue is strictly a

question of law.    As stated above, the bankruptcy court found

that respondent’s setoff did not violate petitioner’s discharge

order and that petitioner could not exempt his refund from his

bankruptcy estate.    Accordingly, we will not address that issue.

We do, however, address petitioner’s alternative argument.

     Petitioner argues that respondent’s setoff was improper

because petitioner specifically requested respondent to apply the

2003 overpayment against petitioner’s 2000 liability long before

respondent applied the 2003 overpayment to petitioner’s 1997

liability.    Petitioner points to statements in the Internal

Revenue Manual and in records of his account in support of this

contention.

     When a taxpayer owing more than one tax or owing tax for

more than 1 year makes voluntary payments to the IRS, he or she

may, by specific written directions, assign the application of

those payments to any portion of the liability.    Wood v. United

States, 808 F.2d 411, 416 (5th Cir. 1987); O’Dell v. United
                               - 9 -

States, 326 F.2d 451, 456 (10th Cir. 1964).   Under the voluntary

payment rule, when a taxpayer who has outstanding tax liabilities

voluntarily makes a payment, the IRS usually will honor the

taxpayer’s request as to how to apply that payment.    United

States v. Ryan, 64 F.3d 1516, 1522 (11th Cir. 1995).   However,

section 6402(a) and the regulations promulgated thereunder

demonstrate that a taxpayer’s right to designate the application

of his voluntary payment does not extend to an overpayment

reported on a return.

     Section 6402(a) allows the IRS to credit an “overpayment,

including any interest allowed thereon, against any liability in

respect of an internal revenue tax on the part of the person who

made the overpayment” and, subject to certain limitations, refund

any balance to the person.   In lieu of a refund, a taxpayer can

instruct the IRS to credit his overpayment against the estimated

tax for the taxable year immediately succeeding the year of the

overpayment.   Sec. 301.6402-3(a)(5), Proced. & Admin. Regs.    The

IRS need only refund, or apply to the taxpayer’s estimated tax,

that portion of the overpayment that exceeds the taxpayer’s

“outstanding liability for any tax”.   Sec. 301.6402-3(a)(6)(i),

Proced. & Admin. Regs.; see N. States Power Co. v. United States,

73 F.3d 764, 767 (8th Cir. 1996)(“‘[Section] 6402(a), plainly

gives the IRS the discretion to apply overpayments to any tax

liability.’”) (quoting United States v. Ryan, supra, at 1523);
                             - 10 -

Pettibone Corp. v. United States, 34 F.3d 536, 538 (7th Cir.

1994) (section 6402(a) “leaves to the Commissioner’s discretion

whether to apply overpayments to delinquencies or to refund them

to the taxpayer”).

     Respondent’s application of the pre-bankruptcy portion of

petitioner’s 2003 overpayment to petitioner’s 1997 tax liability

falls within respondent’s authority to credit overpayments to any

liability for any tax year and, therefore, was proper.   See

Richmond v. Commissioner, T.C. Memo. 2005-238.

     Because there are no genuine issues of material fact

requiring trial, we find that respondent did not abuse his

discretion and is therefore entitled to summary judgment.

Respondent may proceed with the proposed levy to collect

petitioner’s tax liability for 2000.

     To reflect the foregoing,


                                        An appropriate order and

                                   decision will be entered.
