                  T.C. Summary Opinion 2001-100



                     UNITED STATES TAX COURT



         SCOTT THOMAS AND JENNIFER GUNDRY, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent


     Docket No. 9543-00S.                      Filed July 2, 2001.


     Scott Thomas and Jennifer Gundry, pro se.

     Daniel J. Parent, for respondent.



     COUVILLION, Special Trial Judge:    This case was heard

pursuant to section 7463 in effect when the petition was filed.1

The decision to be entered is not reviewable by any other court,

and this opinion should not be cited as authority.




     1
          Unless otherwise indicated, section references
hereafter are to the Internal Revenue Code in effect for the year
at issue. All Rule references are to the Tax Court Rules of
Practice and Procedure.
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     Respondent determined a deficiency of $2,426 in petitioners'

1998 Federal income tax.

     The issues for decision are: (1) Whether respondent is

barred or precluded from making an assessment against petitioners

for an erroneous refund, and (2) if respondent is not so barred,

whether petitioners are entitled to an abatement of the interest

on the deficiency under section 6404(e)(2).

     Some of the facts were stipulated.    Those facts and the

accompanying exhibits are so found and are incorporated herein by

reference.   Petitioners' legal residence at the time the petition

was filed was Suisun, California.

     Petitioners filed a timely joint Federal income tax return

for 1998.    Attached to their return were three Internal Revenue

Service (IRS) Forms W-2, Wage and Tax Statement, for salaries and

wages earned by petitioners during 1998 that totaled $33,391.85.

In addition, third-party payers reported to the IRS through

information returns income payments to petitioners during 1998

totaling $198 for interest and dividends.

     On their Federal income tax return for 1998, petitioners did

not report the $198 dividend and interest income.    On line 7 of

the return, for wages and salaries, petitioners reported $3,340

in wage and salary income rather than the $33,391.85 shown on the

IRS Forms W-2 they had received.    However, on page 2 of their

return, petitioners reported $33,400 in income, which
                                 - 3 -


approximated the $33,391.85 in wage and salary income.    The

difference of $8.15 was not explained at trial.    Petitioners

calculated the tax on their return based on income of $33,400.

After allowing for deductions and exemptions, their tax liability

was $2,704.    Petitioners had prepaid $140 through taxes withheld

on their wages, and, thus, their return showed a balance due of

$2,564.   Petitioners paid this amount.   Sometime thereafter,

petitioners received from respondent a check for the refund of

taxes in the amount of $2,426.    At trial, counsel for respondent

advised the Court that the $2,426 refund was based on

respondent's erroneous reliance on the wage income amount of

$3,340 that was shown on line 7 of petitioners' return, and,

based on such income amount, petitioners had overpaid their

taxes, for which a refund for overpayment was made to

petitioners.   Respondent thereafter issued the notice of

deficiency, upon which this case is based, to rectify the obvious

error by respondent and determined a deficiency based on

petitioners' correct wage income plus the interest and dividend

income petitioners failed to report on their return.2



     2
          The notice of deficiency is based on $31,253 in wage
income. Counsel for respondent at trial agreed that this amount
excludes wage income earned by petitioner Jennifer Gundry in the
amount of $2,138.67, which respondent inadvertently failed to
include in the notice of deficiency. Respondent did not file an
answer to assert an increased deficiency for this omitted income
and conceded that amount at trial.
                                - 4 -


     Petitioners contend that, even though they incorrectly

reported the amount of their wage and salary income on page 1 of

their return, the second page of their return and their

computation of tax was based on the correct amount of their wage

and salary income but admittedly did not include the $198 in

dividend and interest income.   Therefore, petitioners contend

that, since respondent remitted $2,426 to them as the refund of

an overpayment, respondent is precluded from issuing a notice of

deficiency simply to rectify an error that respondent committed.

Petitioners further contend that the interest on the deficiency

should be abated if they are held liable for the amount of the

deficiency because the refund was based on an error by

respondent.

     The law is well settled that the granting of a refund does

not preclude the Commissioner from issuing a notice of deficiency

to recover the refund.   See Gordon v. United States, 757 F.2d

1157, 1160 (11th Cir. 1985); Beer v. Commissioner, 733 F.2d 435,

437 (6th Cir. 1984), affg. T.C. Memo. 1982-735; Warner v.

Commissioner, 526 F.2d 1, 2 (9th Cir. 1975), affg. T.C. Memo.

1974-243.   The taxpayers in Gordon v. United States, supra, and

in Warner v. Commissioner, supra, made the same argument that

petitioners are making here; i.e., that the Commissioner should

not be allowed to make refunds and then demand repayment.   To

this argument, the Courts of Appeals stated: "'Alas, the
                                 - 5 -


Commissioner, confronted by millions of returns and an economy

which repeatedly must be nourished by quick refunds, must first

pay and then look.    This necessity cannot serve as the basis of

an 'estoppel'.'"     Gordon v. United States, supra at 1160 (quoting

Warner v. Commissioner, 526 F.2d at 2).    The Court, therefore,

must reject petitioners' position on this issue and sustain

respondent.

     With respect to petitioners' contention that the interest on

the deficiencies should be abated, section 6404(e)(2) provides:

"The Secretary shall abate the assessment of all interest on any

erroneous refund under section 6602 until the date demand for

repayment is made, unless–-(A) the taxpayer (or a related party)

has in any way caused such erroneous refund, or (B) such

erroneous refund exceeds $50,000."

     Without passing upon the question of whether the refund in

this case constitutes an erroneous refund that was caused by

petitioners due to the error in reporting income on their income

tax return, we hold that this Court has no jurisdiction in this

case over an abatement of interest issue arising under section

6404(e).   As the Court noted in 508 Clinton St. Corp. v.

Commissioner, 89 T.C. 352, 355 (1987):    "Section 6404(e), by its

very terms, does not operate until after there has been an

assessment of interest, which has not yet occurred in this case."

In this case, neither the deficiency nor the interest on the
                               - 6 -


deficiency has been assessed, nor can any assessment be made

until the decision in this case is entered.     Petitioners may file

with respondent an administrative request for abatement of any

interest assessed.   If, in a notice of final determination,

petitioners' request is denied, petitioners may then petition

this Court for a review of that determination.     However, this

Court will order an abatement only if it is shown that the

Commissioner abused his discretion in denying the abatement.       See

sec. 6404(i);3 Rule 280(b); Krugman v. Commissioner, 112 T.C.

230, 239 (1999).

     Reviewed and adopted as the report of the Small Tax Case

Division.



                                            Decision will be entered

                                       for respondent.




     3
          Sec. 6404(g) was redesignated sec. 6404(i) by the
Internal Revenue Service Restructuring & Reform Act of 1998, Pub.
L. 105-206, secs. 3305(a), 3309(a), 112 Stat. 685, 743, 745.
