                  T.C. Memo. 2004-70



                UNITED STATES TAX COURT



             GARY T. MACKEY, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 1802-02.             Filed March 18, 2004.



      P did not file Federal income tax returns for the
years 1995-99 but remitted amounts with his filing
extension requests for 3 of those years. R issued
notices of deficiency, and P timely filed petitions for
redetermination. R erroneously assessed the
deficiencies and additions to tax determined in the
notices. R’s subsequent abatement of the assessments
resulted in the issuance of an erroneous refund for
1996.

     1. Held: R is not estopped from asserting the
deficiencies and additions to tax remaining at issue.

     2. Held, further, P’s remittances do not affect
the amounts of the deficiencies at issue.

     3. Held, further, R has failed to meet his burden
of production under sec. 7491(c), I.R.C., with respect
                                     - 2 -

       to the addition to tax under sec. 6654, I.R.C.,
       determined for 1995.


       Gary T. Mackey, pro se.

       James E. Archie, for respondent.


                           MEMORANDUM OPINION


       HALPERN, Judge:    By notices of deficiency dated September 5,

2001 (the notices), respondent determined deficiencies in, and

additions to, petitioner’s Federal income taxes for his taxable

(calendar) years 1995 through 1999 (the audit years) as follows:

                                    Additions to Tax
Year    Deficiency   Sec. 6651(a)(1) Sec. 6651(a)(2)            Sec. 6654(a)

1995      $34,309        $8,577.25                   --          $1,860.32
1996       33,891           --                       --           1,803.86
1997       45,536        10,634.00                   --           2,436.20
1998        5,252           605.17           To be determined       240.35
1999       23,741         5,340.82           To be determined     1,148.74

       Pursuant to a stipulation of settled issues filed with the

Court, the parties have stipulated: (1) Petitioner’s items of

income for 1995, 1996, and 1997, (2) certain items of deduction

available to him for such years, (3) that there are no

deficiencies or additions to tax for 1998 and 1999, and (4) that

there are overpayments of $2,562.36 and $4.00 for 1998 and 1999,

respectively.    Respondent has also conceded the additions to tax

under section 6651(a)(1) for 1995 and 1997.           The issues remaining

for decision are whether: (1) Respondent’s actions and

communications in the wake of assessments made but subsequently
                                - 3 -

abated with respect to the audit years preclude him from

prevailing with respect to the deficiencies and additions to tax

remaining at issue, (2) amounts petitioner remitted at the time

of filing extension requests for 1996 and 1997 reduce the

deficiencies determined for those years, and (3) respondent has

satisfied his burden of production under section 7491(c) with

respect to the section 6654(a) additions to tax remaining at

issue.

     Unless otherwise noted, all section references are to the

Internal Revenue Code in effect for the years at issue, and all

Rule references are to the Tax Court Rules of Practice and

Procedure.

                             Background

     The parties have filed a stipulation of facts and have

submitted this case without trial pursuant to Rule 122.    The

stipulation of facts, with accompanying exhibits, is incorporated

herein by this reference.    We have inferred additional facts from

uncontested portions of the parties’ submissions.   We shall set

forth only such facts as are necessary to understand our

discussion and conclusion.

     At the time he filed the petition, petitioner resided in

Arlington, Texas.

     Although he requested an extension of time to file his

Federal income tax return for each of the audit years, petitioner
                                - 4 -

did not file a return for any audit year.   Petitioner did,

however, remit $57,831 and $3,000 with his extension requests for

1996 and 1997, respectively (the 1996 remittance and the 1997

remittance, respectively).

     Following receipt of the notices, petitioner mailed the

petition to the Court on December 4, 2001, the last day for

timely filing the petition.    Possibly due to contamination of the

mails by anthrax, we did not receive the petition until January

22, 2002.

     Respondent did not receive a copy of the petition in time to

stop him from assessing the deficiencies and additions to tax set

forth in the notices (plus applicable interest) on February 4,

2002, on the assumption that petitioner had failed timely to

petition the Court.   Following receipt of a copy of the petition,

however, respondent’s counsel, by letter dated April 8, 2002,

notified petitioner of the assessments and stated that he had

requested abatement thereof.   Respondent abated the assessments

on May 13, 2002.

     Also on May 13, 2002, respondent’s Austin Service Center

notified petitioner by letter that it had credited petitioner’s

account for 1996 in the amount of $35,694.861 and that such

amount would be refunded to him if he “[owed] no other taxes or



     1
        That amount equals the sum of the assessments of tax
($33,891) and additions to tax ($1,803.86) for 1996.
                                  - 5 -

other debts we are required to collect”.     Petitioner received a

$39,229.76 refund shortly thereafter (the refund for 1996).2

      By letter dated June 7, 2002, respondent’s Austin Service

Center responded to an unspecified inquiry from petitioner

regarding his 1999 taxable year.     The letter states in part:

“You don’t need to do anything further now on this matter. * * *

If you receive or have received additional notices about this

account, please disregard them.”

      On September 18, 2002, the Court issued its Standing

Pretrial Order and Notice, setting the case for trial at the

trial session of the Court commencing on February 24, 2003, in

Dallas, Texas.      Subsequent consultations between the parties led

to the stipulation of facts and stipulation of settled issues

referenced above.

                               Discussion

I.   Deficiencies

      A.   Effect of Respondent’s Prior Actions

      Although petitioner assigns error to respondent’s

determinations of deficiencies in tax for each of the audit

years, petitioner’s only pertinent averments are that respondent

allowed no business expenses in computing petitioner’s income and

did not acknowledge payments made by petitioner.     Petitioner does


      2
        That amount equals the sum of the abated assessments for
1996 ($35,694.86) and interest thereon ($3,534.90). There is no
explanation of why this refund was made.
                               - 6 -

not aver specific expenses that respondent failed to allow.    In

any event, by the stipulation of settled issues, respondent has

allowed various business (and other) deductions.    Those

deductions, however, are not sufficient to reduce to zero the

deficiencies determined for 1995, 1996, and 1997.    Nevertheless,

petitioner argues that respondent’s continued assertion of the

deficiencies and additions to tax remaining at issue is not

“fair”, based on respondent’s allegedly misleading actions and

statements in connection with the premature assessments of the

amounts set forth in the notices.    Thus, while, in effect,

acknowledging unreported income in excess of the deductions

allowed by respondent for 1995, 1996, and 1997, petitioner does

not want to pay the resulting deficiencies in tax (and section

6654(a) additions to tax), claiming that respondent’s actions led

him to believe that his case had been resolved, thereby prompting

him to discard records that would have substantiated additional

deductions.   Although not phrased in so many words, petitioner’s

argument essentially amounts to a claim of estoppel.

     Equitable estoppel is a judicial doctrine that precludes a

party from denying that party’s own acts or representations that

induced another to act to his or her detriment.    E.g., Graff v.

Commissioner, 74 T.C. 743, 761 (1980), affd. 673 F.2d 784 (5th

Cir. 1982).   It is to be applied against the Commissioner only

with utmost caution and restraint.     E.g., Hofstetter v.
                               - 7 -

Commissioner, 98 T.C. 695, 700 (1992).   We have previously denied

estoppel claims of taxpayers based on erroneous abatements or

refunds.   See, e.g., Miller v. Commissioner, 23 T.C. 565, 569

(1954), affd. 231 F.2d 8 (5th Cir. 1956); Brown v. Commissioner,

T.C. Memo. 1996-100, affd. without published opinion 181 F.3d 99

(6th Cir. 1999); Wilson v. Commissioner, T.C. Memo. 1991-491;

Beer v. Commissioner, T.C. Memo. 1982-735, affd. 733 F.2d 435

(6th Cir. 1984).

     Although we deem it unnecessary to provide an indepth

analysis of the doctrine of equitable estoppel here, we do note

that one of the key elements of an estoppel claim is reasonable

reliance on the acts or statements in question.   Greenberg Bros.

Pship. #4 v. Commissioner, 111 T.C. 198, 208 n.16 (1998), affd.

sub nom. Cinema ‘84 v. Commissioner, 294 F.3d 432 (2d Cir. 2002).

Given the fact that: (1) The aggregate deficiencies and additions

to tax determined in the notices exceeded petitioner’s

corresponding remittances by more than $110,000, (2) respondent’s

counsel had previously notified petitioner that assessments had

been made in error and that corrective action would follow to

restore the status quo, and (3) petitioner received no indication

from either respondent’s counsel or this Court that his case had

been resolved, we conclude that petitioner’s reliance on the

erroneous refund and contemporaneous correspondence from
                                - 8 -

respondent’s Austin Service Center as grounds for discarding his

records was not reasonable.

     Petitioner implies that he should prevail because he is

without fault insofar as the erroneous refund is concerned.    Any

such argument is unavailing in light of petitioner’s failure to

file a return and report his tax obligation for any of the years

at issue.

     B.   Effect of Prior Remittances

     By the petition, and on brief, petitioner argues that

respondent determined deficiencies for 1996 and 1997 without

taking into account the 1996 and 1997 remittances.    Respondent

concedes the fact of the remittances but argues that the

remittances are irrelevant to the determination of the 1996 and

1997 deficiencies.    We agree with respondent.

     For Federal income tax purposes, the word “deficiency” has a

specific meaning.    It is defined in section 6211(a) as the amount

by which the tax imposed exceeds the excess of--

            (1) the sum of

                 (A) the amount shown as the tax by the
            taxpayer upon his return, if a return was
            made by the taxpayer and an amount was shown
            as the tax by the taxpayer thereon, plus

                 (B) the amounts previously assessed (or
            collected without assessment) as a
            deficiency, over--

          (2) the amount of rebates, as defined in
     subsection (b)(2), made.
                               - 9 -

     We assume that petitioner’s argument is that, in determining

deficiencies in tax for 1996 and 1997, respondent was required to

give petitioner credit for the 1996 and 1997 remittances pursuant

to section 6211(a)(1)(B) (amounts previously assessed or

collected without assessment as a deficiency).   However,

according to transcripts of petitioner’s accounts with respondent

for the audit years, to which the parties have stipulated,

respondent had not, prior to determining deficiencies for 1996

and 1997, assessed amounts corresponding to the 1996 and 1997

remittances, as a deficiency or otherwise.   Furthermore,

respondent did not “collect” such amounts as a deficiency;

indeed, at the time the 1996 and 1997 remittances were received

by respondent, petitioner had filed no returns for those years,

and respondent had not yet determined any deficiencies in tax for

those years.   See, e.g., Malachinski v. Commissioner, T.C. Memo.

1999-182, affd. 268 F.3d 497 (7th Cir. 2001).    Respondent, thus,

properly disregarded the 1996 and 1997 remittances in determining

the deficiencies for those years.3


     3
        We note that respondent’s erroneous postnotice
assessments of the 1996 and 1997 deficiencies similarly do not
constitute “amounts previously assessed * * * as a deficiency” to
be taken into account under sec. 6211(a)(1)(B) in determining the
deficiencies for those years. See Mitchell v. Commissioner, 51
T.C. 641, 649-650 (1969) (premature assessments of deficiencies
were void and therefore are not taken into account under sec.
6211, even though the Commissioner did not abate such assessments
until after the petition was filed), revd. on other grounds 430
F.2d 1 (5th Cir. 1970), revd. 403 U.S. 190 (1971). Nor does the
refund improvidently made by respondent for 1996 affect the
                                                   (continued...)
                               - 10 -

II.   Additions to Tax

      A.   Section 6654

      Section 6654 provides for an addition to tax (in the form of

an interest charge) in the event of an underpayment of a required

installment of individual estimated tax.    See sec. 6654(a).   As

relevant to this case, each required installment of estimated tax

is equal to 25 percent of the “required annual payment”, which in

turn is equal to the lesser of (1) 90 percent of the tax shown on

the individual’s return for that year (or, if no return is filed,

90 percent of his or her tax for such year), or (2) if the

individual filed a return for the immediately preceding taxable

year, 100 percent of the tax shown on that return.    Sec.

6654(d)(1)(A) and (B).    For purposes of section 6654, an

individual’s tax consists of income tax and self-employment tax

and is determined before the application of any wage withholding

credit4 (but after the application of other allowable credits).

Sec. 6654(f); see sec. 31.    The due dates of the required

installments for a calendar taxable year are April 15, June 15,



      3
      (...continued)
deficiency determined by respondent for that year. See sec.
6211(b)(2); Hillenbrand v. Commissioner, T.C. Memo. 2003-303
(nonrebatable erroneous refunds do not enter into determination
of deficiencies in taxpayers’ gift taxes); sec. 301.6211-1(f),
Proced. & Admin. Regs. (an amount refunded is not a rebate unless
the refund resulted from a substantive determination by the
Commissioner as to the taxpayer’s correct tax for that year).
      4
        Under sec. 6654(g)(1), wage withholding credits are
treated as payments of estimated tax.
                                  - 11 -

and September 15 of that year and January 15 of the following

year, sec. 6654(c)(2), and the interest charge on any

underpayment runs from the due date of the installment to April

15 of the following year (or to the date of payment, if earlier),

sec. 6654(b)(2).

     There are two mechanical exceptions to the applicability of

the section 6654 addition to tax.      First, as relevant to this

case, the addition is not applicable if the tax shown on the

individual’s return for the year in question (or, if no return is

filed, the individual’s tax for that year), reduced for these

purposes by any allowable credit for wage withholding, is less

than $500.5    Sec. 6654(e)(1).    Second, the addition is not

applicable if the individual’s tax for the preceding taxable year

was zero.     Sec. 6654(e)(2).

     B.   Section 7491(c)

     Section 7491(c) imposes the burden of production in any

court proceeding (i.e., the burden of moving forward with

evidence) on the Commissioner with respect to the liability of

any individual for penalties and additions to tax.6      In order to


     5
        Effective for taxable years beginning after Dec. 31,
1997, the threshold amount is $1,000. Taxpayer Relief Act of
1997, Pub. L. 105-34, sec. 1202, 111 Stat. 994. Respondent is no
longer asserting additions to tax under sec. 6654 for
petitioner’s 1998 and 1999 taxable years.
     6
        Sec. 7491(c) applies to court proceedings arising in
connection with examinations commencing after July 22, 1998.
Internal Revenue Service Restructuring and Reform Act of 1998,
                                                   (continued...)
                               - 12 -

meet the burden of production under section 7491(c), the

Commissioner need only make a prima facie case that imposition of

the penalty or addition to tax is appropriate; he need not negate

the existence of any circumstantial defense such as reasonable

cause.    Higbee v. Commissioner, 116 T.C. 438, 446 (2001); H.

Conf. Rept. 105-599, at 241 (1998), 1998-3 C.B. 747, 995; see

sec. 6654(e)(3) (providing for waiver of the addition to tax

under certain extenuating circumstances).

     C.    Discussion

     We are concerned only with 1995, 1996, and 1997.    Because

petitioner did not file returns for those years, the

applicability of the $500 de minimis exception under section

6654(e)(1) discussed above is determined on the basis of

petitioner’s actual tax for those years, less wage withholding.7

The stipulation of settled issues filed by the parties

establishes that petitioner’s tax, as so defined, for each of

those years exceeded $500.    Those stipulations also preclude the

applicability of the section 6654(e)(2) exception (zero tax for

preceding year) to 1996 and 1997.    However, nothing in the record


     6
      (...continued)
Pub. L. 105-206, sec. 3001(c)(1), 112 Stat. 727. In his brief,
respondent concedes that his examination of petitioner’s 1995,
1996, and 1997 taxable years (i.e., the years remaining at issue)
commenced after July 22, 1998.
     7
        The stipulation of settled issues categorizes
petitioner’s earned income for the years 1995-97 as nonemployee
compensation, which by definition is not subject to wage
withholding. See secs. 3401(a), 3402(a).
                                  - 13 -

indicates that petitioner’s 1994 tax was greater than zero.

Since the possibility remains that the section 6654(e)(2)

exception applies to 1995, respondent has failed to satisfy

section 7491(c) with respect to the section 6654 addition to tax

for that year.       Petitioner therefore is not liable for such

addition to tax.

       The 1996 and 1997 remittances were made on April 15 of 1997

and 1998, respectively.       Since the interest charge on quarterly

underpayments of estimated tax ceases to accrue on April 15 of

the following year, see sec. 6654(b)(2), petitioner’s remittances

with respect to 1996 and 1997 could not reduce the amounts of any

quarterly underpayments of estimated tax with respect to those

years.    In the absence of any returns for 1996 and 1997 and any

offsetting remittances, the amounts of those underpayments are

determined solely by reference to petitioner’s actual tax for

each such year (more precisely, 90 percent thereof), as governed

by the stipulation of settled issues.      In light of the foregoing,

respondent has satisfied section 7491(c) with respect to the

section 6654 additions to tax for 1996 and 1997.

III.    Conclusion

       We conclude that (1) respondent is not estopped from

asserting deficiencies and additions to tax with respect to 1995,

1996, and 1997; (2) amounts petitioner remitted with his filing

extension requests for 1996 and 1997 do not reduce the
                             - 14 -

deficiencies for those years; and (3) respondent has satisfied

his burden of production with respect to the additions to tax for

1996 and 1997, but not with respect to the addition to tax for

1995.

     To reflect the foregoing,


                                        Decision will be entered

                                   under Rule 155.
