Harley G. & Muriel B. Weros, Petitioner

T.C. Summary Opinion 2011-68 UNITED STATES TAX COURT HARLEY G. WEROS AND MURIEL B. WEROS, Petitioners v. COMMISSIONER DF INTERNAL REVENUE Respondent Däcket Nò: 12862-09Sr Filede June 13 2011 Hàrley G. Wa cos'and Murie B Weros; pro- sene - John P. Heali Reid Michael uè and-Jatheå L Gessford for respondent

VASQUEZ, Judge:

This case was heard pursuant to the provisions of section 7463 of the Internal-Revenue Code (Code) in effect when the pet-ition was, filed.

Pursuant to section '7463 (b) , the decipion to be entere is not reviewable by any, Unless otl-erwise indicated all section references are t ö the Code, as amended, and all Rule references are to the Tax Court Rules of Prnctice and Procedure .

SEVED JUN 1 3 2011

other court, and this opinion shall not be treated as precedent for any other case.

Respondent determined a $4,182 deficiency in petitioners' Federal income tax for 2006. After concessions," the issues for decision are whether respondent may use the normal deficiency procedures to collect an erroneous refund paid to petitioners, and whether petitioners underreported their income from capital gains by $8,869.

Petitioners resided in North Dakota when the petition was filed.

Background - Petitioners received $25,572 in Social Security benefits in 2006.

They also received $4,406 in capital gain distributions from Fidelity Select Health Care Fund (Select) and $15, 439 in capital gain distributions from Fidelity Magellan Fund (Magellan) in, 20,06. Petitioners received $1,031 in dividend income in 2006 from multiple funds, including Select and Magellan.

The dividends were reinvested in the respective funds .

the decision in this case will be entered under -Rulie Some of to a reduced tax rate, -.3 - Petitioners timely filed a joint Form 1040,4 U.S.

Individual Income Tax Returie, for 2006, and paid the $4, 828.48 balance sof - tax due with their return. Petitioners reported only.$10,976.85 in taxable capit 1 gain distr:i.butions for 2006 despite receiving combined distrib tions of $19,845 from Select ands Magellan.

Petit-ioners properly reported $21,736.20 in taxable Social Security benefits on line 20b of their 2006 return. However, respor dent nadvertently omitted the taxable portionscf petitioners',,Social Security, benefits when processing petitioners' 2006 return.

In other words, an Internal Revenue , Service (IRS) employee, when entering the information from petitioners' return into the IRS aomputer system, entered zero as the amount of petitioners' taxable Social Security benefits.

This error lead to respondent' s issuing a refund to petitioners of $2, 873.04 on une 11, -20O'7.

n Marchy 30, 2009, respondent issued to petiti ners a notice of deficiency, adjustiing petitioners' inc e from capital gains Social Security benefits, interest , and ,dividends .

I. Social Security Benefits Discussion

Petitioners rgue that respondent was grossly dishonest and has forfeited his right to recover the amounts efunded to them.

Pet tione s reported a $6,202..84 total return but respo dent assessed oÊly $3,329.80. Accordingly, $2,873 04 ,differehce refunded to petitioners was never assessed.

tax on their,2006. the They believe respondent should have to pay the price for his unilateral'mistake and shduld be estoßped from determining a deficiency.

The Commissioner has more than one remedy to recover erroneous refunds! these include bringing a civil suit under sèctïon 7405 arid following the deficiency procedures under sections 6211 through 6215. Beer v. ®Commissioner, '733 F.2d 435, 437 (6th Cir 1984), affg. T.C. Memo. 1982-735; Lesinski-v.

Commissioner, 'I'.C. Memo. 1997-234. However/ the Commissione⁹ Ínäy use tlie defi'ciency procedures to collect an erroneous refund only if the refund gives rise to a deficiency.

See Interlake Corp. v.

Commissioner', 112 T.C. 103, 110' (1999) ; Lesinski v. Commissioner, supra.

Section 6211(a) defines the term adéficiency" as the amount by whiáh the tax actually imposed exceeds-- (1) the sum of (A) the amount shown as -the tax by the taxpayer upon his return, and an amount was shown as the tax by the taxpayer thereon, plus if a return was made by the taxpayer (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 . M * Reduced to mathematical terms, the statutory definition of the term "deficiency" may be stated as follows:

(contiinued .

.

. ) Section '62]a (b) (2) defines a "reb'ate' as an abatement, a credit, refund, or other repaymer t mademon the ground that the tax itnposed was less thanathe amount shown on the return land the amountss previously assessed or collected-without assessment.

See also Groetzinger v. Commissioner, 69 T.C. 309, 314 (1977)a Accoidingly, not all réfunds .are rebates. SeetO'Bryant v. United Stated, 49 F . 3ds340 (7th ¿Oi 1995) ; Groetzinger v. 'Commissioner, supra at 3123 , G nerally, la rebet refund is- issued on the basis of a substantive recalculationsof the tax owed.

See O'Bryant v.

United States; supi-a at 342.

A nonrebate refund, however, is issued not because of ta determination by thesCómmissioner that the tax paid is not. owing but forosotùe other:reason, sucheas a mista e made by the Commissioner.:

Id.

The rebate versus nonrebate distinction arises from the definition of the term o "deficiency" in section 6211; rebate refunds can be included in deficiency computations, while nonrebate refunds cannot .

* Id.

Respondent'e errofein failing to include Tetitioners' aSocial Security bènefits in incomêlgave ise sto a*nonrebate refund.

Consequently, responderit may not seek to recover the erroneous .

.

. continu d) Deficiency = correct tax - assessments - rebates) = correct tax rŠturn - prior assessments +i rebates (tax on return + prior tax on See Midland Mortg. Co. v. Commissioner, 73 T.C. 902, 907 (1980); Kurtzou v. Commissioner, 17 T.C. 1542, 1548 (1952) .

refund through the deficiency procedures; respondent may pursue recovery 'of the refund in U.S. District Court under section -7405 unless the appropriate limitations period has expired. , See Lesinski v. Commissioner, supra.

II. Capital Gains

Petitioners argue that the adjustment tostheir income from capital gains is the result of ancunfair and dishonest procedure.

At trial Mr . Weros stated that "capital gains - have become -the cash cow for the Federal government"..

. He contended that IRS, rules and procedures are wrong and unfair, and he even expressed his disapproval of the marriage penalty.

In their posttrial brief petitioners state:

"It is totally unfair, bordering on cheating.- We have paid taxes on the same dollars three dimes in the last twenty years due to a fluid market -and poor IRS , procedure .

We urge the IRS to ,study the procedure and make hone s t changes . " Aside from making various policy arguments, which we have no authoritysto.entertain, petitioners do not dispute the information reported on their Forms 1099-DIV, Dividends and Distributions, or the fact that respondent correctly calculated the adjustment to their income from capital gains.

-Accordingly., respondent' s determination with respect to the adjustment in petitioners' income from capital gains is sustained.

To reflect the foregoing, Decision will be entered under Rule 155 .

2. Respondent concedes that petitioners are entitled to a $12,5b⁰ standard deduction for 2006, an increase of $2,000 frome the $10,500 deduction for which they were given credit. Petitioners concede that they understated interest income by $241 and taxable dividends by $131 in 2006. the dividends may be qualified dividends that are subject and petitioners' concession may require new computations . AccorcTingly, 155.