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interest paid with respect to the deficiency * * * is also an
overpayment.”14 Sec. 301.6611-1(c), Proced. & Admin. Regs.
In order to determine whether or not an overpayment exists,
we must first determine the proper amount of tax.15 In light of
the above-cited cases and section 301.6611-1(b), Proced. & Admin.
Regs., we hold that for purposes of determining an overpayment of
tax pursuant to section 6512(b), the proper tax includes
underpayment interest and that the amount of an overpayment is
14The Chief Counsel’s National Office echoes this position
in field service advice: “Although payments of underpayment
interest are not considered in determining a deficiency, they can
be weighed in determining whether an overpayment exists.” Field
Serv. Adv. 2000-12049 (Mar. 24, 2000).
15We have held that in making an overpayment determination,
the tax which is “properly due” is the correct amount of tax,
regardless of whether the correct tax has been or could be
assessed at the time of our decision. See Bachner v.
Commissioner, 109 T.C. 125 (1997), affd. without published
opinion 172 F.3d 859 (3d Cir. 1998), where we found there was no
overpayment of the taxpayer’s proper tax even though the statute
of limitations barred assessment of that tax for the year in
issue. We relied on the holding in Lewis v. Reynolds, 284 U.S.
281, 283 (1932), wherein the Court stated:
An overpayment must appear before refund is authorized.
Although the statute of limitations may have barred the
assessment and collection of any additional sum, it
does not obliterate the right of the United States to
retain payments already received when they do not
exceed the amount which might have been properly
assessed and demanded.
Bachner was decided on remand from the Court of Appeals for the
Third Circuit, which had held that the question of whether there
was an overpayment was an issue that was independent of whether
there was a deficiency. Bachner v. Commissioner, 81 F.3d 1274,
1279 (3d Cir. 1996).
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