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On June 29, 1998, respondent sent a letter to petitioners
requesting payment of $9,326.06, which consisted of $7,588 for
the assessed tax liability, $1,642.68 for assessed interest, and
a $95.38 adjustment for an overstated withholding in the IRS
transcript. On or about July 14, 1998, petitioners mailed a
check to the IRS in satisfaction of this amount.
Petitioners’ 1994 joint income tax return was filed on
May 30, 1997. On June 30, 1997, the IRS issued a refund check to
petitioners in the amount of $11,403.66 which comprises the
$10,000 subsequent payment and a $1,403.66 withholding credit.
The notice of deficiency for tax year 1995 was issued to
petitioners on June 3, 1999, reflecting a deficiency of $6,501
due to the disallowance of the NOL carryover and computational
adjustments. Petitioners contend that respondent erred in
applying the $10,000 sent in April 1995 to the 1994 tax year.
According to petitioners, the $10,000 should have been applied,
although not designated by petitioners at the time they sent the
check, to the 1995 taxes. Petitioners further contend that the
$10,000 payment should be applied to the tax deficiency stated in
the notice of deficiency and that they should receive a refund of
the excess.
Discussion
If a taxpayer makes a voluntary payment without directing
the application of the funds, the IRS may make whatever
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