Joseph Paul Freije - Page 2

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               unpaid tax for 1997, and we have jurisdiction to                       
               consider facts and issues arising in 1995, a year not                  
               the subject of the notice of determination, insofar as                 
               they are relevant to computing the unpaid tax for 1997.                
                    Held, further, since P's Federal income tax return                
               and payment for 1995 were untimely, resulting in the                   
               assessment of additions to tax for late filing and                     
               payment, R's application of P's 1997 remittance against                
               the 1995 liability was proper.                                         
                    In July 1998, P mailed a check to R for $1,776.  R                
               posted the check to P's 1997 account for the erroneous                 
               amount of $11,776.  As $11,776 exceeded all unpaid                     
               assessments for 1997, R issued P a refund for 1997 of                  
               $5,513 in August 1998.  After subsequently discovering                 
               his error, R applied four of P's 1999 remittances,                     
               totaling $6,500, to P's 1997 account.  P claimed in his                
               hearing request and herein that he had not received                    
               proper credit for all payments made with respect to                    
                    Held: R's application of P's 1999 remittances to                  
               P's 1997 account to recoup the erroneous nonrebate                     
               refund for 1997 contravenes O'Bryant v. United States,                 
               49 F.3d 340 (7th Cir. 1995).  These 1999 remittances                   
               should have been applied against unpaid taxes that are                 
               the subject of the instant levies.  Consequently, the                  
               levies must be reconsidered by R on remand.                            
                    P claimed in his Appeals hearing and herein that                  
               the proposed levy for 1999 should not be sustained                     
               because R improperly changed the amounts shown as due                  
               on P's Federal income tax return for 1999.  R concedes                 
               that he disallowed, pursuant to sec. 6213(b)(1),                       
               I.R.C., certain miscellaneous itemized deductions                      
               claimed on that return and made an assessment based                    
               thereon without issuing a notice of deficiency to P as                 
               required by sec. 6213(a), I.R.C.  As a consequence, R                  
               contends, P is entitled in the instant proceeding to de                
               novo review under sec. 6330(c)(2)(B), I.R.C., of his                   
               entitlement to these deductions, with any modifications                
               resulting from the Court's review to be reflected in                   
               the amount of the assessment and levy.                                 
                    Held: the 1999 levy, insofar as it is based on the                
               disallowance of P's miscellaneous itemized deductions,                 
               may not proceed, as the assessment upon which it is                    

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