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Freijes' 1997 account in the amount of $11,776 on July 8, 1998.
As this amount exceeded all unpaid assessments for 1997,
respondent issued the Freijes a refund of $5,513 for that year on
August 3, 1998. Sometime after August 3, 1998, respondent became
aware of the $10,000 error and made reversing entries on the
Freijes' 1997 account.17 However, no assessments were recorded
subsequent to the August 3, 1998, refund. Respondent thereafter
applied four remittances made by the Freijes in 1999, totaling
$6,500, to their 1997 account.
Respondent's application of these 1999 remittances to the
Freijes' 1997 account in an effort to recover the erroneous
refund contravenes O'Bryant v. United States, 49 F.3d 340 (7th
Cir. 1995). In O'Bryant, the Court of Appeals for the Seventh
Circuit, to which an appeal in this case would ordinarily lie,
held that the Commissioner may not use his postassessment
collection powers to recover an erroneous nonrebate refund. In
that case, the taxpayer made a payment that satisfied an
outstanding assessment. The Commissioner mistakenly credited the
payment to the taxpayer's account twice and consequently issued
the taxpayer a refund in the amount of the payment plus interest.
Upon discovering his mistake, the Commissioner recovered a
portion of the refund by levy and by applying overpayments and
17 The reversing entries were dated as of the original
erroneous posting (July 8, 1998). See supra note 5.
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