- 7 -
b. The Right of Setoff Under Section 6402(a)
The IRS’s right to set off derives from section 6402(a),
which permits the IRS to set off any existing tax deficiencies
against any tax refunds due the taxpayer. Section 6402(a)
provides:
In the case of any overpayment, the Secretary, within the
applicable period of limitations, may credit the amount of
such overpayment, including any interest allowed thereon,
against any liability in respect of an internal revenue tax
on the part of the person who made the overpayment and
shall, subject to subsections (c) and (d), refund any
balance to such person.[3]
Effectively, section 6402(a) provides that a party is
entitled to a tax refund only of the amount which exceeds any
outstanding tax liabilities. In re Davis, 889 F.2d 658, 661 (5th
Cir. 1989); Kabbaby v. Richardson, 520 F.2d 334 (5th Cir. 1975);
United States v. Rochelle, 363 F.2d 225, 232-233 (5th Cir. 1966).
Petitioners contend that respondent could not apply the
overpayment of their voluntary 1995 estimated taxes to their
outstanding 1985 tax liability because on their 1995 return
petitioners directed that the overpayment should be applied to
their 1996 estimated taxes.
When a taxpayer makes voluntary payments to the IRS, he or
she has a right to direct the application of those payments to
3Sec. 6402(a) was amended by the Internal Revenue Service
Restructuring and Reform Act of 1998, Pub. L. 105-206, sec.
3711(a), 112 Stat. 779, to include a reference to subsec. (e).
That amendment applies to refunds payable after Dec. 31, 1999,
and is not applicable to this case.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 Next
Last modified: May 25, 2011