- 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
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