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account petitioner’s claims pertaining to the 2004 tax year, even
though petitioner’s arguments were clearly relevant in evaluating
the permissibility of the levy action in relation to the 1999
tax.
We hold that respondent’s application of petitioner’s tax
refund amount from 2005 to the year 2004, in the absence of
respondent’s establishing that there was any tax liability for
2004, even though petitioner repeatedly asserted, and his 2004
return showed, that there was no such liability, was an error of
law.5 The Appeals officer’s verification that the requirements
of applicable law had been met was incorrect. Accordingly, levy
to collect the 1999 assessment may not proceed. We shall remand
the determination for 1999 to respondent’s Office of Appeals for
reconsideration of petitioner’s claim that he owed no taxes for
2004 and thus the amount of the refund due him for tax year 2005
should have been applied entirely to tax year 1999.
5As explained supra note 3, we do not review respondent’s
imposition of an addition to tax under sec. 6651(a)(2) and (3)
for failure to pay income tax when it is due. In the light of
our holding that respondent erred as a matter of law in pursuing
the levy action, the standard of review that we would employ in
evaluating the issue of petitioner’s liability for the addition
to tax makes no difference. See Kendricks v. Commissioner, 124
T.C. 69, 75 (2005). On remand, respondent should determine
whether he should have applied petitioner’s entire 2005 refund to
tax year 1999 and whether doing so would have reduced or
extinguished the 1999 liability and the corresponding addition to
tax which was assessed in 2006.
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