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Madison was certainly not prudent, and his failure to obtain
expert tax advice regarding the merits of the tax scheme was
negligent. Accordingly, the additions to tax under section 6653
are sustained. See Barlow v. Commissioner, 301 F.3d 714, 724 (6th
Cir. 2002), affg. T.C. Memo. 2000-339.
Anticipating the potential application of section 6653(a)(2),
petitioners assert that respondent has incorrectly computed the
underpayment of tax which is attributable to negligence and
subject to the addition to tax, based upon 50 percent of the
interest payable under section 6601. Petitioners argue to reduce
the deficiencies in 1981 and 1982 computed under section
6211(a)(1), despite respondent’s repayment of the $189,769 with
interest.
Petitioners rely upon the definition of deficiency in section
6211 and argue they made a payment which should be characterized
as an amount collected without assessment as a deficiency under
section 6211(a)(1)(B). They further argue this amount should not
be reduced by the subsequent repayment because that repayment was
not a rebate under section 6211(a)(2).
There is a body of law holding that the deficiency procedures
may not be used to correct amounts collected and then erroneously
refunded because such erroneous payments are not rebates. See,
e.g., O’Bryant v. United States, 49 F.3d 340 (7th Cir. 1995). In
addition, amounts characterized as payments of tax are not
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