Opinion
22590-19
03-17-2022
NEIL R. CLEMENT & MEREDITH M. CLEMENT, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Eunkyong Choi, Special Trial Judge
Pending before the Court is respondent's Motion for Partial Summary Judgment, filed August 11, 2021. Respondent moves for partial adjudication in his favor on the issue of petitioners' claim for a withholding credit for taxable year 2016. Arguing that this Court lacks jurisdiction to redetermine a withholding credit, respondent relies on his Memorandum in Support of Motion for Partial Summary Judgment, also filed August 11, 2021, and the parties' First Stipulation of Facts, filed February 2, 2021. As the crux of respondent's argument is that this Court lacks jurisdiction over petitioners' claim for withholding credit, the Court will address respondent's motion as a motion to dismiss for lack of jurisdiction as to petitioners' claim for withholding credit, not as a motion for partial summary judgment.
Following the Court's October 6, 2021 Order directing petitioners to file a response to respondent's Motion for Partial Summary Judgment, on October 28, 2021, petitioners filed a Response to Motion for Partial Summary Judgment, opposing respondent's motion. Arguing, among other things, that respondent's motion is not supported by fact or law, and that this Court does have jurisdiction to adjudicate petitioners' claim for withholding credit, petitioners rely on their Submission of Evidence in Opposition to Respondent's Motion for Partial Summary Judgment, also filed October 28, 2021.
For the reasons set forth below, respondent's motion is granted, and petitioners' claim for withholding credit is dismissed for lack of jurisdiction. 1
Background
The following facts are drawn from the parties' pleadings and motion papers, including the attached affidavit and exhibits. See Rule 121. Petitioners resided in Alabama when they filed the Petition in this case.
On November 18, 2015, the IRS issued a Notice of Levy to Regions Bank where petitioners held an individual retirement account. In response to the Notice of Levy, on January 12, 2016, Regions Bank issued the IRS a distribution of $130, 674, the entire amount held in petitioners' retirement account. After issuing the distribution to the IRS, Regions Bank issued petitioners a 2016 Form 1099-R. The Form 1099-R did not report an amount in Box 4 Federal income tax withheld and reported $130, 674 in each of Boxes 1 and 2(a) Gross distribution and Taxable amount, respectively.
On June 16, 2017, petitioners filed a 2016 Form 1040 U.S. Individual Income Tax Return in which they did not report the $130, 674 distribution reported in the 2016 Form 1099-R from Regions Bank. As a result, on September 30, 2019, the IRS issued Petitioners a Notice of Deficiency proposing a deficiency of $44, 230 in relation to the unreported distribution, an unreported state income tax refund, and computational adjustments resulting from the unreported income. Petitioners therefore filed a Petition in this Court on December 23, 2019 in which they allege, among other things, entitlement to a withholding credit of $24, 370 for taxable year 2016 in relation to the $130, 674 levy distribution from Regions Bank.
Discussion
The Tax Court is a court of limited jurisdiction, and may exercise its jurisdiction only to the extent authorized by Congress. See I.R.C. § 7442; Guralnik v. Commissioner, 146 T.C. 230, 235 (2016). Section 6213(a) allows petitioners to seek judicial review of the proposed deficiency before this Court. However, it is well established that this Court does not have jurisdiction to redetermine the amount of a withholding credit because credit for withholding "is not a factor in determining the tax deficiency." Trimble v. Commissioner, T.C. Memo. 2018-36, at *7 (citing Forrest v. Commissioner, T.C. Memo. 2011-4, 2011 WL 13626, at *3); see also Pope v. Commissioner, T.C. Memo. 2020-62, at *6. Under section 6211(b)(1) a deficiency is determined "without regard to payment on account of estimated tax, without regard to the credit under section 31". Forrest, T.C. Memo. 2011-4, 2011 WL 13626, at *3. We find that we do not have jurisdiction to review petitioners' claim for a $24, 370 withholding credit for taxable year 2016 in relation to the $130, 674 levy distribution issued by Regions Bank. 2
All statutory references are to the Internal Revenue Code in effect at all relevant times, and all rule references are to the Tax Court Rules of Practice and Procedure.
Nevertheless, to address petitioner's Response to Motion for Summary Judgment, we note that section 3405 requires payors of designated distributions to withhold specified portions from such distributions, and such withholding is governed by the same rules as withholding against wages paid to an employee. However, a third-party payor's failure to withhold income tax does not relieve a taxpayer from his obligation to pay income tax. See Trimble, T.C. Memo. 2011-4, at *6 citing Church v. Commissioner, 810 F.2d 19, 20 (2d Cir. 1987); Chenault v. Commissioner, T.C. Memo. 2011-56, 2011 WL 820877, at *5 (holding that a third party's withholding obligation "does not excuse the taxpayer from his or her duty to report income and pay the resulting tax"). Here, Regions Bank did not withhold income tax from the 2016 levy distribution pursuant to section 3405 as it should have, but this fact does not relieve petitioners of their obligation to pay tax on the distribution. Further, because Regions Bank did not withhold from the distribution, petitioners are not allowed credit for withholding. Treas. Reg. section 1.31-1(a) (credit for withholding is allowed only if the tax has actually been withheld at the source).
The section of the IRM to which petitioners cite did not apply when IRS issued the Notice of Levy to Regions Bank and therefore is not applicable now. See IRM 5.11.6.3 (May 5, 1998) (this section of the IRM related to levying on insurance). As cited by petitioners, IRM 5.11.6.3 became effective on August 16, 2017. See IRM 5.11.6.3 (August 16, 2017). Further, deviation from the IRM does not make the IRS' actions invalid as the IRM does not have the force of law. Gurule v. Commissioner, T.C. Memo. 2015-61, at *22-23, n.9. In their Response to Motion for Partial Summary Judgment, petitioners argue that the IRS' Notice of Levy should have directed Regions Bank to withhold for payment of taxes 20% of the 2016 levy distribution. Petitioners cite Internal Revenue Manual (IRM) 5.11.6.3(15) as support for this argument. We are not persuaded.
Upon due consideration of the foregoing, it is
ORDERED that respondent's above-referenced Motion for Partial Summary Judgment is granted, and petitioners' claim for withholding credit of $24, 370 is dismissed for lack of jurisdiction. 3