If you admit you got paid under the table, you’re on the hook for the tax bill—unless you can actually prove the money shouldn’t be taxed or there’s some legitimate offset. But here’s the catch: if you’re fighting with the IRS about estimated payments or credits from last year, the Tax Court won’t touch it in a deficiency case. Those don’t even enter the official math.
Holding
The Tax Court sided with the IRS: Summer H. El Deeb left $16,027 in wages off her 2021 tax return. No surprise there. As for the $3,000 credit she claimed from estimated payments or a 2020 carryover? The Court said, not our problem.
The IRS dropped its $1,000 penalty claim. Both sides hashed out the rest of the credits before and during trial. The Court punted the final math to Rule 155.
Why It Matters
Unreported wages remain taxable even when the taxpayer later acknowledges them. The taxpayer stipulated that she received the wages and omitted them from her original return. That admission established the factual basis for the IRS’s income adjustment.
The Tax Court’s deficiency jurisdiction does not cover every disagreement about a taxpayer’s account. Estimated tax payments and prior-year overpayment credits generally fall outside the statutory deficiency calculation. A taxpayer cannot obtain judicial review of those payment adjustments merely by challenging a notice of deficiency.
Amended returns do not automatically resolve an IRS examination. El Deeb submitted two amended returns acknowledging previously unreported income. The IRS did not process the first, and the dispute proceeded to litigation. Filing an amended return did not eliminate the need to resolve the adjustments.
Credit adjustments can materially change the final liability. Although the Court sustained the wage adjustment, the parties agreed to additional withholding and refundable credits. Those concessions must enter the final Rule 155 computation.
The decision applies established rules governing unreported income and deficiency jurisdiction. It does not establish a new substantive tax rule or resolve the broader question of how taxpayers must pursue disputed payment credits outside deficiency proceedings.
Key Facts
Summer H. El Deeb filed her 2021 federal income tax return reporting $28,230 in wages and $1,381 in total tax.
She reported $11,786 in total payments and refundable credits, consisting of:
$935 in federal income tax withholding.
$3,000 in child tax credit.
$3,694 in earned income tax credit (EITC).
$1,157 in child and dependent care credit.
$3,000 in estimated tax payments or an amount applied from her 2020 return.
Based on those amounts, she claimed an overpayment of $10,405.
The IRS refunded $7,405 in April 2022. It withheld the disputed $3,000 because its records showed neither an estimated tax payment for 2021 nor an available credit carried forward from 2020.
Unreported income and amended returns
On May 26, 2022, El Deeb prepared and mailed an amended return reporting an additional $16,027 in adjusted gross income.
The amendment also reported additional withholding and reduced her earned income tax credit to reflect the higher income.
The IRS did not process that amended return.
On January 2, 2024, the IRS issued a notice of deficiency asserting:
A $5,518 federal income tax deficiency.
A $1,000 accuracy-related penalty under Section 6662(a).
$16,026 in unreported wages from Aerotek, Inc.
$800 in additional income from the Research Foundation for SUNY.
A corresponding withholding adjustment.
A reduction in the earned income tax credit due to the computation.
El Deeb petitioned the Tax Court on March 20, 2024.
The following day, the IRS informed her that it could not process her first amended return because the amendment did not address the additional $800 reported by the Research Foundation for SUNY.
She subsequently submitted a second amended return dated April 30, 2024. That return reported an additional $16,827 in adjusted gross income, reflecting both the Aerotek wages and the SUNY payment.
She continued to claim the disputed $3,000 payment credit.
Issues resolved by agreement
Before and during trial, the parties resolved several adjustments.
They agreed that:
El Deeb received $16,027 in unreported taxable wages from Aerotek.
She qualified for an additional $520 withholding credit related to those wages.
The $800 payment from the Research Foundation for SUNY was not taxable.
She qualified for a $6,000 refundable child tax credit, including $3,000 previously received through advance payments.
She qualified for a $2,830 refundable child and dependent care credit, an increase of $1,673 over the amount originally claimed.
The IRS also conceded the $1,000 accuracy-related penalty.
These agreements narrowed the litigation to two principal issues: how to treat the Aerotek wages and the Court’s authority to review the disputed $3,000 payment credit.
Statutory and Regulatory Framework
Section 61(a)(1): Compensation as gross income
Section 61 generally includes compensation for services in gross income unless a specific exclusion applies.
Wages received from an employer therefore constitute taxable income unless the taxpayer establishes a legally recognized exclusion or adjustment.
Section 6201(d): Third-party information returns
Section 6201(d) addresses the IRS’s reliance on information returns when taxpayers reasonably dispute their accuracy and fully cooperate with the IRS.
The provision does not automatically invalidate income adjustments based on third-party reporting.
When a taxpayer acknowledges receiving the income, the IRS may rely on that admission to establish the connection between the taxpayer and the income-producing activity.
Section 6211: Definition of a deficiency
Section 6211 establishes the statutory calculation of an income tax deficiency.
Section 6211(b)(1) excludes estimated tax payments from that calculation.
Consequently, an adjustment to an estimated tax payment credit does not, by itself, create a deficiency that the Tax Court can redetermine in a deficiency proceeding.
Section 6214(b): Limits on Tax Court jurisdiction
Section 6214(b) permits the Tax Court to consider facts involving other taxable years when necessary to determine the deficiency for the year before it.
However, the provision does not authorize the Court to determine whether a taxpayer overpaid tax for another year.
Section 6662: Accuracy-related penalties
Section 6662 authorizes accuracy-related penalties for specified circumstances, including substantial understatements of income tax.
The IRS conceded the proposed penalty, so the Court did not need to determine whether El Deeb satisfied any applicable penalty defenses.
Arguments
Taxpayer argued:
Her amended returns reflected the additional income and related adjustments.
Her 2021 tax account should include the $3,000 payment credit claimed on her original and amended returns.
The Court should determine her correct 2021 tax liability after accounting for the relevant income, withholding, and refundable credits.
The opinion does not describe a developed legal argument challenging the taxability of the Aerotek wages. El Deeb stipulated that she received the income and had not reported it on her original return.
She also ultimately conceded that she was not entitled to the disputed $3,000 credit.
Government argued:
The Aerotek wages constituted taxable compensation that El Deeb omitted from her original return.
The taxpayer’s stipulation established the necessary factual basis for the income adjustment.
The disputed $3,000 payment credit did not enter the statutory deficiency calculation.
The Tax Court therefore lacked jurisdiction to determine whether the IRS should have credited that amount to her 2021 account.
The IRS also agreed to the adjustments and concessions identified in the parties’ stipulations.
Court’s Reasoning
1. The IRS established the unreported wage income
The Court began with the general rule that taxpayers bear the burden of showing that an IRS deficiency determination is incorrect.
In unreported-income cases, the IRS must first establish a minimal evidentiary connection between the taxpayer and the alleged income-producing activity or demonstrate that the taxpayer actually received the income.
El Deeb stipulated that she received $16,027 in taxable wages from Aerotek and omitted those wages from her original return.
That admission satisfied the IRS’s threshold evidentiary burden.
The Court found no basis to shift the general burden of proof to the government under Section 7491(a).
2. The taxpayer did not establish an exclusion or offset
After establishing that El Deeb received the wages, the Court considered whether she had presented evidence supporting different tax treatment.
She did not dispute the amount received.
She also presented no evidence that the wages qualified for an exclusion or that additional deductions or offsets reduced the taxable amount.
The Court therefore sustained the IRS’s determination that the Aerotek wages constituted unreported taxable income.
The Court used the parties’ stipulated amount of $16,027 rather than the $16,026 stated in the notice of deficiency.
It likewise accepted the stipulated $520 withholding credit rather than the $519 stated in the notice.
These differences reflected the parties’ binding stipulations, not a substantive disagreement about the applicable tax law.
3. Estimated tax payments do not enter the deficiency calculation
The central procedural issue concerned the disputed $3,000 credit.
El Deeb had consistently reported that amount as either an estimated tax payment for 2021 or an overpayment from 2020 applied toward her 2021 liability.
The IRS had no record supporting either treatment.
The Court explained that Section 6211(b)(1) excludes estimated tax payments from the calculation of a deficiency.
The same treatment applies when a taxpayer elects to apply a prior-year overpayment against estimated income tax for the following year.
Because these amounts do not enter the deficiency calculation, adjustments to them do not independently create a deficiency.
The Court consequently could not determine the correctness of the disputed payment adjustment through its deficiency jurisdiction.
4. The Court could not determine a 2020 overpayment
The alternative explanation for the $3,000 involved a possible overpayment from the taxpayer’s 2020 return.
Section 6214(b) allows the Tax Court to examine facts from other taxable years when necessary to resolve a deficiency properly before it.
However, that authority does not permit the Court to determine whether a taxpayer overpaid tax for another year.
The Court therefore could not decide whether El Deeb had a 2020 overpayment available for application against her 2021 estimated tax.
This jurisdictional limitation applied regardless of whether the taxpayer characterized the $3,000 as a direct estimated payment or a prior-year credit.
5. The taxpayer’s concession independently resolved the payment dispute
The Court added that El Deeb had conceded she was not entitled to the disputed $3,000 credit.
That concession meant the payment claim would fail even if the Court possessed jurisdiction to consider it.
The Court nevertheless addressed the jurisdictional issue and expressly held that it lacked authority to redetermine the payment adjustment in the deficiency proceeding.
The distinction matters because the Court’s jurisdictional holding rests on Section 6211, rather than merely on the taxpayer’s concession.
6. The agreed refundable credits affect the final computation
The parties agreed that El Deeb qualified for a $6,000 refundable child tax credit for 2021.
Of that amount, she had already received $3,000 in advance child tax credit payments.
The parties also agreed that her refundable child and dependent care credit totaled $2,830.
That represented a $1,673 increase over the amount claimed on her original return.
The Court accepted these agreements for purposes of determining the final tax consequences.
The opinion did not calculate the ultimate deficiency after all adjustments.
Instead, it directed the parties to complete that calculation under Rule 155.
7. The earned income tax credit required recalculation
El Deeb originally claimed a $3,694 earned income tax credit.
The IRS did not disallow the credit outright.
Instead, it made a computational adjustment because the additional Aerotek wages increased her earned income.
The Court recognized that including the unreported wages necessarily changed the amount of EITC available under the applicable statutory calculation.
The final amount would therefore depend on the Rule 155 computation.
This aspect of the decision illustrates how an unreported-income adjustment can affect tax liability beyond the direct tax imposed on the additional wages.
Result
The Tax Court sustained the $16,027 unreported wage adjustment, held that it lacked jurisdiction to review the disputed $3,000 payment credit, accepted the parties’ concessions and stipulated adjustments, and directed entry of a decision under Rule 155.
The IRS conceded its proposed $1,000 accuracy-related penalty.
The opinion did not establish a final deficiency amount.
The Takeaway
The real issue here was jurisdiction, not whether wages are taxable. The Court stuck to the script: unreported wages get taxed, but you can’t use a deficiency case to fight about estimated payments or old credits.
If you’re a tax pro, keep your fights straight: challenging the tax bill is one thing, arguing about how the IRS handles your payments is another. You might need a whole different process for that—even if it’s the same tax year.
List of Citations
Statutes and regulations
IRC § 61(a)(1): Includes compensation for services in gross income.
IRC § 6201(d): Governs reliance on information returns when taxpayers reasonably dispute their accuracy.
IRC § 6211(b)(1): Excludes estimated tax payments from the statutory deficiency calculation.
IRC § 6213(a): Provides the procedural basis for petitioning the Tax Court to redetermine a deficiency.
IRC § 6214(b): Limits the Court’s authority to determine tax overpayments for years not before it.
IRC § 6402(b): Addresses the crediting of income tax overpayments against estimated tax.
IRC § 6513(d): Governs elections to credit overpayments against estimated tax for the succeeding taxable year.
IRC § 7491(a): Establishes circumstances in which the burden of proof may shift to the IRS.
IRC § 6662(a), (b)(2), and (d): Governs accuracy-related penalties for substantial understatements of income tax.
Treas. Reg. § 301.6402-3(a)(5): Addresses elections to apply income tax overpayments to succeeding-year estimated taxes.
Tax Court Rule 91(e): Establishes the binding effect of stipulations.
Tax Court Rule 155: Governs computations necessary to enter a decision after the Court resolves disputed issues.
Judicial authorities
Welch v. Helvering, 290 U.S. 111 (1933): Establishes the general presumption of correctness attaching to IRS deficiency determinations.
Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955): Explains the broad statutory definition of gross income.
Walquist v. Commissioner, 152 T.C. 61 (2019): Explains the IRS’s threshold evidentiary burden in unreported-income cases.
Blohm v. Commissioner, 994 F.2d 1542 (11th Cir. 1993): Addresses the evidentiary foundation necessary to support an unreported-income determination.
Edwards v. Commissioner, 680 F.2d 1268 (9th Cir. 1982): Addresses proof that a taxpayer received unreported income.
Helvering v. Taylor, 293 U.S. 507 (1935): Addresses challenges to arbitrary or erroneous tax determinations.
Tokarski v. Commissioner, 87 T.C. 74 (1986): Addresses the evidentiary burden in unreported-income disputes.
Vento v. Commissioner, 152 T.C. 1 (2019): Discusses the treatment of prior-year overpayment credits in deficiency computations.
Bregin v. Commissioner, 74 T.C. 1097 (1980): Holds that an adjustment to an overstated withholding credit does not create a deficiency within the Tax Court’s jurisdiction.
Pope v. Commissioner, T.C. Memo. 2020-62: Applies the jurisdictional limitation to withholding-credit adjustments.
Forrest v. Commissioner, T.C. Memo. 2011-4: Addresses the Court’s lack of deficiency jurisdiction over a withholding-credit dispute.
Trimble v. Commissioner, T.C. Memo. 2018-36: Provides additional authority concerning payment-credit adjustments and deficiency jurisdiction.
Stamos v. Commissioner, 87 T.C. 1451 (1986): Explains the binding nature of stipulations between litigating parties.
Source: Summer H. El Deeb v. Commissioner, T.C. Memo. 2026-101, filed September 29, 2026. Pasted text