Third Circuit Weighs Individual Facts and Circumstances in Ruling that Taxpayers Had Given the IRS Clear and Concise Notice of a Change of Address

We welcome as a first time blogger my colleague in the tax clinic at the Legal Services Center of Harvard Law School, Audrey Patten.  Audrey was the principle drafter of the brief in the Gregory case.  See my brief prior post on the case here.  Audrey is in her fourth year of working in the tax clinic after previously working in the Predatory Lending Clinic at the Legal Services Center.  She is currently working with Christine to write the third edition of A Practitioner’s Guide to Innocent Spouse Relief.  Look for their book in the coming year.  Keith

On December 30, 2020, the United States Court of Appeals for the Third Circuit ruled in favor of the taxpayers in the case Gregory vs Commissioner (Docket No. 19-2229).  The issue before the Third Circuit was whether the taxpayers’ use of Forms 2848 Power of Attorney and 4868 Request for Extension of Time constituted “clear and concise notice” of a change of address to the IRS pursuant to Treasury Regulation §301.6212-2.  Although filed as a non precedential opinion, the outcome is a clear example of how the IRS cannot simply ignore the actual knowledge it has of a taxpayer’s address when issuing a Statutory Notice of Deficiency pursuant to I.R.C.§6212(b)(1), even if that taxpayer failed to follow the IRS’ prescribed procedures for changing their address.  It also stands for the concept that analysis of what constitutes “clear and concise notice” of a last known address remains a fact specific inquiry in line with prior tax court and circuit court case law on the issue.  From a practitioner’s point of view, the case also serves as a lesson in carefully examining the lower court record for facts that may turn a case, even if those facts were not fleshed out in the lower court opinion.

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The facts of the case are as follow.  Mr. and Mrs. Gregory filed their 2013 income tax return using an address in Jersey City, NJ.   In June 2015, the Gregorys moved to an address in Rutherford, NJ.  They did not fill out a Form 8822 Change of Address nor did they otherwise inform the IRS of their move at that time.  On October 15, 2015, their CPA filed their 2014 return.  The CPA mistakenly put the Jersey City address on the return, even though the couple had moved to Rutherford in June. 

Meanwhile, the IRS began an audit of the 2013 return and in November 2015 the CPA faxed two Forms 2848 Power of Attorney, one for each spouse, to a revenue agent assigned to the Gregorys’ case.  The Forms 2848 both had the correct Rutherford address listed for each taxpayer.  The forms were presumably processed because the revenue agent began communicating about the account with the CPA.   The CPA also testified in the Tax Court that he had verbally communicated to the revenue agent that his clients’ address had changed. Furthermore, in April 2016, the CPA filed a Form 4868 Request for Extension of Time for the Gregorys’ 2015 income tax return.  That form also had the correct Rutherford address and was also presumably processed because the Gregorys were granted their request.  The CPA continued to correspond with the revenue agent about the 2013, and later 2014, audits throughout the spring of 2016.  However, in October 2016, the IRS mailed a Statutory Notice of Deficiency for 2013 and for 2014 to the Gregorys’ old, invalid address in Jersey City. The post office marked the notice “undeliverable” and returned it to the IRS.  The CPA learned of the notice in January 2017 through a call to the Practitioners’ Priority Line and immediately filed a Tax Court petition, which turned out to be several days past the 90 day deadline in the notice of deficiency.

Both the Gregorys and the IRS filed cross motions to dismiss in the Tax Court.  The Gregorys argued that they had never received a valid notice of deficiency to their last known address, as required by I.R.C. §6212.  Meanwhile the IRS claimed that the last known address was in fact the Jersey City address that was written on their 2014 return, making the notice, and its deadline, valid and thus time-barring the Gregorys’ petition.  Under the statute, a notice of deficiency must be sent to the last known address. The term is not further elaborated in the statute, but Treasury Regulation §301.6212(a) defines last known address as the address on the last filed income tax return unless the taxpayer has provided “clear and concise” notice of a change of address. The regulation directs to an open ended line of procedures “subsequently prescribed by the Commissioner” to learn the meaning of clear and concise notice.  The most recent of these revenue procedures, and the one in effect when the Gregorys sent in their Forms 2848 and 4868, was Rev. Proc. 2010-16, which explicitly excludes Forms 2848 and 4868 from acceptable methods of “clear and concise” notice. 

The IRS, in its trial briefing, argued that the treasury regulation, and by extension Rev. Proc. 2010-16, should be given judicial deference and disqualify the Gregorys’ use of these forms to give clear and concise notice.  While declining to state that it was bound by Rev. Proc. 2010-16, the Tax Court found that the instructions to Forms 2848 and 4868, which state that those forms shall not be used for change of address purposes, made it reasonable for the IRS to assume that the Gregorys’ last known address was the one present on their last filed tax return.  The Court made no mention of the CPA’s testimony that he had also directly told the revenue agent by phone that the Gregorys had moved.

In their appeal, the Gregorys first argued that, because Forms 2848 and 4868 ask for a taxpayer’s address, it is reasonable to assume the IRS will process that information, especially given the government’s integrated computing systems.  However, even if the Court were to find that those forms were not clear and concise notice as a matter of law, the Gregorys argued that it should analyze the specific facts and circumstances of their case to evaluate whether the IRS actually had notice of the Gregorys’ address and not give any deference to the strict rules of either the form instructions or the revenue procedure.  Their briefs argued that the clear trajectory of both tax court and circuit court case law favored an expansive reading of last known address. This is because of the serious consequences to the taxpayer should they not receive their notice of deficiency and thus lose their chance to enter the Tax Court.

The Third Circuit has followed this expansive reading.  While declining to rule that Forms 2848 and 4868 are clear and concise notice of a change of address as a matter of law, it did find that the proper inquiry into clear and concise notice was what the IRS knew, or should have known, at the time it sent out the notice of deficiency.  Per the opinion:

“…courts have required the IRS to use “reasonable diligence” to determine a taxpayer’s last known address.  This reasonable diligence requirement “is rooted in equity.”   Reasonable diligence is measured by what “the IRS knew or should have known at the time it sent the [n]otice” of deficiency, including information it should know “through the use of its computer system.””

In the case of the Gregorys, not only had they sent in the new address on Forms 2848 and 4868, but their CPA was in direct contact with an individual revenue agent once the two Forms 2848 were successfully processed.  The Third Circuit also found it relevant that the CPA told the revenue agent about the new address, a fact omitted by the Tax Court.  By weighing these circumstances, the Third Circuit affirmed the principle that the IRS cannot simply ignore what it knows.  Actual knowledge counts and while taxpayers would be wise to follow IRS procedures for a change of address, practitioners should not shy away from pushing forward cases where circumstances may present a valid argument that the IRS failed to act on a known change of address. 

My IRS Wishlist for 2021 – Part 1: The mail and return processing backlog

We begin a new year with the IRS pulling off another near-miraculous feat of issuing the second round of COVID-relief stimulus payments almost simultaneously with the President’s signing of the authorizing legislation.  I thought it might be a good time to make up a list of wishes I have regarding tax administration for 2021.  My list has a heavy emphasis on the role the IRS plays in the economic health of our nation; that it is a very major role should be clear to everyone who hasn’t lived under a rock this past year.

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But before I launch into my list, let me do some level setting.  Deep in irs.gov is an interesting webpage IRS Operations during COVID-19: Mission-critical functions continue.  This page is updated periodically with information about the status of return processing, check payment processing, mailing of notices, Power of Attorney processing, and many other items.  Everyone practicing in the field of tax should bookmark this page.

On this page, the IRS informs us that as of November 24, 2020, it had 7.1 million unprocessed individual tax returns and 2.3 million unprocessed business returns in its backlogged mail.  This is an unprecedented number of 2019 returns that have not been processed by the end of the year, and the situation appears to have gotten worse, rather than better, as the year went on.  According to the National Taxpayer Advocate, as of September 19, 2020, the IRS backlog was about 5.8 million pieces of mail, including 2.8 million tax returns.  The IRS says it “expects to issue all refunds for 2019 individual tax returns in 2020 where there are no issues with the return.  For refunds that cannot be issued in 2020 because the tax return is being corrected, reviewed or awaiting correspondence from a taxpayer, the refund will be issued as a paper check in 2021 per our normal processes.”  [Emphasis added.]

Now it is not clear to me why, in the 21st century, the IRS can’t make direct deposits of tax refunds after the filing season for that tax year has passed, e.g., for amended returns that result in a refund.  Maybe it is some programming rule in the submission processing pipeline, or maybe it isn’t the IRS’s problem but some issue with the Bureau of Fiscal Services.  But the problem in the COVID-economy is that many of these taxpayers who filed a 2019 return that has not been processed in 2020 will have moved – even if they aren’t evicted, they may move to less expensive housing, or they may move in with relatives, or they may have become homeless.  So not only will these taxpayers not get a direct deposit, but the paper check, once mailed, will be returned to the IRS.  Taxpayers won’t know anything about this unless they keep checking the “Where’s my refund?” website – the IRS says if a refund check is returned, an option will pop up on that website that allows the taxpayer to enter a change of address.  But even after you enter your address, the check will be mailed yet again, with all the attendant postal service delays. 

So here’s my first wish for 2021: 

The IRS should create a mobile-friendly, multi-lingual digital application for taxpayers to change their address; this application should require only two-factor authentication.

I will save for another day my tirade about the archaic revenue procedure that governs when the IRS is considered to be notified of the taxpayer’s last known address.  I note Keith’s PT post about the Gregory case, in which Keith and his students prevailed against the government on this issue.  It is unconscionable in the 21st century that the IRS should be routinely given 45 days from the date of posting a return to be considered notified of an address change.  Here’s what Rev. Proc. 2010-16 says:

Returns that are not filed in a processible form may require additional processing time.  If additional processing time is required, the 45-day processing period for address changes will begin the day after the error that caused the return to be unprocessible is corrected.

The 2019 return processing delays make glaringly clear the harmful impact of provision and the lack of a quick digital means to update one’s address.  And yes, I know there are legitimate concerns about fraudulent address changes; that is an issue that can be addressed as part of the programming.  But such concerns should not be an obstacle to creating an application that would be available to most, if not all, taxpayers.

Mail delays and my second wish

Now let’s get back to this mail backlog.  The IRS webpage references 2019 returns that have been flagged for further correction, review or taxpayer correspondence (by mail?????).  It states that “[i]f we need more information or need you to verify that it was you who sent the tax return, we will write you a letter.  The resolution of these issues depends on how quickly and accurately you respond, and the IRS staff trained and working under social distancing requirements to complete the processing of your return.”  Now of course, if the taxpayer responds quickly and accurately via the U.S. Postal Service, that response will be sitting in a pile along with the millions of other documents not processed.  The IRS COVID operations website says the IRS is opening mail within 40 days of arrival and is taking 60 days to process (on a first-come, first-served basis).

The Taxpayer Advocate Service has reported that even in “normal” times, the IRS non-identity theft refund fraud filters result in high false positive rates (i.e., the frozen return/refund was actually legitimate) of 81 percent for the period from January 1 to October 3, 2018, and 71 percent from January 1, to October 2, 2019.  [See 2019 NTA Annual Report to Congress, p. 39.]  TAS analysis found that over 75 percent of their cases involving wage verification received in the last week of August, 2019, “waited an average of 141 days from the return filing date for the IRS to screen and determine that it could not verify the information on the returns.  As of October 1, 2019, the IRS had only assigned 36% of those returns to a particular treatment stream for resolution.”  [2019 NTA Annual Report to Congress,  p. 40]

Thus, even before the pandemic, for many taxpayers, the IRS refund resolution processes were overwhelmed and not working.  Can we only imagine what is happening today?  We have not seen the numbers for these returns for the period from January 1 to October 1, 2020 (or December 31, for that matter), but I am willing to bet the backlog is … huge.

Now, what is going to happen to all these taxpayers whose 2019 returns are unprocessed?  First of all, they won’t receive the $600 COVID-relief payments.  Second, when they file their 2020 returns, it is very likely that these returns, too, will be flagged because their 2019 returns have unresolved issues.  This means that two years of refunds, and two rounds of stimulus payments will be frozen.  In. The. Midst. Of. A. Pandemic.

I know the IRS has been working full-tilt trying to get through this nightmare.  But the taxpayers of the United States deserve much more transparency and better information than we are receiving.  We need to know whether the employees who are working in the questionable refund programs are actually working – that is, have they received laptops so they can telework?  Or are there parts of their jobs that require them to be physically present in IRS offices, as the submission processing employees must be?

Which leads me to my second wish for the IRS in 2021:

The Federal government should classify IRS workers whose jobs are related to return and correspondence processing as essential workers and arrange for them to receive the COVID-19 vaccine with the same priority as front-line workers (i.e., after health care workers and nursing homes).

The government can do this – and it should.  I am sure there are many other federal employees in other government agencies who should also be prioritized in this way (umm … meat inspectors in meat processing plants?).  They, too, should be prioritized to receive the vaccine.  But as I said earlier, the IRS’s issuance of tax refunds and stimulus payments in 2020 and refunds and the recovery rebate credits in the 2021 filing season are vital to the economic recovery of hundreds of millions of taxpayers throughout the United States.  To assist that recovery, we need an IRS workforce that is able to do its job.  For it to do its job with the speed and urgency this crisis requires, IRS employees involved in return and correspondence processing and resolution should be prioritized for vaccination.  I hope the incoming Administration makes this a priority.  The taxpayers of the United States will be grateful.

Last Known Address Taxpayer Victory

Yesterday, the Third Circuit reversed the Tax Court precedential opinion in Gregory v. Commissioner, 152 T.C. No. 7 (2019).  The decision provides a complete victory for the Gregorys but a less complete victory for all taxpayers.  The Third Circuit’s seven- page opinion is not precedential and relies heavily on the specific facts present in the Gregory case.  Still, in overturning the Tax Court’s precedential opinion the decision calls into question the IRS effort to change long-standing case law and its own practice via a revenue procedure.  The decision offers the IRS the chance to rethink its administrative practice.  It might cause the Tax Court to rethink its precedential opinion should another last known address case make its way to the Court. 

We have previously written about this case here and here.  You can read the prior post or the opinion to get the facts.  The Tax Clinic at the Legal Services Center of Harvard argued this case on appeal.  The briefs are here, here and here.  We are excited for our clients.  Oliver Roberts, the student who argued the case, did a fantastic job.  You can hear the argument here and Oliver’s recap here.  We will have a longer post on the case later.

Assessment Statute Extension under 6501(c)(8); Changes of Address; and Lessons for Counsel – Designated Orders: December 9 – 13, 2019

My apologies for this delayed post; I had my head so buried in the Designated Orders statistics from our panel at the ABA Tax Section’s Midyear Meeting that I neglected the substantive orders from December. Worry no longer: here are the orders from December 9 – 13. Not discussed in depth is an order from Judge Guy granting Respondent’s motion for summary judgment in a routine CDP case, along with an order from Judge Gustafson sorting out various discovery disputes in Lamprecht, Docket No. 14410-15, which has appeared in designated orders now for the seventh time. Bill and Caleb covered earlier orders here and here.

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As I mentioned during the panel, Designated Orders often resolve difficult, substantive issues on the merits. These orders are no exception. There were two cases that dealt with the deductibility of conservation easements. (Really, there were four dockets resulting in an order disposing of petitioner’s motion for summary judgment from Judge Buch, and one case resulting in a bench opinion from Judge Gustafson.) I’m not going to get into the substance of conservation easements, as clients in a low income taxpayer clinic seldom run afoul of these rules. Interestingly, this is also the first time we’ve seen a bench opinion in a TEFRA case—at least one that was also a designated order.

I must wonder, however, whether the Court strikes the appropriate balance in resolving substantively complex cases, on the merits, in either manner. While neither Judge Buch’s order nor Judge Gustafson’s bench opinion could have been entered as a Tax Court division opinion—as far as I can tell, they do not break any new ground—they could both easily qualify as memorandum opinions. As a practitioner, I find value in the ability to research cases that appear in reporters—precedential or otherwise. Relegating these cases to the relatively unsophisticated search functions found on the Tax Court’s website often makes it quite difficult to efficiently conduct case research.

Perhaps the Court’s new electronic system in July will remedy some of these issues. Nevertheless, any solution that doesn’t integrate with the systems that practitioners utilize to conduct case research—namely, reporters and the third-party services that catalogue and analyze the cases issued in those reporters—strikes me as inferior.

I fully understand and appreciate the value that the Court and individual judges place on efficiently resolving cases; that is no minor concern. I’ve been informed that issuing a memorandum opinion, as opposed to resolving a case through an order or bench opinion, can tack on months to the case.

But individual judges and the Court as an institution ought to carefully consider (1) whether the Court suffers from systemic problems in efficiently issuing memorandum opinions (and whether anything can be done to remedy these problems) and (2) whether the efficiency concern outweighs practitioners’ and the public’s interest in effective access to the Court’s opinions. 

More to come on this point in future posts. But for now, let’s turn to this week’s orders.

Docket No. 13400-18, Fairbank v. C.I.R. (Order Here)

First, a foray into the world of foreign account reporting responsibilities, which Megan Brackney ably covered in this three part series in January. Here, the focus lies not on the penalties themselves, but on another consequence of failing to comply with foreign account reporting requirements: the extension to the assessment statute of limitations under section 6501(c)(8).

Petitioner filed a motion for summary judgment in this deficiency case, on the grounds that the statute of limitations on assessment had long since passed. Petitioners timely filed returns for all of the tax years at issue, but the Service issued a Notice of Deficiency for tax years 2003 to 2011 on April 12, 2018—long after the usual 3 year statute of limitations under section 6501(a).

But this case involves allegations that the Petitioners hid their income in unreported foreign bank accounts. And section 6501(c)(8) provides an exception to the general assessment statute where a taxpayer must report information to the IRS under a litany of sections relating to foreign assets, income, or transfers. If applicable, the assessment statute will not expire until 3 years after the taxpayer properly reports such information to the IRS.

The statute applies to “any tax imposed by this title with respect to any tax return, event, or period to which such information relates . . . .” This appears to be the same sort of broad authority in the 6 year statute of limitations (“the tax may be assessed . . . .”) that the Tax Court found to allow the Service to assess additional tax for the year in question, even if it didn’t relate to the underlying item that caused the statute extension. See Colestock v. Commissioner, 102 T.C. 380 (1994). While the Tax Court hasn’t explicitly ruled on this question, it is likely that it would reach a similar conclusion for this statute.  

Respondent claimed that Ms. Fairbank was a beneficial owner of a foreign trust, Xavana Establishment, from 2003 to 2009, and thus had a reporting requirement under section 6048—one of the operative sections to which 6501(c)(8) applies. Further, for 2009 and 2011, Respondent claimed that Ms. Fairbank was a shareholder of a foreign corporation, Xong Services, Inc.—again triggering a reporting requirement under section 6038 and a potential statute extension under 6501(c)(8). Respondent finally claimed that Ms. Fairbank didn’t satisfy these reporting requirements for Xong Services until June 18, 2015—thus the April 12, 2018 notice would have been timely. Moreover, Respondent claimed, Ms. Fairbank hadn’t satisfied the reporting requirements for Xavana Establishment at all.

It’s important to pause here to note that the reporting requirements under sections 6048 and 6038 are separate from the FBAR reports required under Title 31. While the Petitioners filed an FBAR report for Xong Services, they seem to argue that this filing alone satisfies their general reporting requirements for this interest. That’s just not true; foreign trusts and foreign corporations have independent reporting requirements under the Code, under sections 6048 and 6038, respectively. Specifically, Petitioners needed to file Form 3520 or 3520-A for their foreign trust; they needed to file Form 5471 for their interest in a foreign corporation. And it is failure to comply with these reporting requirements that triggers the assessment statute extension under section 6501(c)(8)—not the failure to file an FBAR (which, of course, would have its own consequences). 

Petitioners claimed that they had, in fact, satisfied all reporting requirements for Xavana Establishment at a meeting with a Revenue Agent on July 18, 2012. But it seems that the Petitioner’s didn’t submit any documentation, such as a submitted Form 3520, to substantiate this. As noted above, they further claim the FBAR filed for Xong Services in 2014 satisfied their reporting requirements. Respondent disagreed, but did allow that the reporting requirements were satisfied later in 2015 when Petitioners filed the Form 5471. 

Because Petitioner couldn’t show that they had complied with the 6038 and 6048 reporting requirements quickly enough to cause the assessment statute to expire, they likewise couldn’t show on summary judgment that the undisputed material facts entitled them to judgment as a matter of law. Indeed, many of the operative facts here remain disputed. Thus, Judge Buch denies summary judgment for the Fairbanks, and the case will proceed towards trial.

Docket No. 9469-16L, Marineau v. C.I.R. (Order Here)

This case is a blast from the past, hailing from the early days of our Designated Orders project in 2017. Both Bill Schmidt and I covered this case previously (here and here). Presently, this CDP case was submitted to Judge Buch on cross motions for summary judgment. Ultimately, Judge Buch rules for Respondent and allows the Service to proceed with collection of this 2012 income tax liability. 

They say that 80% of life is simply showing up. Petitioner had many chances to show up, but failed to take advantage of them here. Petitioner didn’t file a return for 2012; the Service sent him a notice of deficiency. While Petitioner stated in Tax Court that he didn’t receive the notice, he didn’t raise this issue (or any issue) at his first CDP hearing.

Nonetheless, the Tax Court remanded the case so he could raise underlying liability, on the theory that he didn’t receive the notice of deficiency and could therefore raise the underlying liability under IRC § 6330(c)(2)(B)—but Petitioner didn’t participate in that supplemental hearing either!

Back at the Tax Court again, Petitioner argued that not only did he not receive the notice of deficiency, but that it was not sent to his last known address. This would invalidate the notice and Respondent’s assessment. The validity of the notice also isn’t an issue relating to the underlying liability; rather, this is a verification requirement under IRC § 6330(c)(1). So, if the Settlement Officer failed to verify this fact, the Tax Court can step in and fix this mistake under its abuse of discretion standard of review.

Petitioner changed his address via a Form 8822 in 2014 to his address in Pensacola. On June 8, 2015, he submitted a letter to the IRS national office in Washington, D.C., which purported to change his address to Fraser, Michigan. The letter contained his old address, new address, his name, and his signature—but did not include his middle name or taxpayer identification number. The IRS received that letter on June 15.

The Tax Court recently issued Judge Buch’s opinion in Gregory v. Commissioner, which held that neither an IRS power of attorney (Form 2848) nor an automatic extension of time to file (Form 4868) were effective to change a taxpayer’s last known address. We covered Gregory here. (Keith notes that the Harvard clinic has taken the Gregory case on appeal.  The briefing is now done and the case will be argued in the 3rd Circuit the week of April 14 by one of the Harvard clinic’s students.) Similarly, Judge Buch deals in this order with what constitutes “clear and concise” notification to the Service of a taxpayer’s change of address.

Judge Buch held that Petitioner didn’t effectively change his address. Under Revenue Procedure 2010-16, a taxpayer must list their full name, old address, new address, and taxpayer identification number on a signed request to change address. Taxpayers do not have to use Form 8822 in order to change their address, but this form contains all the required information to do so under the Rev. Proc. Because Petitioner failed to include his middle name and taxpayer identification number, the letter was ineffective.

Judge Buch ultimately holds that the letter was ineffective because the IRS received the letter on June 15—three days before the NOD was issued. The Rev. Proc. provides that a taxpayer’s address only changes 45 days after the proper IRS offices receives a proper change of address request. The national office is not the proper office; even if it was, the IRS only had three days to process the request prior to sending out the NOD. The lesson here is that if you know a NOD is coming, you can’t quickly trick the IRS into sending it to the wrong

If that wasn’t enough, Petitioner argued that because the USPS rerouted the NOD to a forwarding address in Roseville, Michigan, the NOD should be invalidated. However, the NOD was valid because Respondent send it, in the first instance, to Petitioner’s last known address prior to any subsequent rerouting.

There being no issue with the NOD’s validity—and because Petitioner didn’t participate in the supplemental hearing—Judge Buch granted Respondent’s motion and allowed the Service to proceed with collections.

Docket Nos. 12357-16, 16168-17, Provitola v. C.I.R. (Orders Here & Here)

The Court seems a little frustrated with Respondent’s counsel in this case. These orders highlight a few foot-faults that counsel—whether for Respondent or Petitioner—ought to be careful not to make.

This case is also a repeat player in designated orders; previous order include Petitioners’ motion for summary judgment from Judge Leyden here and Petitioners’ motion for a protective order here, which I made passing mention of in a prior designated order post.

Regarding the present orders, the first order addresses Respondent’s motion in limine, which asked that the Court “exclude all facts, evidence, and testimony not related to the circular flow of funds between petitioners, their Schedule C entity, and petitioner Anthony I. Provitola’s law practice.” Judge Buch characterizes this as a motion to preclude evidence inconsistent with Respondent’s theory of the case—i.e., that the Schedule C entity constituted a legitimate, for profit business. That doesn’t fly for Judge Buch, and he accordingly denies the motion.

He then takes Respondent to task for suggesting that “The Court ordinarily declines to consider and rely on self-serving testimony.” I’m just going to quote Judge Buch in full, as his response speaks for itself:

The canard that Courts disregard self-serving testimony is simply false. We disregard self-serving testimony when there is some demonstrable flaw or when the witness does not appear credible. If we were to disregard testimony merely because it is self-serving, we would disregard the testimony of every petitioner who testifies in furtherance of their own case and of all the revenue agents or collections officers who testify that they do their jobs properly, because that testimony would also be self-serving.

Ouch. In general though, I appreciate Judge Buch’s statement.  I recall being mildly annoyed reading court opinions that disregard a witness’s testimony because it was “self-serving.” For all the reasons Judge Buch notes, quite a lot of testimony will be self-serving. That’s not, without more, a reason to diminish the value of the testimony. It’s certainly not a reason to prohibit the testimony through a motion in limine. 

The second motion was entitled Respondent’s “unopposed motion to use electronic equipment in the courtroom.” (emphasis added). Apparently, the courthouse in Jacksonville has some systemic issues in allowing courts and counsel access to electronic equipment. Of what kind, the order does not make clear, though many district courts or courts of appeals where the Tax Court sits limit electronic equipment such as cell phones, tape recorders, and other devices that litigants may wish to bring as evidence to court. IRS counsel is likely the best source of knowledge on such restrictions; here, Judge Buch notes that the Court’s already taken care of these matters on a systemic basis for the upcoming trial session.

But Respondent’s counsel again makes a foot-fault here that draws an avoidable rebuke from Judge Buch. Respondent noted in his motion that he “called petitioners to determine their views on this motion, and left a voicemail message. Petitioners did not return this call as of the date of the motion, and as a result, petitioners’ views on this motion are unknown.” 

That’s not an unopposed motion! In Judge Buch’s words again, “The title of the motion (characterizing [it] as “unopposed”) is either misleading or false. . . . Consistent with Rule 50(a), we will treat the motion as opposed.”

Of course, because the Court had already resolved the issue with electronic equipment, Judge Buch denies the motion as moot.

Trial was held on 12/16 and 12/17. Judge Buch issued a bench opinion that held for Respondent, and designated the order transmitting the bench opinion on January 27. That’s Caleb’s week, so I’ll leave it to him to cover the underlying opinion.

Review of 2019 (Part 4)

In the last two weeks of 2019 we are running material which we have primarily covered during the year but which discusses the important developments during this year.  As we reflect on what has transpired during the year, let’s also think about how we can improve the tax procedure process going forward.

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Qualified offers

In BASR Partnership et al. v. United States, a tax matters partners submitted a nominal $1 qualified offer to the IRS, prevailed at summary judgment, and then successfully moved for award of litigation costs under IRC 7430. Upon appeal to the Federal Circuit, the government argued against the award, asserting, among other things, that the award was abuse of discretion because the nominal offer was not a good faith attempt at settlement. Despite the partnership context, the case has implications for low-income taxpayers, who often utilize nominal qualified offers in frozen refund litigation. If the court accepted the government’s argument, it might cost doubt on the validity of nominal qualified offers and lead to further government arguments in the low-income taxpayer context. However, the court ruled for the taxpayer, holding that the nominal qualified offer was reasonable and the award was not an abuse of discretion.  The tax clinics at Georgia State and at the Legal Services Center of Harvard Law School filed an amicus brief in this case on behalf of BASR.

See Ted Afield, Nominal Qualified Offers and TEFRA, Procedurally Taxing (Feb. 25, 2019), https://procedurallytaxing.com/nominal-qualified-offers-and-tefra/

TBOR

Another important issue is the use of the Taxpayer Bill of Rights in litigation. In Moya v. Commissioner, the Tax Court rejected the taxpayer’s TBOR-based argument in a deficiency case, looking to the history of the TBOR to find that it “accords taxpayers no rights they did not already possess”. The Tax Court may soon face such arguments outside the deficiency context and could rule differently. While thus far, the TBOR has not proven a strong support for taxpayers’ arguments, it will hopefully spur new, more taxpayer-protective changes to regulations and subregulatory guidance.

Keith Fogg, NEO – A Series of Reflections, Procedurally Taxing (July 8, 2019), https://procedurallytaxing.com/neo-a-series-of-reflections/

Keith Fogg, TBOR Provides no Relief in Tax Court Deficiency Proceeding, Procedurally Taxing (May 13, 2019), https://procedurallytaxing.com/tbor-provides-no-relief-in-tax-court-deficiency-proceeding/

Miscellaneous

Litigation of merits in bankruptcy

In Bush v. United States, the 7th Circuit addressed whether a bankruptcy court has jurisdiction to determine a debtors’ tax liability. The 7th Circuit found in the affirmative, determining that the bankruptcy court did have jurisdiction, but found that the court had no reason do so over the Tax Court, where the appellants had originally litigated the separate question of the tax liability. The 7th Circuit’s decision favors taxpayers who may have already lost (or never had in the first place) their statutory right to go to Tax Court, by providing another legal avenue for a redetermination of tax liability.

See Keith Fogg, New Circuit Precedent on Issue of Litigating Tax Merits in Bankruptcy, Procedurally Taxing (Oct. 18, 2019), https://procedurallytaxing.com/new-circuit-precedent-on-issue-of-litigating-tax-merits-in-bankruptcy/

Late e-filed returns and reliance

Generally, taxpayers cannot avoid assessment of a late-filing penalty due to reliance upon a third-party preparer, per the 1985 case United States v. Boyle. Courts have recently begun to address whether this applies to e-filing of tax returns. In Intress v. United States, the taxpayers made the argument that a late filing penalty was inappropriate, because the late filing was due to their tax preparer failing to hit ‘send’ when filing through e-file software. However, the district court was unconvinced, applying Boyle to the e-filing context and rejecting taxpayers’ attempt to avoid the penalty. Nevertheless, as e-filing becomes the dominant form of tax return filing, this issue may increasingly be litigated.

See Keith Fogg, Reliance on Preparer Does Not Excuse Late E-Filing of Return, Procedurally Taxing (Sep. 4, 2019), https://procedurallytaxing.com/reliance-on-preparer-does-not-excuse-late-e-filing-of-return/

Leslie Book, Update on Haynes v US: Fifth Circuit Remands and Punts on Whether Boyle Applies in E-Filing Cases, Procedurally Taxing (Feb. 12, 2019), https://procedurallytaxing.com/update-on-haynes-v-us-fifth-circuit-remands-and-punts-on-whether-boyle-applies-in-e-filing-cases/

Passport revocation

Passport revocation is expected to be an increasingly utilized and contested IRS enforcement technique. In July 2019, the IRS released a revision to the Internal Revenue Manual (5.1.12) that provides guidance on the passport decertification process. Currently, taxpayers with tax debts in excess of $50,000 (and satisfy other criteria listed in the IRM) are considered to have “seriously delinquent tax debts”, which can result in certification of the debt to the State Department. Taxpayers with such debts will eventually receive notices, which carry a right of appeal to the Tax Court or U.S. District Court. The IRM revision details these processes, as well as the process of reversing a passport certification to the State Department.

See Nancy Rossner, IRM Changes to Passport Decertification and Revocation Procedures, Procedurally Taxing (Aug. 27, 2019), https://procedurallytaxing.com/irm-changes-to-passport-decertification-and-revocation-procedures/

Fraud by return preparer

Another potential issue for future litigation is the question of whether tax return preparer fraud triggers the fraud exception to the three-year statute of limitations for assessment. In the most recent instance, Finnegan v. Commissioner, the 11th Circuit briefly addressed the issue but ended up ruling that the taxpayers had failed to preserve the issue for appeal. In 2015, the Federal Circuit addressed the question in a similar case, BASR Partnership v. United States, and found that the fraud exception is not triggered by third party fraud and only applies when the actual taxpayer acts with “intent to evade tax”. The Tax Court, meanwhile, has held to its ruling in Allen v. Commissioner, which held that a fraudulent return triggers the fraud exception, regardless if the taxpayer had the requisite intent or not.

See Keith Fogg, 11th Circuit Affirms Tax Court Decision Regarding Fraud by Preparer, Procedurally Taxing (July 22, 2019), https://procedurallytaxing.com/11th-circuit-affirms-tax-court-decision-regarding-fraud-by-preparer/

Last known address

Another recently litigated question is whether filing a Form 2848 with a new taxpayer address is sufficient to put the IRS on notice of the taxpayer’s last known address. In Gregory v. Commissioner, the taxpayers submitted a new 2848 and a 4868 extension request with their new address, but the IRS did not adjust its records and issued a subsequent notice of deficiency to the taxpayer’s old address. The Tax Court looked to the applicable regulation, 301.6212-2, which defines “last known address” as “the address that appears on the taxpayer’s most recently filed and properly processed Federal tax return”. The Tax Court then found that neither the 2848 nor 4868 constituted a “return” under the regulatory definition and thus did not give notice. The court then proceeded to analyze whether the forms gave “clear and concise notice” of the address change, finding that they did not, in part because both included disclaimers that their filing will not change last known address. The taxpayers have appealed to the 3rd Circuit and are now represented by the tax clinic at the Legal Services Center of Harvard Law School.  The opening brief for the Appellant was filed on November 20.

See Keith Fogg, Tax Court Holds Power of Attorney Form Inadequate to Change a Taxpayer’s Address, Procedurally Taxing (Apr. 2, 2019), https://procedurallytaxing.com/tax-court-holds-power-of-attorney-form-inadequate-to-change-a-taxpayers-address/

Proving Clear and Concise Notification of New Address

Because of the importance of the last known address in so many documents that the IRS mails, the rules surrounding the determination of the last known address have outsized significance.  The mundane act of notifying the IRS of a new address takes on overriding importance when it becomes the difference between owing and not owing a large tax liability.  Today’s post was brought to my attention and largely framed by Carl Smith.

In an unpublished opinion, the Fifth Circuit, in Williams v. Commissioner, dodged the issue of whether the applicable Revenue Procedure created to enhance the guidance in the regulation under IRC 6212 gives an automatic 45 days after a change of address notice is given to the IRS to reset the last known address.  Williams brought a Collection Due Process (CDP) case arguing that he did not receive the Statutory Notice of Deficiency (SNOD) because he had moved.  He argued that prior to the move he had properly (or at least sufficiently) advised the IRS of the move such that it should have used his new address rather than his old one in mailing him the SNOD.  The failure to receive the SNOD could qualify him to litigate the merits of the underlying liability in the CDP case or, even better, it could cause the SNOD to be invalid which would cause the assessment against him to go away and, depending on the status of the statute of limitations, might cause him to completely win the case if the statute has now expired. 

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Mr. Williams produced a letter addressed to the National Office in which he informed the IRS of a change of address sent prior to the mailing of the SNOD.  However, he has two problems: (1) he could show no proof that the letter was mailed, and (2) the National Office is not the proper place to send such a letter.  Below is the entire opinion of the Fifth Circuit on the last known address decision (sans footnotes):

Whether a notice of deficiency is sent to a taxpayer’s last known address is a question of fact we review for clear error. If the IRS fails to properly mail a deficiency notice, any subsequent assessment or collection of the deficiency is invalid. Conversely, if the notice is properly mailed, 26 U.S.C. § 6212 does not require receipt of the notice for it to be valid. Code § 6212(b) provides that a notice of deficiency, “if mailed to the taxpayer at his last known address, shall be sufficient.” The phrase “last known address” is a term of art defined by Treasury Regulations as “the address that appears on the taxpayer’s most recently filed and properly processed Federal tax return, unless the [IRS] is given clear and concise notification of a different address.” The regulations in turn reference Revenue Procedure 90-18 or any subsequent procedures promulgated by the IRS as describing the proper procedure to inform it of a change of address. The IRS must also exercise reasonable diligence to determine the taxpayer’s last known address in light of all relevant circumstances. The proper inquiry for reasonable diligence examines the facts the IRS knew or should have known at the time it sent the notice.
 
The question before this court is whether Williams had delivered a “clear and concise” notification to the IRS prior to the November 12, 2014 Notice of Deficiency, indicating that he wished his last known address to be the Bedford P.O. Box. The Revenue Procedure in effect at the time provided that taxpayers could update their address (1) electronically through the IRS website, using Form 8822, Change of Address; (2) by written communication to the service center serving the old address; (3) by written communication in response to communications by an IRS agent; or (4) orally by informing an employee who has access to the Service Master File.
 
Officer West refused to consider the October 1, 2014 notification because it did not include proof of mailing. The Tax Court acknowledged that Williams must have sent some notification of change of address because the IRS mailed subsequent notices to the Bedford P.O. Box in 2015. However, the letter was not addressed to any of the departments of the IRS identified in the Revenue Procedure. Assuming Williams mailed the letter on October 1, that was only 43 days before the Notice of Deficiency, not the 45 days described by the Revenue Procedure.
 
In Ward v. Commissioner, we previously held that the IRS did not exercise reasonable diligence in determining the taxpayer’s last known address when it did not comply with the change-of-address notification mailed 15 days prior to the notice of deficiency. In that case, the IRS acknowledged receipt of the change-of-address notification and there was no doubt as to when it was received by the IRS. We agreed that the IRS is entitled to a reasonable time to process notifications of change of address from taxpayers but also held that the IRS did not exercise reasonable diligence in that case. That decision predated the regulations and Revenue Procedure on which the Commissioner relies, but we have subsequently applied the “reasonable diligence” requirement. Regardless, Ward is distinguishable because in this case, it is not clear when the IRS received Williams’s letter.


We need not decide whether the Commissioner is automatically entitled to 45 days to process a change-of-address notification based on its Revenue Procedure or whether the regulations and Revenue Procedure entitle the IRS to more time to process notifications. There is doubt as to when Williams mailed his clear and concise notice of change of address. Officer West did not act arbitrarily or capriciously when she found Williams’s evidence insufficient. Accordingly, the Tax Court did not err in affirming the IRS Office of Appeals’ decision and there is not sufficient evidence to overturn the Tax Court’s finding that Williams’s last known address had not changed by November 12, 2014.

In a twist on the normal situation in which a taxpayer seeks to put in evidence not contained in the administrative record, Williams also argued the Tax Court should not have taken evidence beyond the administrative record.  This is the Robinette issue (although the court doesn’t cite Robinette).  The Fifth Circuit declines to issue a ruling on that question because the administrative record alone contained enough, in its view, for the Tax Court to have ruled against the taxpayer.

The case presents an interesting issue regarding notice to the IRS and deference to the Revenue Procedure, but the decision ultimately rests on the absence of information regarding the timing of the mailing of the change of address to the IRS and whether it was ever mailed.  Although it did not turn on the place of mailing the address change to the IRS, that too would make a difference.  The Fifth Circuit seems willing to consider facts that would support a conclusion the IRS had enough information at the time it sent the SNOD to require it to update Williams address; however, the court cannot get past the lack of information in the record regarding when the IRS found out.  The Tax Court made a statement in Gregory v. Commissioner, 152 T.C. No. 7 (2019) that it will follow the regulation and the subsequent published subregulatory guidance on the last known address, as discussed in a post here.  The Fifth Circuit does not signal that it will follow the subregulatory guidance; however, it does signal that the IRS needs fair notice, and the taxpayer has the burden to prove that the IRS received fair notice of the change in address.

Sanctions, Converted Items Confusion and More, Designated Orders: October 14, 2019 – October 25, 2019

Only one order was designated during Patrick Thomas’s week, the week of October 14, 2019, and two during mine, the week of October 21, 2019. As a result, this is a joint post from Patrick and me covering both weeks. It begins with Patrick’s coverage of the one order designated during his week.

Docket  No. 12646-19, Brown v. C.I.R. (Order Here)

This short order displays the power of the Tax Court to sanction taxpayers who raise frivolous arguments or institute proceedings in the Court merely for purposes of delay. The Tax Court has a busy docket, handling approximately 25,000 new cases each year. Frivolous claims and proceedings instituted merely for purposes of delay clog that docket, at the expense of taxpayers who have legitimate disputes with the Service.

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This case deals with Petitioner’s 2008 federal income taxes—with a petition filed on July 9, 2019. Given that timing, Respondent unsurprisingly filed a motion to dismiss for lack of jurisdiction, presumably arguing that Petitioner failed to file the petition within 90 days of the notice of deficiency.

The Petitioner in Brown had previously filed three cases in the Tax Court. In Docket 7375-18, he failed to pay the Court’s filing fee, and the case was accordingly dismissed. In Docket 4754-19, he raised a constitutional challenge to paying the filing fee, which the Court swiftly disposed of; constitutional challenges to the payment of filing fees are rarely successful. And after all, if Petitioner had a financial inability to pay the fee, the Tax Court provides a remedy through the fee waiver application. 

Finally, in a case entitled “Estate of Ernest Richard Brown v. Commissioner”, at Docket 12335-11, the Court likewise dismissed the case due to failure to pay the fee and to properly prosecute the case.

Judge Carluzzo, in the present order in Docket 12646-19, notes that “a copy of the notice of deficiency [for 2008] is attached to the petition filed May 24, 2011,” but that in the present case, Petitioner denied ever receiving the notice. Accordingly, he regards that allegation as “patently false”.

Accordingly, Judge Carluzzo not only grants Respondent’s motion to dismiss, but also imposes a $500 penalty for the “frivolous pleading” in this case. I’m not sure if this low amount will dissuade Petitioner from continuing to challenge the liability. But as we’ve seen before, further frivolous proceedings will only lead to escalating penalties. And while the 6673 penalty is limited to $25,000, the penalty is imposed on any “proceedings” instituted before the Court—suggesting that the penalty could exceed $25,000 if Petitioner continues to file frivolous pleadings.

Docket Nos. 1143-05, 1144-05,1145-05, 1334-06,1335-06, 1504-06, 20673-09, 20674-09, 20675-09, 20676-09, 20677-09, 20678-09, 20679-09, 20680-09, 20681-09, David B. Greenburg, et. al. v. C.I.R. (Order Here)

This order involves a long-running consolidated, in-part TEFRA-related and in-part-deficiency-related case. It previously had orders designated during my week in September, which I didn’t specifically address, but now feel is unavoidable.

I must admit its significance is a bit lost on me – likely because it lives (somewhat) in the world of partnerships and TEFRA. 

The case was already heard, decided (the opinion is here) and is in the computation stage, but the petitioners moved the Court to dismiss the case for lack of jurisdiction in August and the Court addressed- and denied – the motion. This most recent order was filed in October and asks the Court to reconsider that denial. 

The October motion reiterates the arguments in the August motion, which seem to also be arguments that were addressed in the opinion (but with more focus on an issue with the partnership’s TEFRA election).

So what is it that petitioners keep arguing about? The IRS had sent notice to the petitioners about converting certain specified items into non-partnership items as result of a criminal investigation. This is permitted by section 6231(c)(1)(B). Once the items are converted, they are subject to deficiency proceedings rather than TEFRA proceedings because they are no longer considered to be partnership items.

Petitioners argue the Court does not have jurisdiction because the IRS asserted that certain items were converted items, when they were actually non-partnership items. This confuses the Court, because converted items are considered non-partnership items.

In other words, the crux of the petitioners argument is that a distinction should be made between “partnership items originally, but converted under TEFRA into nonpartnership items” and “items that aren’t converted into nonpartnership items by a converted items notice of deficiency because they are already nonpartnership items” and the Court doesn’t have proper jurisdiction over the latter.

The Court said it cannot make this jurisdictional distinction without some legal authority for doing so. It finds that it has jurisdiction over all of the items, even though the way in which the items became subject to the Court’s jurisdiction differed.

The Court acknowledges that the parties have preserved this issue for appeal (which is likely petitioners’ goal) and denies petitioners’ motion to dismiss yet again. 

Docket No. 17286-18, Michael Sestak v. CIR (Order Here)

In this order, Judge Buch holds the IRS to a high standard (ironically, its own) when applying the last known address rule.

Petitioner notified the IRS of his change of address when he began serving a five-year sentence in a federal prison – the only part that he did not communicate was his prison registration number, which is the number used to identify individual inmates. The IRS received this correspondence because petitioner also requested an abatement of failure to file penalties due to the reasonable cause of his imprisonment, which the IRS granted.

In addition to petitioner’s correspondence, a relative of petitioner sent a letter to the IRS that discussed petitioner’s prison sentence and included petitioner’s new address, this time with his prisoner registration number. The IRS retained this letter in its records.

Then the IRS sent petitioner a notice of deficiency to the address petitioner provided without the prisoner registration number. The petitioner never received the notice of deficiency and only became aware of it after he started receiving collection notices. A year and a half after the notice of deficiency was sent, petitioner petitioned the Tax Court.

IRS moves to dismiss the case for lack of jurisdiction because the petition was not timely filed, arguing that it reasonably relied on petitioner’s letter (which, again, did not list the prisoner registration number) when it sent the notice to petitioner’s last known address.

If the IRS does not exercise reasonable diligence and sends a notice of deficiency to an incorrect address, the notice of deficiency is deemed invalid. The Court addressed this issue more generally in Keeton v. Commissioner, holding that the IRS did not use the last known address when it knew the taxpayer was incarcerated and didn’t send the notice to the prison.

This order takes that decision one step further. The IRS was aware of the incarceration and sent the letter to the prison, but the Court still finds that that wasn’t enough.

Referencing the IRM (while acknowledging its non-precedential value), the Court states,

The Commissioner’s own manual gives instructions for mailing notices of deficiency to incarcerated taxpayers. The Internal Revenue Manual (IRM) states that the address on the notice of deficiency “should reference the prisoner locator number, if available.” The IRM provides a link to the Bureau of Prisons website where Service personnel may find prison locator numbers and addresses. The IRM thus states that a complete address for a prisoner contains the prisoner registration number and then provides a link to find that number. Therefore, the Commissioner knew he had an incomplete address for [petitioner] because the IRM stated that a prisoner address should contain the prisoner’s registration number.

The IRS asserts that it acted reasonably because the notice was sent by the Automated Underreporter System to the address on file. The Court finds that requirements under the last known address rule of section 6212(b) do not depend on which system the IRS uses to mail the notice and due diligence is required when the IRS is aware an address is incorrect or incomplete. The Court dismisses the case for lack of jurisdiction but not on the IRS’s proposed basis, but rather on the basis that the notice of deficiency was invalid since it was not sent to the taxpayer’s last known address.

Tax Court Holds Power of Attorney Form Inadequate to Change a Taxpayer’s Address

In a precedential opinion in the case of Gregory v. Commissioner, 152 T.C. No. 7 (2019), the Tax Court has held that sending a power of attorney (POA) form to the IRS with a new address for the taxpayer does not put the IRS on notice with respect to the change of address such that it must use that address in corresponding with the taxpayer in a notice required to be sent to the taxpayer’s last known address. Bryan Camp has a nice write up of the case on the Tax Prof blog if you want an expanded take on the case and you have an interest in knowing how Bryan met his wife.

Before going into an explanation of the basis for the Court’s opinion and why it issued a precedential opinion on this issue, I found it worth noting what was not discussed in this case. Since it was not discussed, I do not know why and would welcome comments from any reader who might know. Because the issue in the case is whether the POA form can change a taxpayer’s address, I would guess that a valid POA existed at the time the notice of deficiency at issue in this case was mailed. If a valid POA existed at the time of the issuance of the notice, why didn’t the POA receive the notice in time to file the Tax Court petition?

The IRS position is that its failure to send a copy of the notice of deficiency to the POA does not invalidate the notice and does not save the taxpayer who files late. See IRM 4.8.9.11.4 (providing that notice may be invalid if not mailed to last known address of taxpayer or if not mailed by certified or registered mail) and IRM 4.8.9.11.2 (providing that copies of the notice are sent to the POA via regular mail). Here, it is not clear if there was a valid POA at the time of the notice, if the POA was timely notified or if the IRS failed to send a copy to the POA. If a POA existed and the IRS timely sent a copy to the POA, maybe this was really a case seeking to protect the POA from exposure. If a POA existed and the IRS did not send a timely notice to the POA, I am surprised that the taxpayer did not at least make an argument regarding that failure. If the notice were a notice of determination in a CDP case, IRC 6304 might come into play if the IRS failed to timely notice the POA. See IRC 6304(a)(2); but cf. Bletsas v. Commissioner, T.C. Memo 2018-128 (2018) (rejecting taxpayer’s argument that IRC 6304 required the IRS to mail a notice of lien to her POA).

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The Gregorys filed their return for 2014 after they moved from Jersey City, New Jersey to Rutherford, New Jersey in 2015; however, on the 2014 return they put their Jersey City address. The opinion did not provide an explanation for why they did this but right off the bat they have created a problem for themselves. During the course of the examination, the Gregorys submitted two POAs to the IRS and each POA listed their new address in Rutherford. During the examination, they also filed a request for extension of time to file their 2015 return and that request also listed their Rutherford address. When the IRS issued the notice of deficiency on October 13, 2016, it had not yet received their 2015 return and it had not received a formal change of address notification from the Gregorys.

The IRS sent the SNOD to Jersey City. The Gregorys did not receive it until after 90 days had run. They filed their Tax Court petition immediately upon receipt of the SNOD. The IRS moved to dismiss the petition as untimely. Both parties agreed it was untimely and that the Tax Court case became one that would decide whether the notice was sent to their last known address and not one which would determine the merits.

The Court here relies on the statute, the regulations under the statute and the Rev. Proc. promulgated in furtherance of the regulations. Bryan Camp’s post does an excellent job walking through those provisions and I will not duplicate it here. The result of the application of the statute, the reg and the Rev. Proc., as well as the language on the POA form and the application for extension form, is that these forms are not returns. Putting a new address on these forms does not provide the type of notice requiring the IRS to adjust its records. Because the POA form and the application for extension form do not require the IRS to adjust its record of a taxpayer’s address, the sending of the SNOD to the Jersey City address met the statutory requirement of sending the notice to the taxpayer’s last known address. Since it met that requirement, the SNOD provided a valid basis for the IRS to assess the liability shown thereon. The taxpayers can still litigate about the underlying liability. They must fully pay first and file a refund claim in order to litigate the issue through the refund process. Alternatively, since they did not receive the SNOD, they can litigate the merits in a Collection Due Process case once the IRS sends notice of intent to levy or files a notice of federal tax lien. Depending on whether a copy of the SNOD was timely sent to a representative, they may find their representative anxious to assist them in obtaining an opportunity to litigate the merits.

The decision here suggests to practitioners that they should take the opportunity of sending in a POA to review the client’s last known address and the practitioner should consider including with the POA a formal notice of the change of address where appropriate.

The case does not address the situation of conversations with the IRS. When I speak with someone at the IRS and I am confirming my ability to represent the taxpayer, I frequently get quizzed about the POA. One part of the quiz is the taxpayer information. If the POA does not contain the taxpayer’s phone number, I get quizzed about their phone number and sometimes about their address. If a representative talks to a human at the IRS about the taxpayer’s address on a POA, I wonder if that might change the outcome here. The issue of last known address has many permutations. In the book Effectively Representing Your Client before the IRS an entire chapter is devoted to this topic. No one wants to be relying on a last known address argument but this issue comes up with frequency.