Designated Orders: 6/26 – 6/30/2017

Professor Patrick Thomas of Notre Dame Law School writes about  last known address, discovery and whistleblower issues in this week’s edition of Designated Orders. Les

 Last week’s designated orders were quite the mixed bunch: a number of orders in whistleblower cases; a last known address issue; and a discovery order in a major transfer pricing dispute between Coca Cola and the federal government. Other designated orders included Judge Guy’s order granting an IRS motion for summary judgment as to a non-responsive CDP petitioner; Judge Holmes’s order on remand from the Ninth Circuit in a tax shelter TEFRA proceeding; and Judge Holmes’s order in a whistleblower proceeding subject to Rule 345’s privacy protections.


Last Known Address: Dkt. # 23490-16, Garcia v. C.I.R. (Order Here)

In Garcia, Judge Armen addresses whether the Service sent the Notice of Deficiency to Petitioner’s last known address. As most readers know, deficiency jurisdiction in the Tax Court depends on (1) a valid Notice of Deficiency and (2) a timely filed Petition. Failing either, the Tax Court must dismiss the case for lack of jurisdiction. If the Petition is not timely filed in response to a validly mailed notice of deficiency, the taxpayer is out of luck; the Service’s deficiency determination will stick. The Service can also potentially deprive the Court of jurisdiction through failure to send the Notice of Deficiency to the taxpayer’s last known address by certified or registered mail under section 6212, though the Court will have jurisdiction if the taxpayer receives a Notice of Deficiency that is not properly sent to the last known address and timely petitions. While a petitioner could be personally served with a Notice of Deficiency, this rarely occurs.

Perhaps counterintuitively for new practitioners, the remedy for this latter failure is a motion to dismiss for lack of jurisdiction. Unlike a jurisdictional dismissal for an untimely petition, this motion can substantially benefit the taxpayer. A successful motion will require the Service to re-issue the Notice to the proper address—or else otherwise properly serve it on the taxpayer. If the Service fails to do so within the assessment statute of limitation under section 6501, no additional tax liability may be assessed. This motion is thus a very powerful tool for practitioners in the right circumstances.

Here, the Court dealt with two motions to dismiss for lack of jurisdiction: the Service’s based on an untimely petition, and Petitioner’s based on failure to send the Notice to the last known address. Petitioner had sent multiple documents to the Service, and the Service to the taxpayer, as follows:


Date Sender Document Address
February 25, 2015 Petitioner 2014 Tax Return Twin Leaf Drive
April 2015 Petitioner 2011 Amended Return Brownfield Drive
October 30, 2015 Petitioner Power of Attorney Twin Leaf Drive
November 10, 2015 IRS Letter 1912 re: 2014 Exam Brownfield Drive
February 12, 2016 Petitioner 2015 Tax Return Brownfield Drive
March 8, 2016 IRS 2014 Notice of Deficiency Brownfield Drive
October 17, 2016 IRS Collection Notice re: 2014 Brownfield Drive


Judge Armen held that the Service did send the Notice to the proper address, despite the ambiguities present here. Petitioner argued that because his attorney had filed a Form 2848 with the Twin Leaf Drive address after he filed his 2011 Amended Return, the Form 2848 changed the last known address to Twin Leaf. The Notice of Deficiency wasn’t sent to that address; ergo, no valid notice.

But Petitioner’s filed his 2015 return using the Brownfield Drive address, prior to issuance of the Notice of Deficiency. Petitioner argued that the regulations governing the last known address issue requires both (1) a filed and (2) properly processed return. Reg. § 301.6212-2(a). In turn, Rev. Proc. 2010-16 defines “properly processed” as 45 days after the receipt of the return. Because the Notice was issued before this “properly processed” date (March 28), the last known address, according to Petitioner, should have been the Twin Leaf Drive address as noted on the most recent document filed with the Service: the October 30, 2015 Form 2848.

Judge Armen chastises petitioner for “using Rev. Proc. 2010-16 as a sword and not recognizing that it represents a shield designed to give respondent reasonable time to process the tens of millions of returns that are received during filing season.” Further, Judge Armen assumes that the Service actually processed the return much quicker (“Here petitioner would penalize respondent for being efficient, i.e., processing petitioner’s 2015 return well before the 45-day processing period….”

I’m not sure that the facts from the order support that conclusion. There is no indication of when Petitioner’s 2015 return was processed by the Service such that they could use it to conclusively determine the last known address. Judge Armen seems to avoid this issue by assuming (perhaps correctly) that the return was processed before the Notice of Deficiency was issued. Unless certain facts are missing from the Order, this seems like an assumption alone.

If the Service did not have the 2015 return on file, or had sent the Notice prior to February 12, 2016, then they would have waded into murkier waters. As Judge Armen alludes to, the Service does not view a power of attorney as conclusively establishing a change of address. Rev. Proc. 2010-16, § 5.01(4). The Tax Court has disagreed with this position previously. See Hunter v. Comm’r, T.C. Memo. 2004-81; Downing v. Comm’r, T.C. Memo. 2007-291.

Discovery Dispute Regarding Production of Documents and Response to Interogatories: Dkt. # 31183-15, The Coca-Cola Company and Subsidiaries v. C.I.R. (Order Here)

Judge Lauber denied a portion of the Service’s request to compel the production of documents and responses to interrogatories in the ongoing litigation regarding Coca-Cola’s transfer pricing structure. I’d do our reader’s a disservice by touching transfer pricing with a ten-foot pole. Rather, I’ll focus on the discovery issue at play.

Regarding the motion to compel production of documents, the Service had sought “all documents and electronically stored information that petitioner may use to support any claim or defense regarding respondent’s determination.” The parties had previously agreed to exchange all documents by February 12, 2018. Coca Cola argued that by demanding all such documents presently, the Service was attempting to get around the pretrial order.

Judge Lauber agreed with Coca Cola, especially because certain claims of privilege were unresolved, and expert witness reports and workpapers had not yet been exchanged. In essence, Coca Cola was unable to provide “all documents” upon which they might rely at trial, as they were unable to even identify all of those documents presently due to these unresolved issues. Judge Lauber cautioned Coca Cola, however, to avoid an “inappropriate ‘document dump’” on February 12, by continuing to stipulate to facts and to exchange relevant documents in advance of this date.

The motion to compel response to interrogatories centered on private letter rulings that Coca Cola received under section 367 (which restricts nonrecognition of gain on property transfers to certain foreign corporations). The Service wanted Coca Cola to “explain how the [section 367 rulings] relate to the errors alleged with respect to Respondent’s income allocations” and “identify Supply Point(s) [Coca Cola’s controlled entities] and specify the amount of Respondent’s income allocation that is affected by the transactions subject to the [section 367 rulings]”. While Coca Cola had already identified the entities and transactions relevant to the section 367 rulings, and had provided a “clear and concise statement that places respondent on notice of how the section 367 rulings relate to the adjustments in dispute”, the Service apparently wanted more detail on how precisely the private letter rulings were relevant to Coca Cola’s legal argument.

Coca Cola, and Judge Lauber, viewed this request as premature. Nothing in the Tax Court’s discovery rules require disclosure of legal authorities. Moreover, Judge Lauber cited other non-Tax Court cases holding that such requests in discovery are impermissible. Any disclosure of an expert witness analysis was likewise premature, at least before the expert witness reports are exchanged.

Whistleblower Motions: Dkt. # 30393-15W Kirven v. C.I.R. (Orders Here and Here)

Two orders came out this week in this non-protected whistleblower case. Unlike Judge Holmes’s order mentioned briefly above, we can actually tell what’s going on in this case, as Petitioner has apparently not sought any protection under Rule 345. Chief Judge Marvel issued the first order, which responded to petitioner’s request for the Chief Judge to review a number of orders that Special Trial Judge Carluzzo had previously rendered. Specifically, Petitioner desired Chief Judge Marvel to review the denials of motions to disqualify counsel, to strike an unsworn declaration from the Service, and to compel interrogatories and sanctions.

While the Chief Judge has general supervisory authority over Special Trial Judges under in whistleblower actions under Rule 182(d), Chief Judge Marvel denied the motion, given that these motions were “non-dispositive”.

The second order by Judge Carluzzo did resolve a dispositive motion for summary judgment. Perhaps we shall see a renewal of a similar motion before Chief Judge Marvel in this matter.

The Service had initially denied the whistleblower claim due to speculative and non-credible information. Additionally, however, an award under the whistleblowing statute (section 7623(b)) requires that the Service initiated an administrative or judicial proceeding against the entity subject to a whistleblowing complaint. Further, the Service needs to have collected underpaid tax from that entity for an award, as the award is ordinarily limited to 15% of the amount collected. Neither of those occurred in this matter, and on that basis, Judge Carluzzo granted the motion for summary judgment, upholding the denial of the whistleblowing claim.

This case again reminds pro se petitioners to attend their Tax Court hearings and respond to the Service’s motions for summary judgment. The Petitioner did not attend the summary judgment hearing, because (according to her) the hearing regarded both the Service’s motion for summary judgment as well as her motion to compel discovery. Whatever her reason for not attending the hearing or responding to the motion, all facts provided by the Service were accepted, and the Court assumed there was no genuine dispute as to any material facts: a recipe for disaster for the non-movant in a summary judgment setting.

After the Tax Court Finds It Lacks CDP Jurisdiction, Seventh Circuit Says It Should Keep Quiet About Other Collection Issues

We welcome back frequent guest blogger, Carl Smith, who discusses a recent 7th Circuit case that rejects a line of cases decided by the Tax Court concerning the scope of its authority when dismissing a Collection Due Process case.  Keith

In a precedential opinion issued on November 18 in Adolphson v. Commissioner, the Seventh Circuit affirmed the Tax Court’s dismissal of a Collection Due Process (CDP) petition under section 6330(d)(1) for lack of jurisdiction. The Tax Court dismissed the petition because the IRS had never issued a notice of determination after a CDP hearing – a ticket to the Tax Court.  But, the Seventh Circuit was unhappy that the Tax Court also went on to consider (though, ultimately reject) the taxpayer’s argument that there had been no CDP hearing and no notice of determination (NOD) only because the IRS failed to send a notice of intention to levy (NOIL) to the taxpayer at the taxpayer’s last known address.  In effect, the Seventh Circuit said that where the Tax Court lacks jurisdiction because of the lack of an NOD, the Tax Court should keep quiet about other potential collection issues – such as, in this case, whether the IRS had issued an NOIL to the taxpayer’s last known address before it had started levying.  The Seventh Circuit particularly rejected a line of Tax Court opinions beginning with Buffano v. Commissioner, T.C. Memo. 2007-32 – which, according to the Seventh Circuit, the Tax Court has only intermittently followed – in which the Tax Court has considered as part of its jurisdictional dismissals, issues going to the validity of NOILs.

This post will discuss Buffano, the unpublished order issued by Judge Carluzzo in Adolphson, and the Seventh Circuit opinion in Adolphson.


Readers are no doubt aware that before the IRS issues a CDP NOD (a ticket to the Tax Court), the IRS Office of Appeals must hold a CDP hearing.  CDP hearings can only be requested after the IRS validly issues an NOIL or NFTL.  One way for the IRS to validly issue an NOIL or NFTL is to send it by certified or registered mail to a taxpayer’s last known address.  Sections 6320(a)(2)(C) and 6330(a)(2)(C).  If certified or registered mail is used for an NOIL, levy is prohibited for the 30-day period in which a taxpayer can request a CDP hearing.  Section 6331(d)(1) and (2).  If a CDP hearing is requested, no levy is allowed and the collection statute of limitations is suspended until the CDP hearing (and any judicial appeals) are over.  Section 6330(e)(1).


In Buffano, the first the taxpayer knew about collection was when the IRS sent a levy to his employer.  The taxpayer was upset that he had not, before then, received an NOIL.  The taxpayer sent a Form 12153 requesting a CDP hearing with respect to the taxes being levied, and the IRS decided that, since it had sent an NOIL to what it had thought was the taxpayer’s last known address (even though the NOIL was returned by the USPS undelivered), the IRS had done all it needed to do to commence levy.  Since the request for a CDP hearing was made more than 30 days after the IRS mailed the NOIL, the IRS instead gave the taxpayer an equivalent hearing.  At the end of the equivalent hearing, the taxpayer was unsatisfied with the equivalent letter, and, within 30 days, filed a petition in the Tax Court under section 6330(d)(1).

The IRS moved to dismiss the case for lack of jurisdiction on the ground that no NOD following a CDP hearing had been issued.  Thus, the taxpayer had not received a ticket to the Tax Court.  The taxpayer cross-moved to dismiss for lack of jurisdiction on a different ground:  No NOIL had validly been sent to his last known address.  The court decided that it had to determine the reason for the jurisdictional dismissal that was inevitable in the case.  The Tax Court held that the NOIL had not been sent to the taxpayer’s last known address.  Thus, it was invalid, and the dismissal was predicated on the NOIL’s invalidity.  Presumably, the Tax Court expected that this holding would mean that the IRS had to send a new NOIL to the taxpayer for the same taxes before the IRS could commence any levy.

In subsequent cases presenting the same fact pattern as Buffano, the Tax Court has sometimes (but not always) followed Buffano and issued a ruling on whether or not the NOIL was mailed to the last known address.  If the NOIL was mailed to the last known address, then the Tax Court has dismissed for lack of jurisdiction on the basis of a lack of an NOD.  If the NOIL was not mailed to the last known address, the Tax Court has dismissed for lack of jurisdiction on the basis of a lack of a validly-mailed NOIL.  See, e.g., Anson v. Commissioner, T.C. Memo. 2010-119; Space v. Commissioner, T.C. Memo. 2009-230; Kennedy v. Commissioner, T.C. Memo. 2008-33.

Adolphson Tax Court Order 

Mr. Adolphson’s fact pattern was quite similar to Buffano – i.e., he first learned of collection from an actual levies on third parties who held his funds, but he had never before received an NOIL. Unlike Buffano, he did not thereafter ask for and get an equivalent hearing, but went straight to the Tax Court.  In the Tax Court, Mr. Adolphson first moved to restrain further levies and for the Tax Court to order the IRS to refund what had already been levied – arguing that the IRS had not sent an NOIL to his last-known address and citing Buffano.  Then, the IRS cross-moved to dismiss for lack of jurisdiction because of the absence of an NOD.  The IRS, however, attempted to show it had mailed an NOIL to his last known address.  Since Mr. Adolphson had not filed returns for many years, there was a serious issue as to which address was his last known address.

In an unpublished order at Docket No. 21816-14L, issued on February 3, 2015, Special Trial Judge Carluzzo granted the government’s motion, first stating:

Petitioner agrees that the Court is without jurisdiction in this matter. That being so, his motion to restrain must be denied as our authority to grant the relief he seeks arises only in cases where our jurisdiction under section 6330(d) has properly been invoked. See sec. 6330(e). Petitioner, however, disagrees with respondent’s ground for the dismissal.

Then, the judge distinguished Buffano as follows (footnote omitted):

Petitioner’s reliance upon Buffano is misplaced. The record in Buffano contained information showing the address shown on the taxpayer’s relevant Federal income tax return, the starting point for purposes of establishing a taxpayer’s last known address. See sec. 301.6212-2(a) Proced. & Admin. Regs.; Kennedy v. Commissioner, 116 T.C. 255 (2001); Abeles v. Commissioner, 91 T.C. 1019 (1988). Petitioner has not established what, if any, address was shown on his Federal income tax return(s) most recently filed before the relevant notices of intent to levy were issued.  Furthermore, under the circumstances before us and contrary to petitioner’s suggestion, the address shown on respondent’s November 5, 2012, letter to him is hardly determinative as to his “last known address” for purposes of section 6330.

Because of the paucity of information as to petitioner’s last known address, we decline to make any finding on the point in resolving the jurisdictional motion before us. To the extent that there are any irregularities in the assessment process giving rise to the above-mentioned liabilities, or to the collection of those liabilities, petitioner’s remedies, if any, lie in a different Federal court.

Adolphson Seventh Circuit Opinion 

The Seventh Circuit affirmed the Tax Court, but using a lot of words criticizing both the Tax Court’s rulings and the DOJ lawyers’ briefs and oral argument.  In a 16-page opinion, the panel took apart Judge Carluzzo’s barely 3-page order.

Initially, the panel stated that, if it were going to apply the Buffano line of cases, it disagreed that the IRS had shown that it mailed an NOIL to the taxpayer’s last known address.  In particular, the panel noted that some of the IRS evidence of mailing consisted of improperly-authenticated transcripts that only indicated the issuance of one or more NOILs, but there was no evidence in the record of any mailing or evidence of even the address used.  The panel accused Judge Carluzzo of improperly shifting the burden of proof on mailing to the taxpayer and wrote:  “In other words, had the tax court followed Buffano and required the Commissioner to prove proper mailing, the ‘paucity of information’ should have led to a win for Adolphson.” Slip op. at 10-11.

The panel was also critical of the DOJ lawyers for, among other things, (1) not taking a position on whether the Buffano line of cases was correct, (2) not taking a position on whether Judge Carluzzo correctly distinguished Buffano, (3) making no attempt to justify the IRS collection behavior in the case, and (4) unhelpfully arguing that “Adolphson, proceeding pro se, erred by asking the tax court to enjoin further collection efforts and refund money already collected, rather than asking the court to invalidate the levies.”  Id. at 11.  “Instead, the Commissioner insists that Adolphson is relegated either to an administrative claim before the IRS or a refund suit in district court, while maintaining that ‘whether the IRS mailed a Notice of Intent to Levy to taxpayer’s last known address is not relevant in this case.’” Id.

Turning to the law, the panel wrote:

Notwithstanding this unwillingness to confront the salient issue, the Commissioner is correct that, absent a notice of determination, the tax court lacks jurisdiction under 26 U.S.C. § 6330(d).  A decision invalidating administrative action for not following statutory procedures is a quintessential merits analysis, not a jurisdictional ruling. The Buffano line of cases therefore represents an improper extension of the tax court’s statutorily defined jurisdiction.

Id. at 12 (citations omitted).

The panel blamed the Tax Court’s error in Buffano on its uncritically importing into CDP, from its deficiency jurisdiction case law, the practice of allowing a taxpayer who files a late deficiency petition to ask that the court determine that the notice of deficiency was not sent to the last known address, and, so, the Tax Court lacked deficiency jurisdiction because of an invalid notice.  Calling the deficiency jurisdiction practice “less problematic”, the panel distinguished it from determining whether an NOIL was properly sent to a last known address, since the challenged notice in a deficiency case is the ticket to the Tax Court (the “jurisdictional hook”), whereas an NOIL is not.  In a passage I find confusing, the panel wrote:

Although calling this ground for dismissal [of an improperly-mailed notice of deficiency] “jurisdictional” is a misnomer, the logical underpinning is the same: The tax court is determining whether the IRS has met statutory requirements to proceed with collection, but there isn’t a question of whether or not the jurisdictional hook exists (were there no deficiency, there would be nothing to collect).

Id. at 14.  Earlier in the opinion, the panel had written:

This [Buffano] practice of invalidating collection activity [in a CDP case] where the tax court lacks statutory authority to proceed also violates the Tax Anti‐Injunction Act, 26 U.S.C. § 7421(a), which (with exceptions inapplicable here) provides that “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person.” This statute deprives courts of jurisdiction to enter pre‐collection injunctions and “protects the Government’s ability to collect a consistent stream of revenue” by ensuring that “taxes can ordinarily be challenged only after they are paid, by suing for a refund” under 28 U.S.C. § 1346(a)(1). By invalidating levies despite the absence of a notice of determination under § 6330—a taxpayer’s jurisdictional hook to enter tax court—decisions such as Buffano stand in direct opposition to the Act.

Id. at 12-13 (citations omitted).

Ultimately, the panel concluded that a taxpayer in Mr. Adolphson’s position is left only the remedy of a refund suit.  I would call that remedy completely useless, since one can only get a court to order a refund in such a suit if one has overpaid one’s taxes.  Lewis v. Reynolds, 284 U.S. 281 (1932).  It is of no relevance in a refund suit whether the IRS improperly forced all or part of the tax payments by a procedurally-improper levy.

The panel regretted that it saw no statutory remedy for Mr. Adolphson’s plight:

The framework used in Buffano to scrutinize the IRS’s compliance with its statutory obligations does have equitable appeal; a taxpayer to whom the IRS fails to mail a Final Notice of Intent to Levy and, through no fault of her own, misses the 30-day window to request a CDP hearing might otherwise be left without an opportunity to petition the tax court prior to seizure of her assets. This is the system devised by Congress, however . . . .  Troubling though this [refund suit] “remedy” may be, given the expense and potential delays inherent in such a suit, there is no lawful basis for expanding the tax court’s jurisdiction to resolve the perceived problem. Absent a notice of determination, the tax court simply has no lawful authority to hear a taxpayer’s claim under § 6330(d).

Adolphson, at 15-16.


Because Mr. Adolphson was pro se and the DOJ’s briefing was so unhelpful, the panel may have misunderstood certain things about tax procedure when it wrote the opinion.  The opinion conspicuously fails to mention three possible avenues for relief for him.

First, section 6330(e)(1) suspends the collection statute of limitations if a person requests a CDP hearing.  In this case, no CDP hearing was requested because no NOIL was issued to the last known address (probably).  Section 6330(e)(1) goes on to provide:

Notwithstanding the provisions of section 7421(a), the beginning of a levy or a proceeding during the time the suspension under this paragraph is in force may be enjoined by a proceeding in the proper court, including the Tax Court.  The Tax Court shall have no jurisdiction under this paragraph to enjoin any action or proceeding unless a timely appeal has been filed under subsection (d)(1) and then only in respect of the unpaid tax or proposed levy to which the determination being appealed relates.

Since there was no NOD here to which an appeal under subsection (d)(1) could be timely, the Tax Court lacked that injunctive power under subsection (e)(1).  I don’t see the district court having injunctive power under (e)(1), either, since the injunctive power is provided during the period of the suspension.  Since no CDP hearing was requested (probably, since no NOIL was issued to the last known address), no suspension period is in effect.

Second, the Supreme Court acknowledged a judicial, equitable exception to the anti-injunction act in Enochs v. Williams Packing & Navigation Co., 370 U.S. 1 (1962).   To succeed under that exception, a taxpayer must show (1) that under no circumstance could the government prevail, and (2) that there is equity jurisdiction – i.e., that the taxpayer would suffer irreparable harm if the government’s actions were not enjoined.  While I think that an IRS levy made without previously sending a proper NOIL might meet the first requirement, merely being forced to pay money would doubtless not be considered irreparable injury.  However, there might be irreparable injury if, say, the levies would end up forcing the taxpayer’s business into bankruptcy.

Short of injunctive relief, though, Congress has provided in section 7433 a suit for money damages on account of negligent wrongful collection actions.  But, under this section, a taxpayer is limited to actual damages – and I am not sure merely paying taxes prematurely constitutes actual damages.  However, collateral damage – such as the levies ending up causing the taxpayer to lose clients or to go into bankruptcy – would seem to be compensable damages.

I also don’t think the Adolphson court appreciated how the dismissal of a deficiency petition for lack of jurisdiction because of an invalid notice doesn’t amount to an injunction against the IRS.  The Tax Court has jurisdiction to find facts necessary to its jurisdiction. When the Tax Court determines that a notice of deficiency wasn’t valid, that is a jurisdictional fact found by the court that could be used by a taxpayer in later litigation to collaterally estop the IRS from, say, judicially foreclosing on the tax lien that arose from the deficiency.  By contrast, if the Tax Court holds an NOIL was invalid, the court would be deciding an issue not necessary to its CDP jurisdiction, so the discussion would be dicta.  A taxpayer could not use this dicta to collaterally estop the IRS in later litigation from arguing that the NOIL was valid. The result of a ruling in a Buffano-type case that the NOIL wasn’t properly mailed is simply an advisory opinion to the IRS not to pursue collection under that NOIL. The IRS usually follows that advice. But, since the Tax Court shouldn’t be issuing advisory opinions, perhaps that is part of why I agree with the Seventh Circuit that Buffano is incorrect.

Finally, Adolphson may also call into question Craig v. Commissioner, 119 T.C. 252 (2002), where the Tax Court held that it has jurisdiction under section 6330(d)(1) to hear a case where the IRS mistakenly issued an equivalent hearing letter, rather than an NOD.  In Craig, the Tax Court said it would treat the equivalent hearing letter as an NOD.  Adolphson seems to suggest that when no NOD was actually issued, the Tax Court should just keep quiet about any other merits issue, as it lacks jurisdiction under section 6330(d)(1).


Last Known Address for Incarcerated Persons

On October 17, 2014, the Procedure and Administration Division of the Office of Chief Counsel, IRS, sent PMTA-2014-19 (Program Management Technical Advice) to Denise Rosenberg a Senior Program Analyst in SB/SE Collection Policy.  The advice addresses the question of “whether the Federal Correctional Institute address of an incarcerated taxpayer, presumably maintained in the Bureau of Prisons’ website and included on Form 13308, Criminal Investigation Closing Report, should be used as the last known address for purposes of mailing notices required under the Code to the taxpayer’s last known address.”  The advice concludes that “unless the taxpayer provides a clear and concise notification that the place of incarceration should be used as the taxpayer’s last known address, the Service, generally, may use the address on the most recently filed return as the taxpayer’s last known address.”  It does go on to issue the cautionary statement that “where the Service has specific knowledge of the taxpayer’s incarceration and there is a defect in the mailing to the last known address, the Service will be expected to use reasonable care and diligence in ascertaining the taxpayer’s correct address.”

I will talk below about some of the reasoning in the PMTA. The issue has administrative significance to the IRS because the last known address issue bears on the validity of a number of items the IRS mails to taxpayers.  The issue has enough importance that in the book Effectively Representing Your Client before the IRS, we devote an entire chapter to the topic of last known address.  The PMTA does not mention a TIGTA report that provided an in depth look at the issue of the addresses of prisoners and the access of the IRS to those address as well as the use by the IRS of those addresses because of the amount of refund fraud perpetrated by prisoners over the past decade.  Despite the fact the IRS has the addresses of the prisoners and despite the fact that we know that 99.9% of individuals heading into prison do not include as part of their pre-incarceration to do list a filing with the IRS of Form 8822 the IRS takes the position in the PMTA that sending a notice to an incarcerated person is subject to a facts and circumstances test.  The rule should change by statute if not administratively changed.


A New Approach

In the United States .75% of the population is incarcerated at any given moment.  The procedure set out in this PMTA virtually assures that most of the people in that segment of the population will have a notice sent to an address that no longer serves as their primary address.  It unnecessarily calls into question the validity of the notice sent when it would be possible based on data in the possession of the IRS to send a duplicate notice to the location of incarceration in many of those cases.  Adopting a different approach targeted at reaching the population of individuals in prison would not increase the cost to provide notice in a significant way, would afford these individuals due process of receiving notice of proposed action and appears possible given current information reporting to the IRS and its technology.  Rather than relying on rules concerning notifying the IRS of a change of address that almost no one follows even when not facing incarceration, the IRS should use the information at its disposal to make a meaningful effort at notification of the incarcerated population.

Perhaps with study of the situation we would find that those in prison do not need to receive correspondence by certified mail because that impedes the receipt of mail. Perhaps we learn that those in prison need more time to take action and should receive 150 days to file a Tax Court petition instead of 90.  Prisoners, who by and large fall within the low income population served by clinics under IRC 7526, deserve the opportunity to receive notices in time to take appropriate action just as we all deserve appropriate notice.  Sending a letter to the address of their last return when it is known that they are incarcerated and where they are incarcerated seems an inappropriate and unnecessary response to the situation.  While sending two notices adds to the cost, it does so in a way that affords meaningful opportunity for redress if the individual feels the need to take action and reduces later claims that no notice was provided.

TIGTA report

The PMTA does not mention a TIGTA report  issued approximately one month before the PMTA.  The TIGRA report focuses on refund fraud by prisoners but contains interesting data about the information sharing agreement between the IRS and prison authorizes having a direct bearing on the provision of notice to prisoners.  Aside from the notice of address issue, the report is interesting in itself to anyone wanting to know more about the incidence of refund fraud generated by prisoners and the efforts to combat that fraud.  It is a piece of the problem I talked about in my Senate testimony urging Congress to flip the filing season to have the IRS wait to pay refunds until it has the matching data.  If you wanted some support for that idea, the TIGTA report provides some.

In 2008 Congress passed The Inmate Tax Fraud Prevention Act.  This gave the Secretary of Treasury temporary authority to disclose to the head of the Federal Bureau of Prisons tax return information for individuals who filed or may have filed fraudulent returns while incarcerated in Federal prisons.  The act created a time limit of December 31, 2011 on this exception to the disclosure statute.  The act required an annual report to Congress and the IRS filed the first report for calendar year 2009   The report is found in Appendix VI of the TIGTA report linked here.  The Homebuyer Assistance and Improvement Act of 2010 expanded the authority to share prisoner tax return information to the State Departments of Correction since refund fraud does not solely occur among the federally incarcerated.  The United States – Korea Free Trade Agreement Implementation Act requires the Federal Bureau of Prisons and State Departments of Corrections to “provide the IRS with an electronic list of all the prisoners incarcerated within their prison system for an part of the prior two calendar years or the current calendar year through August 31.”  This report requires annual updates.  So, the IRS gets a list of everyone in prison in the United States.  The American Taxpayer Relief Act of 2012 expanded Treasury’s authority so share prisoner tax return information concerning false returns to federal and state prison authorizes and made the law permitting sharing permanent.

While the PMTA does not go into all of the information sharing Congress has created in the past decade, it is clear that the IRS now receives considerable information about individuals incarcerated in the United States. While this information comes to the IRS for the purpose of combating refund fraud, it seems inappropriate to ignore it when it comes time to provide notice to the prisoner.


Despite all of the information going back and forth between the federal and state prison systems and the IRS, the PMTA focuses only on the knowledge of the special agent regarding the specific individual. It concludes that “unless the taxpayer provides clear and concise notification that the place of incarceration should be used as the taxpayer’s last known address, the Service, generally, may use the address on the most recently filed return as the taxpayer’s last known address.”  It then talks about a facts and circumstances test that might override this result “where the Service has specific knowledge of the taxpayer’s incarceration.”  Yet, from the legislation recounted in the TIGTA report on refund fraud, it seems that the IRS has specific information about every taxpayer’s incarceration if the incarceration takes place in the United States.

The PMTA should discuss the relationship between the information that now comes to the IRS regarding prisoners and the obligation of the IRS to notify individuals whose addresses it has obtained because it sought them. The IRS is not merely a passive receiver of the addresses of prisoners but affirmatively sought them in order to combat refund fraud.  It is great that the IRS and the prison authorities work together to combat this scourge on tax administration; however, the IRS needs to at least acknowledge it has this information and discuss why it does or does not provide a meaningful basis for notice to the taxpayer.


In our efforts to combat refund fraud that in the electronic filing era has run rampant among prisoners, Congress has passed a series of laws designed to provide the IRS with detailed information about prisoners. Despite the system of information now provided to the IRS, Chief Counsel’s fails to even discuss this influx of information on prisoners in its PMTA concerning last known address issues for prisoners.  It should acknowledge that the IRS now operate in a new period of relations between the itself and prisoners and not overlook the data coming into the IRS allowing it to know who is incarcerated.  Rather than continue to rely on antiquated provisions of notice developed prior to the close working relationship between the IRS and the prison authorities, the IRS should acknowledge that it now receives information about incarcerated individuals.  Either the information about prisoners comes to the IRS in a usable format allowing the IRS to use that information to provide notice to prisoners when sending out documents such as the notice of deficiency or it should spell out how this information does not allow it to do so.

If the information coming from prison officials does not allow it to identify who is in prison and where they reside, perhaps the IRS needs to go back to the prison officials for more or better information. One can imagine after reading the PMTA and the TIGTA report that on the same day, the IRS will mail a notice to prison officials notifying those officials that John Doe incarcerated in the federal penitentiary in Lewisburg, PA, filed 12 fraudulent refund claims while on the same day it mails a notice of deficiency to the same John Doe in Richmond, VA, the place from which he mailed his last tax return five years ago prior to reporting to the penitentiary.  If the IRS now receives adequate information to enable it to provide notice to them in prison, it should acknowledge it has this information and make use of it in sending notices to this segment of the population.  If the information is insufficient to provide notice to incarcerated individuals, it should explain that in the PMTA and not ignore it.

While the issue here concerns prisoners and maybe we do not care what happens to prisoners, the IRS will get data dumps on other segments of the population. If it has the data for one purpose, it should use that data to provide meaningful notice to individuals and not rely on a change of address form that almost no one uses.

Summary Opinions for the weeks of 3/06/15 through 3/20/15

Image from

This will be the last post for the week, as we will all be busy with family activities (and taxes).  We should be back on Monday with some new content, and it looks like next week will cover some really interesting areas, including the recent Godfrey case, and sealing Tax Court records.

We have been very lucky over the last month to have a lot of really great guest posts.  We cannot thank those guest posters enough for the quality content, especially as the three of us have been very busy with our various other jobs (or appearing before the Senate–perhaps more on that next week also).  For the weeks that SumOp is covering in this post, we had Mandi Matlock writing on TPA Most Serious Problem # 17 on how deficient refund disallowance notices are harming taxpayers.  Peter Lowy wrote on the really interesting Gyorgy case, which deals with the taxpayer’s requirement to notify the Service on a change of address, but also highlights a host of other procedure items.   Patrick Smith joined us again, writing on Perez v. Mortgage Bankers Associate, and illuminating us on APA notice and comment requirements for different types of rules and the possible eventual reversal of Auer.  We also welcomed Intuit’s CTO, David Williams who wrote a response to Les’ prior post on H&R Block’s CEO indicating it should be harder to self-prepare (which Les was potentially in favor of).  And, another first time guest blogger, Patrick Thomas, joined us writing on the calculation of SoLs on collections matters.

We were also very lucky again to have Carl Smith writing for us, this time updating us on the Volpicelli jurisdiction case and the Tax Court pleading rules on penalties looking at the El v. Comm’r case.  A thank you to all of our guests over those two weeks, and a special thanks to Carl for his continued support.

To the other procedure items (if you keep reading, the image will make more sense):

  • The Service released CCA 201510043, in which Chief Counsel stated a taxpayer is entitled to two sets of collection due process rights for the same period when there were two assessments; one for assessment arising out of a civil exam and the other from restitution-based assessment.  Section 6201(a) was recently (five years ago) amended to require assessment and collection of restitution in the same manner as tax.  The advice has a nice summary of cases outlining why this double assessment of the same tax is not double jeopardy.  Although the general rule is that a taxpayer is entitled to one CDP hearing with respect to tax and tax years covered by the CDP notice, there are situations where multiple hearings are appropriate.  The advice highlights Treas. Reg. 301.6320-1(d)(2) Q&A D1 and Treas. Reg. 301.6330-1(d)(2) Q&A D1 as examples of allowing two CDP hearings when there has been additional assessments of tax or new assessments for additional penalties.  The Advice determined that this situation was analogous and warrants two separate CDP hearings.
  • The Northern District of California in In Re Wilson held that penalties for failure to timely file were dischargeable when the original due date was outside of the three year look back under BR Code 523(a)(7)(b), but the taxpayer had extended the due date and the extended date was within the three years.  The Court indicated this was a case of first impression.  Another interesting BR Code Section 523 issue.
  • This clearly only pertains as a practitioner point, and not something any of our readers would personally need, but OPR has announced a standard information request letter to make a Section 6103 request for information maintained by OPR relating to possible violations of Circ. 230.  Info about the letter is found here, and you can get the actual letter here.
  • The Ninth Cir. affirmed the Tax Court in Deihl v. United States in finding a widow spouse did not qualify for innocent spouse relief.  In the case the Court did not find there was clear error by the Tax Court in reviewing the widow’s testimony and find it was not credible.  The surviving spouse provided testimony that conflicted with other evidence regarding the couples’ business, and she did not offer any third party testimony regarding the abuse.  The widow argued that since the Service did not offer contrary testimony regarding the abuse, the Tax Court had to accept her testimony, which the Ninth Circuit stated was incorrect.  Further, looking to Lerch v. Comm’r, a Seventh Circuit decision, stated that the Tax Court did not have to accept testimony that was questionable, even if uncontradicted (tough to overcome the presumption of guilt that comes along with a name like Lerch).
  • Gambling causes fits for the Service.  Tipped casino employees used to underreport frequently, but apparently casinos will provide estimates to the Service.  Gambling website accounts might be offshore accounts (even if sourced in US banks). Add to that list of problems how to treat bingo, keno and slot machine winnings.  This blurb will focus on slot machines.  New proposed regulations offered in a recent IRS Notice would provide a safe harbor to determine gains and losses from a slot machine.  The issue is that gains from “transactions” are included in income.  Losses are deductible to the extent of winning, but generally as itemized deductions.  For slot machines, a “transaction” is session based.  What is a session can be a point of disagreement between the Service and taxpayers.  This is apparently becoming more murky now that people don’t use actual coins.   So, what are those retirees on the bus trips to AC or Vegas to do?  The Service is soliciting suggestions, but the current proposed safe harbor states that a session of play:

A session of play begins when a patron places the first wager on a particular type of game and ends when the same patron completes his or her last wager on the same type of game before the end of the same calendar day. For purposes of this section, the time is determined by the time zone of the location where the patron places the wager. A session of play is always determined with reference to a calendar day (24-hour period from 12:00 a.m. through 11:59 p.m.) and ends no later than the end of that calendar day

The Notice then goes on to explain how to calculate gains and losses during the session.

  • Add this to the list of things that will not get you out of the failure to timely file penalties – taxpayer could not access tax records because his storage unite doors had frozen over.  The argument received an icy reception (oh, man that was bad) with both the Service and the Tax Court. See Palmer v. Comm’r., TC Memo 2015-30 (for some reason this isn’t up on the TC web page anymore – sorry).
  • If you are going to cheat on your taxes, you probably should do so using offshore accounts (I usually charge clients a .5 for that advice, and you all just got it for free!).  Check out Jack Townsend’s blog on US v. Jones, an “ordinary tax cheat”, as Mr. Townsend put it, who got dinged with 80% of the bottom of the guideline range for sentencing.  He was using “sophisticated means”, which seemed fairly run of the mill.  Jack compares this to the sentencing of another UBS client, who ended up getting 22% of the bottom of the guideline range.  Switzerland should use this in its promotional materials.
  • In MSSB v. Frank Haron Weiner, the Eastern District of Michigan found that Section 6332(a) did not establish priority for competing liens, and instead Sections 6321, 6322 and 6323 established the priority (in favor of the IRS in this case).  In MSSB, a debtor owed funds to the IRS and a lawyer named Frank.  The Service recorded four liens, each before December 3, 2012.  Around $1.6MM was owed.  On December 6, 2012, Frank sued the debtor to recover unpaid legal fees and won.  In 2013, Frank obtained a writ to garnish the debtors IRA (Michigan must not offer much in terms of creditor protection for IRAs).  The Service stepped in, arguing it had priority on the IRA.  Frank countered, arguing that Section 6332(a) would give him the money.  The Section states:

Except as otherwise provided in this section, any person in possession of (or obligated with respect to) property or rights to property subject to levy upon which a levy has been made shall, upon demand of the Secretary, surrender such property or rights (or discharge such obligation) to the Secretary, except such part of the property or rights as is, at the time of such demand, subject to an attachment or execution under any judicial process.

Frank’s position was that his claim was the type of claim referenced by the “subject to an attachment or execution under any judicial process.”  The Court, however, held that the language did not direct which claim (that of the IRS or Frank) had priority, and only stated that the financial institution did not have to turn the funds over to the IRS.  The Court then looked to the other lien provisions, and found the IRS had priority and directed payment.

  • I went to see roller derby one time, which was really entertaining.  A perfect mix of roller skating and WWF.  All of the young women have funny/clever names, and often have slogans.  The announcer said of one that she had “champagne for her real friends, and real pain for her sham friends.”  Unfortunately, this has really nothing to do with this next case, except the tax court was dropping some real pain on a sham partnership.  In Bedrosian v. Comm’r, the Tax Court held that whether legal fees paid by a sham partnership were deductible was an affected item subject to TEFRA, and the Court had jurisdiction to make such a determination.  This was not the Bedrosians’ first Tax Court rodeo, and they keep making new TEFRA law, which now comprises a substantial chunk of revised Saltzman and Book Chapter 8 dealing with general exam procedures and a growing subsection dealing just with the complex world of TEFRA.

Gyorgy v Comm’r Tees Up Important Procedural issues

Today we welcome to the guest blogging ranks Peter Lowy, who is a member of Caplin & Drysdale. A nationally known tax litigator, Pete has also dedicated a significant amount of time on pro bono matters, for which he won the ABA Tax Section Pro Bono Award (now the Spragens Award) in 2003. In today’s post, Pete discusses the Seventh Circuit’s Gyorgy v Commissioner opinion. Gyorgy touches on a number of important procedural issues, including the record rule in CDP cases and last known address. Gyorgy has already been cited by the Tax Court in Adolphson v Comm’r for the proposition that a serial non-filer has a burden to show what address the IRS should have sent certain notices to at his or her last known address. Les

On February 27, 2015, the US Court of Appeals for the 7th Circuit decided a collection due process case, Gyorgy v. Commissioner, which tees up at least three important procedural issues. In this post, I will discuss those issues after summarizing the facts.


 The Facts

A thumbnail and streamlined sketch of the facts is as follows. The taxpayer, Gyorgy, had failed to file tax returns for years including 2002 and 2003, the years at issue on appeal.  The IRS made substitute returns for 2002 and 2003, and mailed notices of deficiencies to the address in its records, even though the IRS knew the address was incorrect since it had received returned undelivered mail as well as third-party information returns with one or more different addresses for the taxpayer.  After no petitions were filed in the Tax Court in response to the undelivered notices of deficiency, the IRS assessed.

Two years later, the IRS commenced collection proceedings, and mailed lien notices to the taxpayer—at his correct address. In response, the taxpayer filed timely requests for due process hearings before the IRS.  In its request, Gyorgy challenged the underlying deficiency and whether the IRS had followed its necessary procedures.  During the CDP process, Gyorgy provided no material information to the CDP officer, and the Appeals Office issued an adverse determination.  Gyorgy timely petitioned the Tax Court, where the Tax Court conducted a de novo review.  Gyorgy appears to have provided very little relevant evidence, and the Tax Court sustained the lien notices for tax years 2002 and 2003.  Gyorgy appealed to the 7th Circuit.

 The Issues

First, is judicial review in a CDP case limited to the administrative record? Prior to Gyorgy, several circuits had decided the issue but the 7th Circuit had not.  Consequently, the Tax Court, under its rule of Golsen, had applied its own rule in the absence of controlling precedent from the court to which the case was appealable.  On appeal, the 7th Circuit in Gyorgy had the opportunity to clarify the record rule for taxpayers in its geographic jurisdiction.  But the court punted instead, as it was not required to reach the issue on the record in Gyorgy’s particular case (it appears the taxpayer was afforded a full opportunity but failed to provide additional evidence or credible testimony to supplement the administrative record.  Whether review was limited to the administrative record or not should be academic).  Nevertheless, in its discretion, the 7th Circuit could have clarified the application of the record rule, which may have assisted the IRS and taxpayers confused about the extent of judicial review, and, thus, the level of due process to which they are entitled in a CDP appeal.

The lack of clarity that remains surfaces at least two policy questions for the record rule. One: whether there should be a uniform application of the record rule across circuits.  Without uniformity of application, different taxpayers will have different opportunities to challenge adverse IRS determinations and thus different levels of due process, depending upon where they reside.  Uniformity, however, may require legislative action unless the Supreme Court steps in.  Two: if a uniform law is adopted, should it limit or not limit review to the administrative record.  The main downside of limiting review to the administrative record is that it may lead to a more litigation-oriented and less resolution-oriented process because it would encourage taxpayers to load up the administrative record with all potentially relevant evidence in the event the matter is submitted for judicial review.  In practice, the resolution-mindedness of the process and parties involved has been a key quality to its success.

Second, on the last known address issues, what is a court’s standard of review in a CDP case in the context of a challenge to the assessment of the underlying liability on the grounds that the IRS failed to mail a notice of deficiency to the taxpayer’s last known address? The general rule is that when the underlying tax liability is properly at issue in a CDP hearing, the Tax Court reviews the underlying liability issue de novo, but reviews the Appeals Office’s other determinations for abuse of discretion.  Should the last known address issue, when raised as invalidating the underlying liability assessment, be viewed as part of the underlying liability determination, and accordingly subject to the de novo standard of review?  Not according to the 7th Circuit in Gyorgy.  In its opinion, the 7th Circuit cited two cases to support applying an abuse of discretion standard: Goza, a 2000 Tax Court decision, and Jones, a 2003 5th Circuit decision.  In Jones, the taxpayer failed to pay the tax shown due on its return, so a notice of deficiency was not a prerequisite to assessment.  In Goza, the taxpayer received notices of deficiency so could not contest the underlying liability or associated assessment in the CDP proceeding before the court.

At a minimum, there is a legitimate policy debate to be had on the proper standard of review. The rationale for de novo review of the underlying liability is that taxpayers that had not received a prior opportunity to petition the Tax Court should receive the same rights of review to which taxpayer’s would be entitled outside of the CDP context (but that the review should be conducted within the CDP process so that adjudication of the underlying liability does not materially delay the IRS’s collection action).  In a sense, the CDP process is a conceptually bifurcated but consolidated proceeding in which the taxpayer may challenge, in the first place, the assessment of the underlying liability.  Secondarily, the taxpayer may also challenge the proposed actions to collect the assessed liability if they are determined to be owed.  De novo review of all issues associated with adjudicating all matters related to the underlying assessment would afford the CDP petitioner the same rights as they would receive through other avenues of review—whether in Tax Court or in District Court where the taxpayer may challenge an assessment on last-known-address grounds and the District Court would review the issue without deference.  De novo review would also permit the taxpayer to obtain (and introduce as evidence) information from the IRS that is relevant to a last-known-address determination.

Third, how extensive is the IRS’s due diligence obligation to locate a taxpayer’s correct address when it knows or has reason to know that the taxpayer is not receiving mail at the address in its records? Under the law, taxpayers have a duty to clearly notify the IRS when their address changes, and the IRS has an obligation of “reasonable due diligence” to identify the taxpayer’s correct address when they know the address in their records is wrong.  In many last-known address cases, the taxpayer could have done a much better job at clearly notifying the IRS of their address change, and the IRS could have done more to locate the taxpayer’s correct address when it was obvious the address in their files was invalid.  In determining whether a notice was mailed to the taxpayer’s “last known address,” courts at times tend (as a practical matter) to balance the respective obligations that both taxpayers and the IRS have; however, different courts place more or less of the onus on one side of the balance or the other.

The 7th Circuit in Gyorgy determined that the IRS had met its “reasonable due diligence” obligation and thus the mailing address it used constituted the taxpayer’s last known address.  It may be important that Gyorgy’s facts, as portrayed in the 7th Circuit’s opinion, are unsympathetic.  He had failed to file returns for the tax years at issue and at least four subsequent years, had kept the IRS utterly in the dark about his whereabouts, and on the witness stand he even admitted that he moved around so much that his correct address was hard to keep track of.  The IRS’s records suggested that the postal service also did not have a more recent address than the address appearing on his last filed tax return—for tax year 2000.  The IRS had received returned mail from the address in its records as well as W-2 and 1099 forms for 2002 and 2003 that showed different addresses, but the IRS received no responses to R-U-There letters sent to at least one of those different addresses.  Based on these facts, the 7th Circuit did not require the IRS to expand its search for the taxpayer’s address beyond the IRS’s own records.

The 7th Circuit acknowledges in its opinion that it may have required less of the IRS to meet its due diligence obligation than other courts had in other cases.  It discussed a leading case out of the 5th Circuit, Terrell v. Commissioner, in which the 5th Circuit required the IRS to expand its investigation to at least certain accessible sources, which may include DMV records, or contacting the taxpayer’s employer or return preparer. These are among the sources the IRS routinely consults when attempting to collect taxes, so why shouldn’t it take these steps when notifying taxpayers of important rights?  The facts of Terrell, however, are distinguishable for many reasons including that the taxpayer had filed tax returns and taken reasonable although imperfect steps to allow the IRS to know her correct address.  The 7th Circuit expressly declined to decide whether it should categorically reject Terrell or should follow Terrell if presented with a similarly sympathetic set of facts.

A question readers may wish to consider is whether the juxtaposition of Gyorgy and Terrell represents a developing circuit split on whether the definition of “reasonable due diligence” requires investigation into records not currently in the IRS’s possession when the IRS knows the mailing address in its records is wrong; or whether the differences in the cases reflect that the “reasonable due diligence” standard calls for a pragmatic, fact-driven approach that may be influenced at least partly on the reasonableness of the taxpayer’s efforts; or whether it suggests something else entirely.


In summary, the posture of the Gyorgy case placed three procedural issues in the 7th Circuit’s hands.  Although the court punted on the record rule, it raised relevant and worthwhile points on all three issues, which readers may wish to weigh in on.

Editor Update

Jack Townsend’s Federal Tax Procedure Blog also has a nice write up of the case, where he raises a practical question as to why a nonfiler would want to raise the last known address issue: “ In the case, Gyorgy filed no tax returns, so, even if he prevailed on the issue of last known address, the IRS still has the ability to assess.  (I presume that he did not do the § 6020(a), here, substitute for return which he signed, thus making it a return.)”