There was only one designated order for the week of November 2, 2020 (Reddix-Smalls v. C.I.R., Dkt. # 17975-18L (docket with link here)). In it, Judge Gustafson ruled on whether a petitioner (allegedly) telling an Appeals Officer (AO) of a new address during a telephonic Collection Due Process hearing would legally change the individuals “last known address.”
Spoiler: it did not.
Second Spoiler: I’m still going to write about it, because there are a lot of interesting lessons to take from the order. The designated order provides a great opportunity to walk-through the statutory, regulatory and sub-regulatory guidance on point. It also gives us a chance to reflect on some of the recent legal developments in that area.
“readThe Importance of the “Last Known Address” I teach my students that many of the important “milestones” in federal tax procedure are hit by the IRS mailing a letter. This is seen with the Notice of Deficiency -the letter which generally makes assessment possible for the IRS in deficiency cases. IRC § 6212(b) lays out where a Notice of Deficiency should be mailed to, noting that the taxpayer’s “last known address” is sufficient. The statute says effectively nothing about what someone’s last known address should be, so the Treasury Regulations and other guidance pick up the slack. The stakes are high (potentially invalidating the deficiency assessment), so determining exactly what the last known address is can be a very contentious issue.
So it is in the case of Reddix-Smalls, though not with regards to a Notice of Deficiency. In this instance Ms. Reddix-Smalls needs to show that a Collection Due Process “Notice of Determination” was not sent to her last known address. If it was sent to her last known address she arguably failed to clear the second “timeliness hurdle” (see post here) for petitioning the Tax Court, ruining jurisdiction and dismissing her case.
Dismissal would effectively result in the IRS Notice of Determination being upheld -in this, case the determination to levy. It isn’t clear that Ms. Reddix-Smalls has any great arguments as to why levy is inappropriate, but I’d note that all of the important events (CDP hearing, determination, petition) in this instance took place in 2018… and this order for dismissal came in November 2020. It is fair to say that a lot may have changed for Ms. Reddix-Smalls in those tumultuous intervening two years -perhaps even a change in circumstance that would warrant a remand for a supplemental CDP hearing.
Alas, the Tax Court cannot order a remand for a supplemental CDP hearing without jurisdiction over the matter to begin with. And the first order of business, in essentially any case, is determining if the court has the power to hear the case at all.
(As an aside, query whether Ms. Reddix-Smalls could get a supplemental hearing even without the Tax Court under IRS Appeals “retained jurisdiction.” See IRC § 6330(d)(3). I’ve written previously about the nuance of Appeals retained jurisdiction and when it can be invoked, but I’ve never tried it myself.)
Determining the Last Known Address
Usually, determining the taxpayer’s last known address is pretty straightforward: the “general rule” that the last known address is whatever was on the most recently processed tax return covers the majority of taxpayers. See Treas. Reg. § 301.6212-2(a). On occasion the facts can get convoluted, particularly when the taxpayer has hinted to the IRS that a different address might be best. Are these hints enough to be “clear and concise notification” as required by the regulation? That can be a highly factual inquiry, and the exact contours are still being determined. For a while, filing Form 2848 with the IRS listing a different address for the taxpayer appeared to be sufficient. Then the Tax Court said “no” in Gregory v. Commissioner, 152 T.C. No. 7 (2019). Then the 3rd Circuit said “maybe” and reversed the Tax Court in Gregory (as covered here). I’d say the present state of affairs on the issue is a bit unsettled.
Obviously, the designated order in Reddix-Smalls is not precedential (neither was the 3rd Circuit decision reversing Gregory). But since we are living in an uncertain world where we must weigh specific facts and circumstances to see if they may be enough to qualify as “clear and concise” notification to the IRS, orders like Reddix-Smalls are still helpful in gauging how Tax Court judges are likely to rule.
There appear to be two potential “last-known” addresses for Ms. Reddix-Smalls. One in North Carolina (NC) and one in South Carolina (SC). Timelines matter in these inquiries, and here the timeline is as follows: in 2017 Ms. Reddix-Smalls filed a change of address with the U.S. Postal Service listing the NC address. In April 2018, however, Ms. Reddix-Smalls filed a joint tax return listing the SC address. In August 2018 the IRS sent the Notice of Determination to that SC address…
If those were the only facts here it would be an easy case: the “last known” address was the SC address, since it was most recent update with the IRS at the time of the Notice of Determination. But there is an additional wrinkle: Ms. Reddix-Smalls insists that she specifically told the AO that she changed her address to NC during her Collection Due Process hearing.
Assuming that’s true, wouldn’t that be “clear and concise” notification?
Maybe not. Though the parties dispute that fact, Judge Gustafson determines that even if Ms. Reddix-Smalls did tell the AO of the changed address that would not be sufficient.
Can that really be so? Literally telling the person at the IRS sending the letter “my address has changed” is not “clear and concise” notification of a change in address? Judge Gustafson asks the parties to explain their thoughts on this before he rules on the matter.
The IRS argument largely hinges on the fact that the AO doesn’t have access to the “Service Master File,” and therefore can’t change the address on file for the agency. Remember, the IRS is a pretty big bureaucracy: perhaps it would be unfair to impute the knowledge of a different address from one individual to the entire agency. There is a way for the AO to request that the IRS change the address agency-wide (apparently by sending “Form 2363” to Account and processing Support). But the AO didn’t fill out or send that form anywhere, so the address didn’t change -or more accurately, under IRS processes the address shouldn’t change.
This might seem a bit ridiculous to the general public: if I told an Appeals Officer at the IRS my address changed but they didn’t take any steps to affect that change in their database I’m out of luck? But the IRS argument is backed up by… IRS guidance. Specifically, Rev. Proc. 2010-06 which provides that telephonic changes of address (1) need to be done with employees that have access to the Service Master File, and (2) must include a fair amount of information about the new address and their identification. (Lingering in the background of this order are questions of whether Ms. Reddix-Smalls actually gave the IRS any address at all during the CDP hearing.)
And so, as Judge Gustafson rules, it doesn’t actually matter if Ms. Reddix-Smalls told the AO of her new address, because the AO (1) didn’t have access to the Service Master File, and (2) took no steps to get that information to IRS employees that do have such access. The Notice of Determination was sent to the proper last known address on file and was therefore effective. The petition was late based on the 30 days running from the (effective) mailing. Case dismissed.
What are some things we can glean from this ordeal?
One is a reminder of the lesson that it’s always wise to thoroughly document and memorialize (with a letter or fax) the conversations you have with the IRS. I’ve written about the importance of the administrative record in Collection Due Process before. Here, the issue arguably isn’t the Tax Court’s scope of review and whether it is limited to the administrative record, because the issue isn’t a review of the hearing, but of jurisdiction: was the Notice of Determination sent to the last known address? Yet the lesson of documenting everything holds just as true. The case would be bolstered immensely (possibly on appeal, as was done in the aforementioned Gregory v. C.I.R. decision) if there were a paper trail. A fax to the AO showing that Ms. Reddix-Smalls insisted that her address is somewhere else (and actually listing it) is simply a stronger form of “clear and concise notification” than a he-said-she-said phone call log (from the IRS AO, no less). Particularly if it was the AO that prepared and mailed the Notice of Determination (and not some other function of the IRS), one might ask why clear and concise notification to that employee shouldn’t suffice.
Relatedly, this order may serve to remind us that the IRS is a massive agency which makes it extremely cumbersome to (1) impute knowledge from one employee to the agency as a whole, and (2) get a firm grasp on exactly what authorizations any given employee has. The latter point is sometimes demonstrated in issues with settlement authority (see Keith’s post here as but one example). Here it is demonstrated in issues with changing your address on file… and the consequences that emanate therefrom.
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I would want to know whether the IRS representative in the oral conversation did or did not tell the taxpayer that he acknowleges the change of address and will take care of it or that it doesn’t count. It seems to me that as big a bureaucracy as the IRS is, the taxpayer is entitled to believe that it is interacting with the IRS, period, full stop, when it is interacting with an agent. It is incumbent upon the agent to tell the taxpayer that that oral notice or a new address doesn’t count and how to send it in in writing. A Revenue Procedure or any internal IRS authority that absolves agents of this basic level of responsibility should be thrown out as invalid. It is fair and appropriate to hold taxpayers responsible for knowing that informal oral advice that they may glean on the substance of a tax question from a conversation with an IRS representative cannot be relied on, but it is preposterous to expect taxpayers to know that in a case-specific discussion with an IRS agent, the agency is entitled to hold taxpayers to some of the things that they say but ignore other things.
The Order relies on a Revenue Procedure for its decision. Revenue Procedures, like Revenue Rulings and other IRS announcements that do not go through the Administrative Procedure Act’s required process, should be ignored by a court of law. Back when the Tax Court was the Board of Tax Appeals it was an administrative agency part of the executive branch. In 1969 the court was moved out of the legislative branch and became what is known as an Article I Court. It’s been 50 years since the Tax Court moved to the judiciary. Isn’t it time to stop considering internal IRS administrative policies and procedures as binding law on taxpayers?
Steve,
In our briefs in Gregory, we argued that the Rev. Proc. deserved no deference on how to inform the IRS of a change of address — particularly as it did not articulate any reasoning for its statements. We argued that the concept of last known address was a statutory one that the courts had fleshed out and that, since the concept went to the Tax Court’s jurisdiction, a party shouldn’t be defining last known address, anyway. Effectively, the Third Circuit in the case ignored the Rev. Proc., though it did not say so in its opinion.