What happens when IRS wishes to issue stat notice to taxpayers who filed joint returns? Section 6212(b)(2) provides that the notice may be a single joint notice, except if the IRS has been notified that the spouses live separately. IRS Restructuring Act of 1998 in an off-Code provision states that IRS is required, “whenever practicable,” to send “any notice” relating to a joint return separately to each spouse. When taxpayers file joint returns, and IRS issues a stat notice, IRS policy is to send duplicate notices to each spouse even if they live at the same address.
Parson v Commissioner is a recent undesignated Tax Court order that highlights the risks to the IRS when it does not strictly follow its procedures for issuing separate notices.
read more...Here are the facts. Parson involved married taxpayers who lived at the same address. In 2014, the husband filed a MFS return and the wife did not file a return; in 2015 they filed a joint return. IRS examined the husband’s 2014 MFS return and the 2015 joint return. IRS issued and sent a single stat notice that covered the husband’s 2014 MFS return and the joint return. The letter portion of the stat notice was addressed only to the husband. The waiver allowing immediate assessment only listed the husband as the sole taxpayer. Accompanying the letter were two separate Forms 4549 A, Income Tax Examination Changes, one for 2014 in the husband’s name and the other for 2015 that referred to both husband and wife.
The Parsons together filed and signed a single petition; the petition swept in both years. For 2014, IRS moved to dismiss the case for the wife, which the Tax Court granted, given that in 2014 the examination pertained to the husband’s MFS return.
Special Trial Judge Armen on his own raised the issue of a jurisdiction for the wife for 2015 given that the stat notice letter only listed the husband’s name. IRS claimed that the Tax Court had jurisdiction over the wife for 2015 because the Income Tax Examination Change Form 4549 A for 2015 also had her name on it and that she was not misled or confused—after all she did file a petition the Tax Court.
Judge Armen disagreed:
However, the Court views the matter differently. First and foremost, it is clear that the . . . notice of deficiency was addressed solely to [husband]. See I.R.C. sec. 6212(a) and (b). Second, the Commissioner is obliged, “wherever practicable, [to] send any notice relating to a joint return under section 6013 of the Internal Revenue Code of 1986 separately to each individual filing the joint return.” Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. No. 105-206, sec. 3201(d), 112 Stat. at 740. This was not done in the present case.
The order thus dismissed the wife’s case for lack of jurisdiction; the order goes on to state that of course IRS could issue a separate stat notice to the wife and that if she wishes to challenge that in Tax Court she will have to timely file a new petition.
Observations and Conclusion
RRA 98’s off Code provision requiring “wherever practicable” that IRS issue separate notices related to a joint return is an important protection from abusive or controlling spouses that may not share correspondence (IRS by the way interprets “any notice” relating to a joint return as only notices required by statute). The separate notice requirement is not an absolute directive and Section 6212 allows a single joint notice when IRS does not know that spouses live separately. The order in Parson highlights the risk to IRS when its stat notice itself fails to explicitly list both spouses’ names, and IRS fails to send separate letters. Parson also is a reminder to practitioners to review carefully IRS correspondence to make sure that IRS complied with its notice requirements. Query how Judge Armen would have ruled if the IRS had sent a duplicate copy of the stat notice addressed to the wife that failed to include her name on the letter portion of the notice.
Hat tip to Lew Taishoff who flagged this order on his blog.
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Thank you, Leslie. I’m loving this blog.
May I ask you to define the phrase “off code” provision. Is it a provision not contained in the United States Code but still controlling? Thank you.
Jesse, sometimes Congress passes law that is not specifically included in the IRC; those are referred to as noncode provisions. It does so for many reasons–sometimes legitimate (not adding additional clutter); other times not so (benefitting some taxpayers it wishes to keep somewhat hidden). An article by Chris Hanna, Magic in the Tax Legislative Process, discusses this more at around page 658 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=981040
Great. Thank you for your response. Thank you for this incredible content.
“When taxpayers file joint returns, and IRS issues a stat notice, IRS policy is to send duplicate notices to each spouse even if they live at the same address.”
IRS policy when the joint spouses live together is to sometimes send a single joint notice, sometimes send a single separate notice to the spouse who filed the joint return, sometimes send a single separate notice to the spouse who signed but didn’t file the joint return which the other spouse filed, and sometimes send separate-but-unequal notices to the not-separate spouses (and sometimes send no notice at all when the IRS files something in its records).
I don’t know if IRS policy(ies) for Notices of Deficiency differ from their policies for other stat notices.
“The order thus dismissed the wife’s case for lack of jurisdiction; the order goes on to state that of course IRS could issue a separate stat notice to the wife and that if she wishes to challenge that in Tax Court she will have to timely file a new petition.”
So marriage is diametrically opposite to other kinds of partnerships, eh? A partner who received the stat notice despite deficient addressing and who timely petitions sometimes does but sometimes doesn’t obtain Tax Court jurisdiction?
Which side did you say bears risks from this kind of malfeasance?
Shoudn’t the husband be claiming $1,000 in damages from IRS under Section 7431, for the negligent disclosure of his return information to his wife?
“The letter portion of the stat notice was addressed only to the husband.”
If the wife obtained return information from the husband’s MFS return, maybe it came from the husband, or maybe it came from an IRS court filing during litigation.
the 9th Circuit ruled that section 7431 authorizes the IRS and DOJ to disclose return information to the public when the return is in litigation. The DOJ persuaded courts to overturn the DOJ’s position which the DOJ publishes in its Criminal Tax Manual, where the DOJ said that section 7431 only authorized disclosure TO THE DOJ and not to the public.