Source: https://procedurallytaxing.com/category/last-known-address/
Timestamp: 2019-04-21 10:35:44+00:00

Document:
In Sadek v. Commissioner, T.C. Memo 2018-174 the Court decided the issue of a taxpayer’s last known address at the time of the mailing of the notice of deficiency. These cases occur regularly. We have not written about one recently and this one is interesting because no one seemed to know the taxpayer’s last known or current address including his lawyer. The taxpayer did not file the Tax Court petition until more than four years had passed from the issuance of the notice of deficiency. The only reason that the taxpayer filed the petition in Tax Court was to obtain from the court a ruling regarding last known address. From the outset of the case the Tax Court lacked jurisdiction to hear the merits of the underlying liability but could in dismissing the case determine whether the assessment based on the default in filing a timely Tax Court petition could stand. For another take on this case with greater detail see the post by Bryan Camp in his lessons from the Tax Court series.
The amounts at issue are eye popping. The IRS assessed Mr. Sadek over $30 million in income tax and penalties for 2005 and 2006. Prior to making the assessments, the IRS sent a notice of deficiency to him at an address in California and one in Nevada. The IRS mailed the notice of deficiency on August 25, 2011. At the time it mailed the notice, the last correspondence it had from Mr. Sadek appeared on his 2005 individual income tax return which he filed on May 21, 2009. It showed a California address and the IRS sent one copy of the notice to that address. In October of 2009 Mr. Sadek filed bankruptcy in Nevada. The IRS sent a second copy of the notice to the address in Nevada that Mr. Sadek used in filing the bankruptcy petition. At the time the IRS mailed the notice Mr. Sadek actually resided in Beirut, Lebanon; however, the IRS did not send a notice to him in Beirut.
During the pendency of petitioner’s appeal, AO Zhou and Mr. McGinnis communicated about petitioner’s location. Mr. McGinnis informed AO Zhou that petitioner was out of the country, but AO Zhou was unable to get a new address from Mr. McGinnis despite repeated attempts. AO Zhou never spoke directly with petitioner, and Mr. McGinnis represented to AO Zhou that petitioner had cut off contact with him as well.
Anyone who has represented a client before the IRS and had the client go missing knows the uncomfortable feeling that Mr. McGinnis must have felt over not knowing the location of his client. Representing low income taxpayers, I do regularly lose touch with clients. Although the clinic does not have fee issues creating concerns about lost clients, we have plenty of other issues and try hard to reestablish contact if possible. Of course, the Appeals Officer would also have been uncomfortable. She knew the importance of sending the notice of deficiency to the correct address. She seems to have diligently pursued the address and defaulted to the best information in the IRS system when the taxpayer’s current address was not forthcoming. I hope that the IRS also sent a copy of the notice of deficiency to Mr. McGinnis. Maybe that did not help here since Mr. McGinnis had lost touch with his client but the copy of the notice sent to the representative will often keep the client from defaulting on a notice sent to the “last known address” which is not the actual address.
Mr. Sadek resided in Beriut from September 2010 through May 2014. While the IRS did not know where he resided, the FBI investigator assigned to his case did have conversations with him and knew that Mr. Sadek was out of the country even though he did not have a specific address for Mr. Sadek.
Last, Mr. Sadek argues that the IRS knew the two addresses to which it sent the notices were wrong and so the notice could not be valid. The Tax Court holds that the burden falls on the taxpayer to keep the IRS informed of his address and not on the IRS to find exactly where someone lives. The IRS tried to find his correct address and even Mr. Sadek’s own representative could not tell the IRS where to send the notice. The case shows that the IRS must make an effort when it knows that the address it has is wrong but that effort need only be reasonable. The taxpayer bears the burden to keep the IRS informed. When your own representative does not know how to find you, you will have an uphill battle convincing a court that the IRS should have known your address. Most cases do not have the personal involvement of an Appeals Officer prior to the issuance of the notice of deficiency and an Appeals Officer who directly questions the representative regarding the proper address. In the face of that type of questioning, taxpayer’s failure to provide the IRS with the proper address causes the outcome here.
Mr. Sadek owes a lot of money. That kind of money makes it worthwhile trying to set aside the assessment for an improperly filed notice. Since his case was dismissed for lack of jurisdiction because of an untimely petition and not because of a wrongly addressed notice of deficiency, the IRS assessment stands. If he wants to contest the underlying liability now, he must find the money to pay for at least one of the two years in order to meet the requirements of Flora.
Returned to Sender: Should the IRS Be Required to Search for A Taxpayer’s New Address Beyond its Own Databases When a Notice is Returned as Undeliverable?
The IRS is required to send via certified mail to the “last known address” of a taxpayer several notices that contain substantive legal rights, including statutory notices of deficiency, final notices of intent to levy, and notices of filing of federal tax liens. The Code requires a taxpayer to exercise the right to appeal the actions proposed in these notices within very strict time limits. The time limit for claiming the substantive right provided in the notice (e.g., filing a Tax Court petition within 90 days), begins to run on the date of mailing, regardless of whether or when the taxpayer actually receives the notice. The IRS need only exercise reasonable diligence in ascertaining the “last known address” of the taxpayer for purposes of mailing the notice. The Code does not require “actual” receipt.
An expansion of the reasonable diligence standard applicable to determining the “last known address” was proposed by the National Taxpayer Advocate in her 2012 annual report and is the subject of The Last Known Address: A Joint Effort Between the IRS and the U.S. Postal Service, Larry Jones and Rachel Multer Michalewicz. Though the article was published in the April-May 2014 issue of the Journal of Tax Practice & Procedure, the question remains relevant today. Courts beyond the Fifth Circuit Court of Appeals have remained reluctant to require the government, upon return of a notice, to search for a new address for a taxpayer in databases outside of the IRS, such as motor vehicle and real property records, despite the government’s access to and routine use of these databases for other purposes (e.g., to locate assets upon which to levy).
In The Last Known Address: A Joint Effort Between the IRS and the U.S. Postal Service, Jones and Michalewicz discuss what constitutes “clear and concise notification of a change of address” for purposes of the IRS’s burden to send certain notices, including statutory notices of deficiency (SNOD), to a taxpayer’s last known address. In particular, the authors look more closely at the change of address process to IRS records effected by a database maintained by the U.S. Postal Service and claim that errors in the process may prejudice a taxpayer.
As the authors explain, Treas. Reg. 301.6212-2(a) “defines ‘last known address’ as ‘the address that appears on the taxpayer’s most recently filed and properly processed Federal tax return, unless the Internal Revenue Service (IRS) is given clear and concise notification of a different address.’” The IRM applicable to Notices of Deficiency warns “[i]n no event should databases or information outside of the IRS be consulted for addresses. Alternative addresses, to the extent that they are used, must have been provided to the IRS by the taxpayer or his representative (or other agent).” IRM 4.8.9.8.2.5 (07-09-2013).
While the IRS generally will not accept change of address information from a third party, an exception is provided in the regulation for regular address updates obtained from the U.S Postal Service (USPS). See Treas. Reg. Sec. 301.6212-2(b)(1) & (2). The USPS maintains a National Change of Address (NCOA) database which is forwarded to the IRS weekly. See IRM 4.8.9.8.2.1 (08-11-2016) (SNOD Last Known Address guidance). The article explains how the IRS goes about updating an address from the NCOA database and notes the IRS allows the update to carry through despite the fact that the names may not match exactly.
For instance, as the authors explain, “if the NCOA database shows a Bob Smith who changed from one specific address to another, and the IRS records show a Robert Smith with that same prior address, the IRS can consider that a match and update the records.” The new address from NCOA will be considered the last known address until the taxpayer files a tax return with a different address or gives the IRS “clear and concise notification of a different address.” Contrast this with IRS rules that narrowly restrict attempted changes of address by a taxpayer himself.
Id. A phone call from the taxpayer requesting an address change is insufficient unless it is made in connection with a conversation about an open account or adjustment and authentication of the caller’s identity is verified using the criteria in IRM 21.1.3.2.3 and 21.1.3.2.4. IRM 4.8.9.8.2.4 (07-09-2013). See also Rev. Proc. 2010-16, 2010-19 IRB 664.
I can certainly see why many of these restrictions seem appropriate safeguards to preventing theft of taxpayer information. Yet, as the authors point out, allowing the USPS NCOA to effect an automatic update to a taxpayer address without an exact name match is prejudicial to taxpayers and seems inconsistent with these safeguards. Couldn’t a third party file a change of address form for a taxpayer with the local post office resulting in the same identity theft issue (though obviously the IRS would not be responsible)? In my former career as a federal prosecutor, I once handled an identity theft case involving a taxi driver who was doing just that: redirecting other people’s mail to post office boxes he set up for the purpose of collecting their financial information, including credit card cash advance offers that he then used to the detriment of these individuals.
As the authors explain, a taxpayer residing in the Fifth Circuit (Louisiana, Mississippi and Texas), may have the added benefit of the Fifth Circuit Court of Appeal’s more expansive requirement of reasonable diligence in determining the “last known address.” In Mulder v. Commissioner, 855 F.2d 208, 210 (5th Cir. 1988), the Fifth Circuit invalidated a notice of deficiency and held the IRS had a duty to further investigate when the postal service had returned letters to it prior to the mailing of the notice of deficiency. Likewise, in Terrell v. Commissioner, 625 F.3d 254, 257 (5th Cir. 2010), the court held the IRS has a duty to further investigate by, e.g., searching DMV or other records, where the “IRS knows or should know at the time of mailing that taxpayer’s address on file may no longer be valid [due to] previously returned letters, . . . .” Nonetheless, as Jones and Michalewicz explain, even in the Fifth Circuit, taxpayers benefit from this more generous standard only at the time of the original mailing of a notice, not if that notice is then returned to the IRS.
Ultimately, the authors conclude that it would not be unreasonable to require the IRS to investigate further to determine a correct address for a taxpayer upon receipt of an undelivered notice (or other credible information questioning the accuracy of the address information on the IRS’s original notice). As the article points out, the National Taxpayer Advocate has urged Congress to amend the Code to require that the IRS look beyond its own databases to locate potential new addresses for sending taxpayers important notices, such as notices of deficiency.
If the IRS were required to search beyond its own databases to locate a new address for a taxpayer, presumably to send a new notice, how far should it be required to go? Which databases should the IRS consult? To be clear, the examples the authors suggested (and the National Taxpayer Advocate has suggested) include motor vehicle records and real property records; they do not suggest the IRS could or should rely on a “Google” search for this information. Motor vehicle records and real property records typically contain information from the individual to which they pertain. In the context of low-income taxpayers, who tend to move frequently, and may not file or may not be required to file a tax return each and every year, this would seemingly improve the chances of actual receipt of a notice of deficiency. But, as the authors note, broader search requirements will also raise more questions, such as whether a second notice to a newly located address re-starts the 90 day window for filing a Tax Court petition, and whether the courts should validate the IRS’s extra search effort, even when the IRS picks the wrong Bob Smith.
Out of 8 designated orders last week, I am focusing on two cases that relate to the last known address of the Petitioner (reinforcing the necessity of communicating address changes to the IRS) and one case where Petitioner needed to provide more evidence to support his claims.
The first two cases cited are bench opinions, authorized under IRC section 7459(b). Tax Court practice is to read a bench opinion into the record, wait to receive the printed transcript weeks later, then issue an order serving the written copies of the transcripts to the parties (who may or may not have paid the court reporter for those transcripts). Bench opinions are just as subject to appeal as other cases, so long as the case involved has not been designated a small tax case under 7463. The written version of the bench opinion is useful for the appellate court.
Docket # 22293-16, Nathanael L. Kenan v. C.I.R. (Order Here).
Mr. Kenan filed his 2011 tax return from his address on Ivanhoe Lane in Southfield, Michigan. Mr. Kenan alleges that he moved to a new address, Franklin Hills Drive, in Southfield prior to February 2013 and notified the U.S. Postal Service regarding his change of address. The IRS mailed a statutory notice of deficiency (“SNOD”) to the original address on February 19, 2013. Mr. Kenan filed his 2012 tax return from the second address. Once Petitioner verified the SNOD, he filed a petition with the Tax Court with the argument that no SNOD was ever mailed out.
I previously reported on this case in this blog posting regarding The Court’s denial of Respondent’s motion to dismiss for lack of jurisdiction. Within that post, I noted that the IRS is required to update their addresses based on U.S. Postal Service (“USPS”) Change of Address notifications and those notifications are influential to determine jurisdiction for Tax Court.
The Court held an evidentiary hearing in Detroit, Michigan, on September 18, 2017. Petitioner bore the burden of proof regarding his change of address with the USPS. Petitioner gave oral testimony that he submitted his change of address notification to the USPS after he moved in June 2012 and before the IRS issued the SNOD in February 2013. Petitioner was to give specific details of when he gave notice and what he stated on the form. He did not provide any further specifics or provide documents in support of his statements.
The Court did not have evidence of what Petitioner submitted to the USPS so could not compare the USPS or IRS data (for example, if a name or address submitted to the USPS was misspelled). Based on that lack of evidence, the conclusion was that the IRS acted on the last known address they had for the Petitioner. The Court dismissed Petitioner’s petition for lack of jurisdiction as being untimely filed.
Docket # 9469-16 L, Mark Marineau v. C.I.R. (Order Here).
Patrick Thomas previously reported on this case in this blog posting. At last report, the question was why the IRS sent a SNOD to the Petitioner in Michigan if Petitioner lives in Florida.
Here is the procedural background – Following Petitioner’s Tax Court petition, Respondent filed a motion for summary judgment, supported by a declaration from the settlement officer. The Court directed by order on July 5, 2016, for Petitioner to file a response, but he filed his own motion for summary judgment instead where he objected to Respondent’s motion (filed October 19). Respondent filed a response January 23, 2017, objecting to Petitioner’s motion. Petitioner filed a reply to Respondent’s response on March 24, 2017. The Court ordered Respondent to explain the disparity between the address listed on the Form 3877, the notice of deficiency address and the address where the notice of deficiency was sent. On July 28, Respondent filed a First Supplement to Motion for Summary Judgment, supported by a declaration supported by Respondent’s counsel. Petitioner was ordered to file a response on or before September 14 but did not.
This began when the IRS prepared a substitute return for Petitioner for 2012 because Petitioner failed to file his tax return. On June 8, 2015, Petitioner mailed a letter to IRS headquarters that told of his change of address to a post office box in Fraser, Michigan, stating that it was an official notification and requesting that they update their records. On June 18, 2015, the IRS mailed the notice of deficiency to Petitioner at a Pensacola, Florida, address. Even though the notice was mailed to Florida, the USPS attempted delivery to a Roseville, Michigan, address. The IRS has not explained why it was sent to that Roseville address even though it was addressed to the Pensacola address. The notice went unclaimed and the USPS returned it back to the IRS on July 21, 2015.
Petitioner did not file a petition for redetermination of the notice of deficiency for 2012. The IRS sent demand for payment regarding the full 2012 tax liabilities that Petitioner did not pay.
Following this, the IRS and Petitioner corresponded based off his Pensacola address. First, the IRS mailed a notice of intent to levy and Petitioner filed a Form 12153, Request for Collection Due Process or Equivalent Hearing. Petitioner said he would like to have a face-to-face hearing. He did not check any box to propose a collection alternative but wrote in his statement that he would like to discuss collection options if it is proven he owes the tax. The settlement officer’s response was that in order to have a face-to-face hearing, Petitioner needs to complete Form 433-A and submit a tax return for 2012, plus returns for 2013 and 2014 (or explain why he was not required to file a return for that year/years). Petitioner again requested the meeting but did not supply any of the requested documents so the settlement officer followed up with a reminder letter and second copy of the original letter. Petitioner did not call for the March 1, 2016, hearing date and did not supply the documents. The Appeals Office sent a notice of determination March 17, 2016, to his Pensacola address. Petitioner again responded to request a face-to-face hearing without providing any documents. Petitioner timely filed a petition with the Tax Court and listed his Pensacola address as his mailing address.
The Court concluded there is still an issue of material fact regarding whether the June 8, 2015 notice of deficiency was mailed to Petitioner’s last known address. One issue is while Petitioner’s method of notification to the IRS was unorthodox, Petitioner argues it was a “clear and concise notification” of his change of address. The Court denied both the Petitioner’s motion for summary judgment and the Respondent’s motion for summary judgment.
Docket # 23891-15, Abdul M. Muhammad v. C.I.R. (Order Here).
This case concerns a SNOD sent to Petitioner regarding tax years 2012 and 2013. At issue were $15 in taxable interest unreported in 2013, one dependent exemption in 2012 and two exemptions in 2013, head of household status for both years, American Opportunity Credit or other education credits for both years, a deduction for $7,743 for charitable contributions in 2013, ability to deduct Schedule C business expenses in 2013, penalty for failure to timely file a tax return in 2012, and accuracy related penalty under IRC section 6662(a) in both years.
At trial September 18, 2017, in Detroit, Michigan, Petitioner represented himself and had the burden of proof requirement regarding these noted issues below.
Interest Income: Petitioner presented no evidence to dispute that the $15 was taxable interest income.
Qualifying Children: Petitioner presented no records (school, medical or otherwise) to show that the children lived with him for more than half the year.
Education: Petitioner was enrolled in online courses at the University of Phoenix and had expenses of $4,178 in 2012 and $3,977 in 2013.
Charitable Contributions: Petitioner did not have documentary evidence to show charitable contributions he made to his mosque.
Business Expenses: Petitioner did not offer documentary evidence to support his claim of $10,299 in expenses as a roofer in 2013.
Accuracy Related Penalty: No reasonable cause was provided to dispute the burden in 6662(a) or (b)(1) for a taxpayer’s negligence or disregard of rules and regulations.
As a result, the IRS adjustments were sustained regarding the interest income, dependency exemptions, head of household filing status, business expenses and accuracy related penalties.
However, the IRS did not provide convincing proof regarding Petitioner’s late filing of his 2012 tax return (their documents provided contradictory dates so did not meet the burden of proof). Also, Petitioner claimed $4,377 in charitable contributions but the deficiency stated $7,743 (a difference of $3,366) so the deficiency needed to be recomputed. He was also entitled to the education credits for both years.
Takeaway: Providing evidence at Tax Court, especially documentary evidence, is necessary to win on issues at trial. When the Petitioner only provides oral evidence restating a position on the issue, it is unlikely that will be a successful tactic.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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).
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 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).
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.
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).
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.
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.
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.

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