Paul L. Caron

Monday, October 1, 2018

Lesson From The Tax Court: When Non-Receipt Of An IRS Notice Matters

In 2015, Congress added what is commonly called the “Taxpayer Bill of Rights” to the Tax Code.  Currently codified in §7803(a)(3), it lays upon the IRS Commissioner the duty to ensure that IRS employees “are familiar with and act in accord with taxpayer rights as afforded by other provisions of this title.”  Section 7803(a)(3) then lists 10 (natch!) rights including “the right to be informed” and “the right to appeal a decision of the Internal Revenue Service in an independent forum.”  I wonder whether the person who drafted that last quoted language, or any of the folks who reviewed it, discussed whether it makes any grammatical sense for one to “” a forum?  

Putting aside the grammatical question, readers might well question the impact of these rights on IRS operations.  The recent case of Paul T. Venable, II v. Commissioner, T. C. Memo. 2018-144 (Sept. 10, 2018), suggests an answer for the two rights I quoted above: the right to be informed and the right to appeal an IRS decision to an independent forum.  It teaches a lesson about the rare situation where the lack of actual receipt of an IRS notice can be important to a taxpayer’s ability to get judicial review of an IRS decision.  But the lesson does not come from the language in §7803(a)(3).  Nope, the lesson comes from language in “other provisions” in the Code, notably the CDP provisions in §6330(c).

The Law

The Tax Code requires the IRS to give taxpayers lots of different notices.  Generally, the statutory requirements for notice are satisfied when the IRS properly gives notice, whether or not the taxpayer actually receives the notice.  Perhaps the most common example is the NOD.  Section 6212 requires that before the IRS can assess a deficiency of tax the IRS must sent the taxpayer a Notice of Deficiency.  Notably, §6212(b)(1) says that the NOD “mailed to the taxpayer at his last known address, shall be sufficient.”  What constitutes a taxpayer’s “last known address” is regulated both by case law and by Treas. Reg. 301.6212-2 and is a complex subject far beyond the scope of today's post. The basic point here is that, under those authorities, if the IRS has sent the notice to the last known address, then notice is properly given and actual receipt by the taxpayer does not matter. 

If the NOD is not sent to the proper last known address, however, then it can still be valid if the taxpayer actually received the notice in time to file a Tax Court petition.  See discussion in Sarkissian v. Commissioner, T.C. Memo. 2012-278.  Further, as the Tax Court explains in Sarkissian, a taxpayer’s deliberate refusal of an NOD amounts to actual receipt. 

If an NOD is properly given or actually received, the taxpayer’s resulting failure to timely file a Petition in Tax Court allows the IRS to assess the proposed deficiency of tax.  Once that assessment is made, it is very, very difficult for a taxpayer to obtain judicial review of that IRS decision unless the taxpayer first fully pays the tax and files a claim for refund.  Flora v. United States, 362 U.S. 145 (1960).  

If, however, an NOD is properly given but not actually received, the affected taxpayer may get a later opportunity to contest the resulting assessment without first having to fully pay, courtesy of the CDP process.  That is because §6330(c)(2)(B) permits the taxpayer in a CDP hearing to challenge “the existence or amount of the underlying tax liability for any tax period if the person did not receive any statutory notice of deficiency....”  Notice that the statute makes the ability to contest a tax liability during a CDP hearing contingent on receipt, not simply proper notice.  That is what happened in the Venable case, decided by Judge Pugh.


Between 2011 and 2014, the IRS sent Mr. Venable NODs for the periods 2008, 2009, 2010 and 2011.  The first three NODs were sent to Mr. Venable at 1002 N. D Street, Parma, Idaho.  However, for a reason not disclosed in the opinion, the IRS sent the 2011 NOD to a different address: 27702 Pet Lane, Parma, Idaho.  The latter is in the same zip code but is about 4 miles away, outside of town.  You can, of course, see for yourself on Google Maps.

Mr. Venable did not respond to any of the four NODs.  In October 2015 the IRS filed a Notice of Federal Tax Lien and sent Mr. Venable the CDP notice required by §6320.  The opinion does not say which address the IRS used for the CDP notice but it really does not matter because Mr. Venable actually received that notice and timely requested a CDP hearing.  And §6320(c) says a §6320 hearing has the same substantive components as a §6330 hearing.  That includes the right to challenge a tax liability when the taxpayer can prove he has not received the relevant NOD.

In this case, the IRS stipulated that Mr. Venable had not received the NOD for the 2011 tax period.  So he had the opportunity to contest his 2011 liability in the CDP hearing.  It appears, however, that Mr. Venable is a hobbyist.  Thus, he wasted his opportunity by filing a 100 page opening brief and a 30 page answering brief to contest the constitutionality of the income tax.  As you might imagine, no one was impressed.  Judge Pugh warned Mr. Venable that “he may expect a [§6673] penalty in a future case if he persists in maintaining the same frivolous and meritless positions or uses the Court primarily for delay...”

Lessons: Merits and Process.

I take two lessons away from this case.  First is the merits lesson.  While the failure to actually receive an NOD cannot prevent the IRS from assessing a tax, it does allow the taxpayer to contest the merits of the tax liability in a CDP hearing before having to fully pay.  That’s good to know.  The reason for that, however, has nothing to do with the puffery in the §7803(c)(3) “Bill of Rights."  It has everything to do with the actual language of §6330(c).  Section §7803(c)(3)’s “right to be informed” carries no meaning independent of the “other provisions” in the Tax Code.  It cannot, by itself, turn the usual rule of proper delivery into a rule of actual receipt.    

Of course, the IRS also offers an audit reconsideration process that taxpayers can use rather than waiting for the small window of opportunity to trigger the CDP process.  While there is no court review of an audit reconsideration, taxpayers with decent facts have at least as good a chance of getting relief that way as through CDP.  And if one acts timely, one can do both. 

I see a second lesson in the relevant dates of this case.  The IRS filed the NFTL on October 26, 2015, triggering the CDP process.  That CDP process came to an end on September 10, 2108, almost three years later, with Judge Pugh’s opinion  sustaining the SO’s collection decision.  Three years.  That is why I frequently call CDP “Collection Delay Process.”  Delay is the debtor’s friend.  Sure, in this case at least the NFTL was public during the three years, protecting the tax lien’s priority as against other creditors of Mr. Venable.  But now if and when the IRS wants to levy, it needs to afford Mr. Venable another CDP opportunity.  Another three years.  And if this had been a levy CDP, Mr. Venable would have been protected from any wage or other levy for the three years it took to resolve the dispute. 

It is almost as if there is an 11th right in that Taxpayer Bill of Rights in §7803(a)(3):  the right to delay.

Bryan Camp is the George H. Mahon Professor of Law at Texas Tech University School of Law.

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Sorts out this area of law beautifully. Thank you, Bryan.

Posted by: Bradley Burnett | Oct 7, 2018 7:21:19 AM