Generally, it’s nice to be noticed. Tomorrow is my 24th wedding anniversary and I remain truly grateful that my wife noticed me one day long ago at a contra dance at Glen Echo. That notice continues to this day, fully reciprocated.
But sometimes it’s not so nice, such as when the notice comes from the IRS. And when Congress wants the IRS to “notice” taxpayers (pun intended), it generally requires the IRS to send that notice to their last known address.
The last known address rule is critical to learn. Congress puts that rule in about 20 different statutes, helpfully listed in Rev. Proc. 2010-16. The governing regulation generally allows the IRS to comply with the rule by using the address in its Master File database. There are some exceptions. In a blog last November, I discussed one exception: certain events can trigger an IRS duty of due diligence to go beyond the address in its database.
Last week the Tax Court taught us about another exception in Damian K. Gregory and Shayla A. Gregory v. Commissioner, 152 T.C. No. 7 (Mar. 13, 2019) (Judge Buch). There, Tax Court let us know, in a fully reviewed opinion, that a Power of Attorney (Form 2848) does not have the legal effect of telling the IRS that a taxpayer has changed their official address of record. This is important because, as long-time practitioners know, Form 2848 used to work for that purpose (albeit as a backstop). Time to unlearn that old lesson! Details below the fold.
Mr. and Ms. Gregory filed their 2014 tax returns from an address in Jersey City, NJ. The return was selected for examination and the IRS issued an NOD to the Jersey City address on October 13, 2016. In the meantime, however, the Gregorys had moved to a new address in Rutherford, NJ. By the time they learned about the NOD, it was January 17, 2017. They filed a petition on that same day.
"Too late!" said IRS, moving to dismiss for lack of jurisdiction. The NOD had been sent to the address of record in the IRS computer database, the address pulled from the 2014 return. The sad fact the Gregorys may have not actually received it in time to file a petition was immaterial.
The Gregorys likewise moved to dismiss because, they said, the IRS had not sent the NOL to their last known address. They had told the IRS of their new address in two Forms they had submitted long before the IRS issued the NOD. First, they had used their new address on a Form 2848 (Power of Attorney) they sent in late 2015, during the audit. Second, they listed their new address on a Form 4868 (Extension of Time) they filed in April 2016.
The Tax Court held neither Form was sufficient to tell the IRS of a new address. So the IRS was entitled to rely on the address in its database, the Jersey City address.
When Congress wants a person (generally a taxpayer but sometimes a third party) to learn that the IRS is about to take some action regarding them, it requires the IRS to send a notice of the proposed action to the person’s “last known address” and generally requires the IRS to do so by registered or certified mail. Today’s case involves sending an NOD and §6212(a) contains the statutory requirement that the IRS send an NOD to the taxpayer’s last known address. But there are at least 19 other situations where the IRS must send a document to the taxpayer using the taxpayer’s last known address. Curious minds will find the list in §3.01 of Rev. Proc. 2010-16.
The concept of “last known address” is regulated both by case law and by Treas. Reg. 301.6212-2. Although promulgated as an interpretation of §6212, the regulation says (in subsection (c)) that it applies to all statutes where Congress uses the term “last known address.”
It is best to think of the last known address rule as a safe-harbor method for the IRS to follow. It’s a substitute for making the IRS prove actual receipt. King v. Commissioner, 857 F.2d 676, 679 (9th Cir.1988)(“if a notice of deficiency is mailed to the taxpayer at the taxpayer's last known address, actual receipt of the notice is immaterial to its validity.”). However, even if the IRS fails to use the last known address the IRS still wins if it can prove actual receipt in time to file a timely petition. Lindstrom v. Commissioner, T.C. Memo 2007-243 (“It is settled law that the validity of a notice of deficiency will be sustained when mailing results in actual notice to the taxpayer without prejudicial delay.”)(internal quotes and citations omitted). That would not work in this case because the Gregorys did not actually receive the NOD until after the 90 days had run. So here the case turned on whether the IRS had used the "last known address" for the NOL.
I teach the last known address rule as containing a presumption and two exceptions.
The presumption comes in subsection §6212(a). It defines the term “last known address” as “the address that appears on the taxpayer's most recently filed and properly processed Federal tax return....” The regulation does not say what constitutes a properly processed return, but instead tells readers to follow the latest IRS Revenue Procedure on the subject. The current one is Rev. Proc. 2010-16. It helpfully lists both all the Forms that it deems to be returns, and all the Forms it deems to not be return.
The presumption---or you might call it a default rule---can be overcome by two exceptions.
The first exception is also in §6212(a). It says that if the taxpayer gives the IRS “clear and concise notification of a different address” that will trump the default. And just as with the concept of a properly processed return, the regulation says that what constitutes “clear and concise notification” for purposes of the first exception will be governed by the IRS though its Rev. Procs.
Rev. Proc. 2010-16, §5.04(1)(a) says that to be clear and concise notification a document must explicitly state “that the taxpayer wishes the address of record changed to a new address.” The Rev. Proc. explains that “In all cases, clear and concise written notification must be specific as to a change of address. Thus, a new address reflected in the letterhead of taxpayer correspondence will not by itself serve to change a taxpayer's address of record.” In addition, the Rev. Proc. says taxpayers can give clear and concise notification when they respond to “correspondence sent by the Service that solicits or requires a response by the taxpayer” and in the response the taxpayers mark corrections to the taxpayer's address information on the IRS document that the taxpayers return in their response.
The second exception is from case law and is not an issue in this case. Even when a taxpayer has not given the IRS clear and concise notice, courts have held the IRS to a duty of due diligence when the IRS had good reason to know that the taxpayer’s address had changed or that the address on the last filed return is invalid. What triggers the duty of due diligence and what constitutes due diligence is a facts and circumstances inquiry. See Keeton v. Commissioner, 74 T.C. 377 (1980); see also Taylor v. Commissioner, T.C. Memo 2016-81. Generally, however, the trigger must be some specific notification by the Post Office of a failed delivery or some similar information received from third parties that the address in the database is wrong.
Judge Buch’s opinion teaches two important lessons.
1. Forms 2848 and 4868 are not “returns” for “last known address" purposes.
Judge Buch points out that not all documents taxpayers file with the IRS are returns. He uses the common law test the Tax Court synthesized in Beard v. Commissioner, 82 T.C. 766 (1984) to explain why neither Form 2848 nor Form 4868 are returns. He then notes that Rev. Proc. 2010-16 specifically classifies both those Forms as non-returns. You will find that in §5.01(4). That’s pretty straightforward.
2. The Current Forms 2848 and 4868 are not clear and concise notice.
Less straightforward is whether the two Forms constitute clear and concise notice to the IRS that the taxpayer's address has changed. There is plenty of case law where courts have found that a new address on a Form 2848 is clear and concise notification. Some of it is Tax Court case law. See Hunter v. Commissioner, T.C. Memo. 2004-81 (collecting cases and explaining rationale). It is for this reason that the Gregory case is a reviewed opinion. It will become the new standard by which the Tax Court decides these issues.
The lesson here is that a particular tax form may or may not be clear and concise notification. It depends on what the form asks, what the instructions say, and how the IRS uses the form.
Judge Buch first points out how the IRS has changed how it processes and uses Form 2848 over time. He starts off by emphasizing that the current Instructions to both Forms explicitly warn taxpayers that the Forms cannot be used to update addresses. For example, on page 1 of the Instructions to Form 2848, under the section titled “Purpose of Form” it reads: “Address information provided on Form 2848 will not change your last known address with the IRS.” One finds similar language in the Instructions to Form 4868.
He then notes that neither of the two Forms contain language or information that complies with the Rev. Proc.’s definition of clear and concise notice. He writes: “Neither form purports to inform the IRS that it should be interpreted as a request to change the taxpayer’s last known address, and neither form contains the taxpayer’s old address.”
Finally, Judge Buch carefully distinguishes prior case law by pointing out that those cases involved different versions of the form that the IRS used in the past. Some of the old versions, for example, did purport to direct the IRS on where to send all documents, either originals or copies. And nothing in the Instructions to those old versions would put a taxpayer on notice that the Form was ineffective to change the taxpayer’s address in the Service’s records. As Judge Holmes wrote in Hunter: “Petitioner is thus right in noting that address information on the Form 2848 is not mere surplusage. The IRS asks for that information and solicits taxpayer's directions on what address should be used for original and duplicate notices. This strongly implies that respondent will actually incorporate the information on the form into its databases and use the information when sending notices to a taxpayer's “last known address.”
While the Tax Court has now told us that Form 2848 is not clear and concise notice to the IRS of a change of address, Judge Buch's reasoning teaches that this is not a hard-and-fast rule. The lesson is not that Form 2848 can never be clear and concise notification. The lesson is that the Tax Court will make a practical examination of the forms being used and the facts before it. For example, if the Gregorys had put a cover letter on the Form 2848 that explicitly said "Our address has changed to X. Please use our new address X for all future communications." That could well be clear and concise notification. Heck, if you are going to do that, however, you might as well just fill out the change of address form, Form 8822, and staple it to the Form 2848.
This lesson teaches that whether any future version of the Form 2848, or any other form, constitutes clear and concise notification rides on the verbiage of the Form, the instructions given to taxpayers, the Form's inclusion in the governing Rev. Proc., and IRS’s use of the particular Form in the normal course of business.
Bottom Line: While getting noticed by the IRS is not as fun as getting noticed by a beautiful woman at a dance, it can be equally important to future happiness. So be sure you and your clients follow the proper procedure to keep the IRS informed of a change in address!
Bryan Camp is the joyfully married George H. Mahon Professor of Law at Texas Tech School Thereof