Lesson From The Tax Court: Proving Last Known Address

Many statutes require the IRS to send taxpayers notices.  What confuses my students (and many taxpayers) is that the statutes rarely require that the taxpayer actually receive a particular notice; they just require the IRS to properly send the notice.  And the IRS will always meet the statutory requirement if the IRS sends the notice in question to the taxpayer’s “last known address.”  As you can guess from the scare quotes, that phrase is a term of art.

Today we learn a lesson about that term of art.  It’s a lesson that has a wide application because the IRS sends out lots of notices and people move all the time.  Where they lived last year is not always where they live this year.  If they have multiple addresses, it may not be clear which one counts as their “last known address.”  If the IRS goofs up sending a notice, that generally means the notice is invalid ... if the Court is convinced about the goof.

Normally, it’s up to the taxpayer to persuade a court that the IRS goofed up.  The law presumes that the IRS does not goof up.  That presumption means the courts will find a notice was properly sent unless the taxpayer convinces the court otherwise.  That means even if the court has doubts about what was the proper last known address, the IRS still wins if the taxpayer cannot meet their burden of persuasion.

Sometimes, however, the burden shifts to the IRS.  That is the lesson we learn in Keith M. Philips v. Commissioner, T.C. Memo. 2024-44 (Apr. 16, 2024) (Judge Greaves).  There the IRS sent Mr. Phillips an Notice of Deficiency (NOD) but Mr. Phillips was able to shift the burden of persuasion so that doubts about whether the IRS properly sent the NOD to his last known address were resolved in his favor, not the IRS’s.  Thus, the NOD was invalid because the IRS could not convince the Judge Greaves that it sent the NOD to his last known address.  This well written opinion was a pleasure to read.  We can learn a good lesson here.

Details below the fold.

Law: Last Known Address Rules
Today’s lesson involves the question of whether the IRS properly sent the taxpayer a Notice of Deficiency (NOD). Section 6212 requires the IRS to properly send an NOD to a taxpayer before it may assess the proposed deficiency.  Proper service can be actual delivery or, most commonly, delivery to the taxpayer’s last known address.  If the taxpayer contests the NOD and the Court finds that the IRS did not properly send it, the NOD will be invalid.  The Tax Court will then dismiss the case for lack of jurisdiction.  That makes IRS redo the NOD...if the limitations period for assessment is still open.  See generally Lesson From The Tax Court: What Makes A NOD Invalid?, TaxProf Blog  (Oct. 23, 2023).

It is up to the IRS to show it properly sent the NOD.  There are two ways the IRS can do that.  First is actual receipt.  If the IRS can prove that a taxpayer actually received an NOD in time to comply with the 90 day petition period, the NOD will be valid, regardless of what address the IRS used. See e.g.  Lindstrom v. Commissioner, T.C. Memo. 2007-243 (Aug. 23, 2007) (“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).

Second is the last known address rule.  If the IRS shows that it sent the NOD to the taxpayer’s last known address, the NOD will be valid, regardless of actual receipt. See e.g. 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.”).  As Judge Greaves notes, one can usefully think of the last known address rule as a safe harbor for the IRS.

I think of the last known address rule as consisting of a main rule and then various sub-rules. The main rule is that a taxpayer’s last known address is “the address that appears on the taxpayer's most recently filed and properly processed Federal tax return....” Treas. Reg. 301.6212-2(a).  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 returns.

IMHO, that main rule allocates the burden of persuasion.  It means that whichever party wants to argue that the taxpayer's last know address was different than the address appearing on the taxpayer's most recently filed and properly process tax return must persuade the Tax Court.  Put another way, the risk of non-persuasion falls on the party who wants the Court to find that the taxpayer's last known address was something other than the main rule.

The sub-rule relevant to today’s lesson is what I call the “clear and concise notification” sub-rule.  The regulation says if taxpayer gives the IRS “clear and concise notification of a different address” the IRS must use that notification to change the address in its computer system.  What constitutes clear and concise notification is, however, neither clear or concise!  Let’s take a look.

On the one hand Treas. Reg. 301.6212-2(b)(1) says that just telling some third party of your address change—like a bank or utility company—will not be considered clear and concise notification to the IRS.

On the other hand Treas. Reg. 301.6212-2(b)(2)(i) says that telling the US Post Office of your change of address will constitute clear and concise notice to the IRS.  That is because the IRS has an agreement with the Post Office where it routinely receives information about changes of addresses filed with the Post Office.  Here’s what the regulation says:

The IRS will update taxpayer addresses maintained in IRS records by referring to data accumulated and maintained in the United States Postal Service (USPS) National Change of Address database that retains change of address information for thirty-six months (NCOA database). Except as provided in paragraph (b)(2)(ii) of this section, if the taxpayer's name and last known address in IRS records match the taxpayer's name and old mailing address contained in the NCOA database, the new address in the NCOA database is the taxpayer's last known address, unless the IRS is given clear and concise notification of a different address.

In other words, the data in the NCOA database creates a new default last known address, superseding the main rule that the last known address is “the address that appears on the taxpayer's most recently filed and properly processed Federal tax return....”  The address in the NCOA database now becomes the default address unless and until the taxpayer files a new tax return with a different address or otherwise “provides the Internal Revenue Service with clear and concise notification of a change of address, as defined in procedures prescribed by the Commissioner, that is different from the address obtained from the NCOA database.” Treas. Reg. 301.6212-2(b)(2)(ii).

Thus, just as it does with the rules for what Forms count as returns, the regulation punts to the IRS Rev. Proc. for the rules on what constitutes “clear and concise notification.”  So that means we need to once again look at Rev. Proc. 2010-16.

Rev. Proc. 2010-16, §5.04(1) says that clear and concise notification can be made either in writing or orally.  Regardless, it must be an explicit statement “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.”  §5.04(1)(a).  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.  §5.04(1)(b).  Finally, the Rev. Proc. also states the obvious: taxpayers should use the Change of Address Form 8822.  §5.04(1)(c).  Duh.  If the taxpayer speaks to an IRS employee who has access to the Master File, makes the explicit statement, and allows the IRS employee to verify the taxpayer’s identity, that can constitute oral notification.  Rev. Proc. 2010-16, §5.04(3).

Again, notice that this guidance on what constitutes clear and concise notice is contained in Rev. Proc. 2010-16.  It is important here to remember that Rev. Procs. are not regulations, issued by Treasury after notice and comment.  Regulations are law.  Rev. Procs. are issued directly by the IRS.  Rev. Procs. are not law.  Sure, they are binding on IRS personnel and they might be influential in court.  For example, the Tax Court has consistently agreed with the IRS guidance for granting Spousal relief that is contained in Rev. Proc. 2013-34.  See generally 100th Lesson From The Tax Court: The Role Of Innocence In § 6015 Spousal Relief, TaxProf Blog (Oct. 21, 2019).

But Rev. Procs. are not binding on courts!  They are not law.  Thus, for example, the Tax Court has not always consistently agreed with Rev. Proc. 2010-16 that a POA Form 2848 cannot be used to record a change of address with the IRS.  Cf. Gregory v. Commissioner, 142 T.C. No. 7 (2019) (following the Rev. Proc.) with Downing v. Commissioner, T.C. Memo 2007-291 (ignoring the Rev. Proc. and holding that “Form 2848 provided respondent "clear and concise" notification of a change of address” (Op. at 19) or at least triggered a duty of due diligence).

Similarly, the Third Circuit reversed the Tax Court’s Gregory decision and its reliance on Rev. Proc. 2010-16.  The Third Circuit held that an address change reflected in the Form 2848, when combined with other taxpayer efforts to alert the IRS, might indeed be enough to constitute “clear and concise” notice.  See 839 Fed. Appx. 745 (3rd Cir. 2020).  In Gregory, the Third Circuit concluded that the taxpayer in that case had given sufficient notice of a change of address.  Note, however, that it was more than just filing a Form 2848: “We conclude that actual notice to the IRS agent combined with an updated address on two forms is sufficient notice that the IRS knew or should have known that the Gregorys had changed addresses.” (emphasis supplied).

Gregory and Downing are the usual cases where the IRS is seeking to rely on the address on the taxpayer’s last filed return and the taxpayer is trying to convince the court that they had given the IRS clear and concise notice of an address change.  Again, my take on this is that the party who is trying to argue that the taxpayer's last known address is different than what the main rule provides is the party who bears the risk of not persuading the Court.

In today’s case, however, we have a role reversal.  Here the IRS did not send the NOD to the address on the taxpayer’s last filed return.  It had received information from the Post Office that caused it to change the taxpayer’s address and that is where it sent the NOD.  Thus, the IRS was here claiming that the taxpayer had given clear and concise notice of an address change.  The taxpayer vigorously denied ever filing a change of address form with the Post Office or otherwise giving such notice.  How this unusual procedural posture affected the outcome is our lesson.

Facts
The tax year at issue is 2014.  That year Mr. Phillips received a $200k personal injury settlement.  He did not report it.  In fact, he did not file a tax return.  In fact, he had not filed any federal tax returns since March 2004 for tax year 2003.  On that return he had listed his address as 75 Hazeltine Ave.

In 2010 the IRS processed a NCOA Notification.  The NCOA Notification appeared to match  Mr. Phillips’ name and last known address in IRS records and reflected that his address had changed to 157 Roslyn Drive.  In reality Mr. Phillips started a 7 year period of incarceration in 2010.

In 2018 the IRS prepared a Substitute for Return, and on September 24, 2018 sent the NOD to the Roslyn Drive address.  The NOD asserted an income tax deficiency of $52,000, plus penalties for failure to file and failure to pay amounting to some $33,500 as of that time.  Mr. Phillips did not respond to the NOD and the IRS started collection.

In 2020 the IRS sent Mr. Phillips a CDP notice, again to the Roslyn Drive address.  Again he did not respond.

In 2021 the IRS sent a notice to the State Department that Mr. Phillips had a seriously delinquent.

tax debt.  Per §7345(d) it sent a copy of that notice to Mr. Phillips.  But this time it used a different address: 120 North Richview Ave.

The Richview address worked and Mr. Phillips petitioned the Tax Court in May 2021, contesting both the State Department notice (per §7345(e)), as well as contesting the NOD (per §6213).

The Tax Court dismissed the petition as to the State Department notice, following its consistent view that taxpayers cannot use that opportunity to contest the liability that forms the basis of the State Department notice.  See Lesson From The Tax Court: The Limited Review Of Passport Revocation Certifications, TaxProf Blog (Feb. 21, 2023) (explaining the Tax Court’s holding that “we do not have jurisdiction to review the liabilities underlying the certification of a seriously delinquent tax debt.”)

The Tax Court did not dismiss Mr. Phillips’ petition contesting the NOD.  Naturally, the IRS moved to dismiss it because it was filed waaaaaaay late, by about 2.5 years!  After all, §6213 generally gives taxpayers only 90 days from the date the NOD is issued to petition the Tax Court for a redetermination.  But Mr. Phillips main challenge was that the NOD was invalid because it had not been properly sent.  Hence, it had not triggered the 90 period.  Judge Greaves explains:

Accordingly, we must dismiss this case as untimely under section 6213(a), unless we agree with petitioner that the notice was not properly mailed. If we agree with petitioner, we must dismiss the case on the basis that the notice of deficiency is invalid. Regardless of whether petitioner or respondent prevails, we lack jurisdiction to consider this case on its merits. However, we have jurisdiction to determine the reason we do not have jurisdiction.  Op. at 5 (citations omitted).

Lesson: How To Shift Burden of Proof to the IRS
Mr. Phillips said the IRS sent the NOD to the wrong address.  The IRS said it used the address given to it by the US Post Office in a NCOA Notification.

Like other government agencies, IRS actions are entitled to a presumption of regularity.  See Lesson From The Tax Court: The Presumption Of Regularity For NODs, TaxProf Blog (Mar. 15, 2021).  The presumption, however, is just that.  Taxpayers can rebut the presumption if they can offer credible evidence that something went wrong.

Here, that means that the IRS’s contention was presumed correct.  Judge Greaves explains: “the presumption of official regularity applies to presume that respondent properly compared the NCOA Notification with petitioner’s name and old address as recorded in the [IRS computers].” Op. at 12.  If there was no more, the IRS would have met its burden to show that Mr. Phillips' address was different than the address reported on his last filed return.

But, proceeding pro se, Mr. Phillips was able to rebut the presumption.  He swore he had never lived at the Roslyn Dr. address, the address the IRS sent both the NOD and the CDP notice.  Supporting that was his evidence that between 2010 and 2017 he was incarcerated.  He swore he never filed any change of address form with the Post Office to change his address to Roslyn Dr.  Moreover, he explained that “his son, with the same name [Keith M. Phillips], may have been residing at the Roslyn Address with his mother.”  Op. at 12. Putting all that together caused Judge Greaves to conclude that “this evidence is sufficient to rebut the presumption of official regularity.”  Op. at 13.

So that meant that the IRS had to show it properly updated its records using the NCOA Notification.  To show that the IRS produced its computerized records showing that in 2010 it processed a change-of-address based on the computerized records received from the Post Office.

Judge Greaves found two problems with the IRS’s proof.  First, and most serious, was that the information simply showed the IRS processed “a” change of address.  “The transcripts respondent provided contain no information relating to the process of matching petitioner’s  information to the NCOA Notification...only the result of such process.” Op. at 14 (emphasis supplied).  The reason that was a serious problem is because Mr. Phillips’s evidence suggested that is precisely where the IRS had goofed up: they had processed his son’s change of address as his.

The second problem resulted from the multiplicity of IRS data.  There is not just a single IRS database.  There are lots of them.  That is one of the key struggles the IRS has with modernizing its system of tax administration.  Judge Greaves carefully reviewed the various computerized transcripts offered by the IRS and found that “unexplained irregularities on the transcripts cause us to question their accuracy.” 

Bottom Line: The NOD was invalid because the IRS could not show it had properly sent the NOD to Mr. Phillips’ last known address.  Notice that there was no solid evidence that the NCOA Notification was wrong.  Sure, Mr. Phillips showed he was in prison, but that does not mean he could not have instructed his son to make the Roslyn Dr. address his address of record, rather than the prison.  Or he could have done the change of address himself before reporting to prison.  There was likewise no solid evidence that the IRS goofed up applying the NCOA Notification.  There was only...doubt.  But that was enough, because in doubtful cases the party who bears the risk of non-persuasion loses.  Or, put another way, the party who bears the burden of persuasion loses.  Here, that was the IRS.  If the IRS had ignored the change of address information and had instead sent the NOD to the address on Mr. Phillips' last filed return, 75 Hazeltine Ave., the shoe would be on the other foot.  Doubts about the NCOA Notification process would be resolved in favor of the IRS, not Mr. Phillips.

That's my take on it.  I welcome comments from those who have a better understanding!

Coda:  While today’s case is about whether the IRS properly sent an NOD, the lesson applies whenever the IRS is supposed to send a notice to the taxpayer’s last known address.  Of course, a taxpayer must get to a court to make the argument.  That is beyond today’s lesson.  Just how the taxpayer gets into a court to make the argument in the first place is a subject for a different lesson.

Bryan Camp is the George H. Mahon Professor of Law at Texas Tech University School of Law.  He invites readers to return on the first Monday of each month (or Tuesday if Monday is a federal holiday) to TaxProf Blog for another Lesson From The Tax Court.  Professor Camp thanks Jack Townsend for giving thoughtful comments on a draft of today's post and assures readers that all errors are solely Professor Camp's.  He promises to do better next time. 

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