Note: the appeals court reversed this case. You can read about the appeals case here.
The IRS relies heavily on the U.S. Postal Service to deliver notices to taxpayers. Many of these notices are received by taxpayers. This often comes up when the taxpayer has changed addresses. When the taxpayer does this and the address change is reported to the IRS, should the IRS have to update its records and use the new address? The court considers this in Gregory v. Commissioner, 152 T.C. 7.
Facts & Procedural History
The taxpayers moved from one city to another in June 2015. They filed their 2014 income tax return with the IRS in October 2015. The return listed their prior address.
In November of 2015, the taxpayers filed Form 2848, Power of Attorney and Declaration of Representative, with the IRS. Form 2848 listed the taxpayer’s new address.
In April of 2016, the taxpayers filed Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return, with the IRS. Form 4868 listed the taxpayer’s new address.
In October of 2016, the IRS issued a notice of deficiency to the taxpayers. The notice was mailed to the taxpayer’s prior address. As a result, the taxpayers did not receive the notice until January of 2017.
The taxpayers responded by filing a petition with the U.S. Tax Court the very next day. The IRS attorneys moved to dismiss the petition as being filed late.
Last Known Address Rule
We have previously considered the last known address rule.
This rule generally says that the IRS only has to mail notices to the taxpayer’s last known address. This is usually the address listed on the last tax return submitted by the taxpayer. It can also include address changes taxpayers report to the IRS on Form 8822, Change of Address.
The Forms 2848 and 4868
The Form 2848 is used to appoint a representative, such as a tax attorney. The IRS requires this form to be filed before it will work with representatives on behalf of a taxpayer. The IRS will not process or accept the form if the taxpayer does not include his or her address on the form.
Form 4868 is used to extend the time to file a tax return. Like 2848, the IRS will not accept Form 4868 if the taxpayer does not include his or her address on the form.
Are the Forms 2848 or 4868 Sufficient?
The court considered whether Form 2848 or 4868 were sufficient to put the IRS on notice of the taxpayer’s address.
The court examined the language in the forms, which say that the IRS will not update the taxpayer’s address based on the forms. Based on this, the court concluded that the IRS is not required to send notices to the address listed on the 2848. The court also cited prior administrative guidance the IRS issued that also says this.
The IRS’s Practice & Procedure
The court did not consider the IRS’s practice of not accepting these forms without the taxpayer’s address listed on them. It also did not consider the IRS’s practice of updating the taxpayer’s address in the IRS records when these forms are submitted to the IRS.
While it is understandable that tracking the addresses for taxpayers is an administrative hassle for the IRS, when the IRS’s practices with respect to these forms are considered, it seems like the IRS should be required to mail notices to the addresses listed in these forms. To hold otherwise, as the court does, allows the IRS to ignore information it has in its possession to the detriment of the taxpayer.
Congress included various notice requirements in the Code given the severity of the consequences for those notices for taxpayers. Notice requirements are not imposed for trivial matters. To allow the IRS to sidestep the notice requirement seems inequitable. And to do so based on the IRS’s own administrative guidance also seems misplaced.
Given the administrative guidance and court cases like this one, this is a procedural issue that the appeals courts or Congress may need to address.
This issue can impact a number of rights for the taxpayers. It can even impact the ability to recover attorney’s fees from the IRS. While the last known address rule generally allows the IRS to send notices to the taxpayer’s last known address, the court’s decision in this case emphasizes that the IRS is not required to update addresses based on these specific forms. This ruling highlights a potential discrepancy between IRS practices and the notice requirements outlined in the tax code.