The Internal Revenue Service (“IRS”) plays a crucial role in the collection and enforcement of tax laws in the United States.
In order to keep taxpayers informed of important events and meet legal requirements, the IRS frequently communicates with them via mail. The IRS LOVES letters. However, many taxpayers are unaware that the IRS is not obligated to confirm that its letters have been received. In most cases, the IRS only needs to show that it mailed its various letters to the taxpayer’s last known address. This can lead to confusion and frustration for taxpayers, who may be left in the dark about important developments related to their taxes.
This raises the question as to what exactly is the “last known address.” As with everything when it comes to the IRS, there are rules that provide the answer to this question.
The IRS’s Obligation is to Send Notices
The phrase “last known address” refers to the most recent address that the IRS has on record for a taxpayer, either through the taxpayer’s most recently filed tax return or through a separate notification provided by the taxpayer. This address is considered the last known address until the taxpayer updates it with the IRS.
In the context of IRS notices and alerts, the courts have defined the “last known address” as either the taxpayer’s last permanent address or legal residence known by the IRS, or the last address to which the taxpayer has directed the IRS to send all communications during a specific period of time. This means that if a taxpayer moves and fails to notify the IRS of their new address, the IRS may still send notices and alerts to the taxpayer’s previous address if that is the last known address on file.
It is incumbent on the taxpayer to keep the IRS apprised of the taxpayer’s current address. This obligation is not absolute, however. If the IRS is aware of a new address, the IRS must exercise “reasonable care” in ascertaining the correct address.
When it Really Matters
The last known address rule comes up in assessment cases, i.e., audits, and collection cases.
In assessment cases, the IRS is obligated to notify the taxpayer of proposed changes to their IRS accounts. This includes sending a notice of deficiency to the taxpayer, for example. The notice of deficiency gives the taxpayer 90 days to file a petition with the U.S. Tax Court to challenge the IRS’s petition. If the taxpayer does not respond timely, the U.S. Tax Court does not have jurisdiction to hear the tax dispute.
The last known address rule also comes up in collection cases. This often involves bank or wage levies. With these levies, the taxpayer may first find out that it missed IRS correspondence when he receives a letter from his bank or a letter from his employer indicating that the IRS has levied or seized their bank account or wages. At this point, the taxpayer contacts the IRS only to find out that the IRS had sent several IRS notices to an incorrect address. The taxpayer will have waived his right to certain collection safeguards in this situation.
Worse yet, missed notices often result in inordinately large penalties and interest. The taxpayer may not be put on notice of their tax debt for years or even decades, while penalties and interest continue to accrue. The penalties and interest can be substantial and may even exceed the amount of the original tax debt. While this rule may be necessary to keep taxpayers honest, it often harms taxpayers who honestly do not receive IRS notices. There are numerous court cases involving disputes just like this, such as this dispute over a missed IRS notice and this other missed notice.
A More Common Problem
The issue of the IRS relying on a taxpayer’s last known address has become more prevalent in recent years due to the increasing mobility of taxpayers. With the rise of frequent relocation and may even move out of the U.S., it has become increasingly difficult for taxpayers to update their address with the IRS each time they move, as required by IRS Form 8822. This is especially true for those who move frequently across different states and countries, such as pilots, athletes, and traveling salesmen.
Submitting a Form 8822 for every address change can be a cumbersome and unrealistic task, especially for those who have had multiple addresses over a short period of time. For instance, a taxpayer who has lived in twenty or more addresses over the course of a decade may find it impossible to keep up with submitting a Form 8822 for each address change. This can create a situation where the IRS may not be able to establish that they mailed each notice to the taxpayer’s “last known address.”
Despite the challenges, it is important for taxpayers to keep their address updated with the IRS to ensure that they receive important notices and alerts related to their taxes. While the current rules work in favor of the IRS, taxpayers who fail to keep their address updated may face difficulties when it comes to their tax obligations. Therefore, the lesson for taxpayers is to make a concerted effort to submit Form 8822 to the IRS each time they move, in order to stay in compliance with IRS regulations and avoid potential tax issues.