The IRS relies on mail to alert taxpayers of important events. It also relies on mail to provide notice that is required by the Code. Given the importance of these alerts and notices, taxpayers are often surprised to find out that there is no requirement that the taxpayer actually receives most IRS notices. The IRS just has to show that it mailed the notice to the taxpayer’s last-known-address.
The IRS’s Obligation is to Send Notices
The IRS is only required to send IRS notices to the taxpayer’s “last known address.”
The courts have defined the phrase “last known address” as:
the taxpayer’s last permanent address or legal residence known by the IRS, or the last known address of a definite duration to which the taxpayer has directed the IRS to send all communications during such period.
Generally, the taxpayer’s “last known address” is the address on the taxpayer’s most recently filed tax return, unless the taxpayer notifies the IRS that they have a different address.
The IRS’s obligation typically ends there.
Obligation to Notify of Address Changes
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 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.
A More Common Problem
This type of issue was not as pronounced in the recent past, as in the past most taxpayers did not relocate as frequently as they do today.
The reality is that in today’s society taxpayers frequently move to several different addresses in several different states and countries several times each year (especially when you think about airplane pilots, professional athletes, and traveling salesmen).
So what is today’s mobile taxpayer to do? The IRS answer is that taxpayers are to submit IRS Form 8822 to update their address with the IRS each time they move. That is the official answer, but it is not one that is realistic.
For example, say a hypothetical taxpayer has lived in three countries, six United States states, ten cities over the course of a decade. They may have had twenty or more addresses. That would produce twenty Form 8822’s and ten federal tax returns (and maybe more tax returns, depending on the taxpayer’s assets and business interests). In the event that the taxpayer timely filed each and every one of these forms (and kept proof that they submitted the forms), it would be nearly impossible for the IRS to establish that they mailed each notice to the taxpayer’s “last known address.”
Given these facts, by the time the IRS processed the taxpayer’s Form 8822 the taxpayer would have already been living at a new address and have submitted a new Form 8822 to the IRS. Imagine the IRS backlog if every taxpayer submitted a Form 8822 every time that they changed addresses.
So why do the current rules work and work in favor of the IRS? Because taxpayers almost never submit Form 8822 to the IRS when they move. So what is the lesson for taxpayers who do not want to pay their taxes? Get in the regular habit of sending in Form 8822’s to the IRS.