The IRS sends out a lot of letters. It usually uses the U.S. Postal Service to send these letters. The volume of letters is so high that the IRS may be the U.S. Postal Service’s largest customer.
These IRS letters are often required. These requirements are found in the Code. The requirement that the IRS mail a notice of deficiency before assessing tax is an example.
In sending these letters, the IRS is required to send them to the taxpayer’s last known address. The last known address concept is fundamental and central to the IRS’s process to comply with the notice requirements in the Code.
The IRS often fails to send its letters to the taxpayer’s correct address. This is particularly true in situations where the taxpayer moved. The IRS may continue to send letters to the taxpayer’s own address, even though the taxpayer put the IRS on notice of the address change.
This raises questions as to whether the taxpayer has to suffer the consequences of not receiving notice or if the incorrect mailing is a defense. There are numerous disputes and court cases that help answer these questions.
The recent Gregory v. Commissioner, No. 19-2229 (3d Cir. 2020) case answers this question when the taxpayer files a Form 2848, tax return extension, and verbally tells an IRS auditor about their new address.
We previously covered the tax court case here. The appeals court has now considered the case and changed course.
Facts & Procedural History
This case is for the 2013 and 2014 tax years.
The taxpayers moved in 2015. The taxpayers did not file a change of address form with the IRS. Their CPA filed their tax return for 2014 in October of 2015. He listed the taxpayer’s prior address on the return.
In November 2015, the IRS started an audit of the tax return for 2014.
The taxpayer’s CPA sent the IRS a Form 2848 listing the taxpayer’s new address. This form is required for a tax attorney, CPA or enrolled agent to represent the taxpayer before the IRS.
The IRS audit was continued in 2016. By then the CPA had filed an extension with the IRS listing the correct address and had verbally told the IRS auditor of the move.
The IRS mailed a statutory notice of deficiency to the taxpayers in 2016. The taxpayers received it and filed a tax court petition. The tax court petition was filed late as the taxpayers did not receive it timely.
The tax court dismissed the case as it was not timely filed. The taxpayers appealed, which resulted in this court opinion.
The “Reasonable Diligence” Cases
The tax court has always been strict in upholding filing requirements. We have covered this case and cases like these on this site before.
In most cases, the court cites its jurisdiction rules. It asserts that a late petition deprives the court of jurisdiction. The appeals courts usually uphold these determinations.
In the current case, the appeals court cited the “reasonable diligence” line of cases. These cases stand for the proposition that the IRS to can rely on the address found in the return being audited unless there is a clear and concise notification from the taxpayer directing the Commissioner to use a different address. This rule is now found in Treas. Reg. § 301.6212-2.
The holdings in court cases that have cited these rules have generally been unfavorable for taxpayers. They usually find that the taxpayer did not provide clear and concise notice to the IRS.
What is Clear & Concise Notice?
This brings us to the current case.
The question in the current case is whether the Form 2848, extension form, and/or verbal notice to the IRS auditor was clear and concise notice of the change of address.
The IRS argued that it was not provided with clear and concise notice of the taxpayer’s change in address. It argued that it provided clear instructions to taxpayers as to how to notify the IRS when they change addresses.
The appeals court did not agree. It concluded that the IRS failed to exercise due diligence. More specifically, the appeals court said:
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. The Tax Court erred in finding otherwise.
The result is that the taxpayers will get their day in court.
This case shows that taxpayers should make all efforts to meet tax deadlines. They should update their address with the U.S. Postal System. They should also consider submitting the IRS change of address form.
When the deadline is not met due to an IRS error, such as its failure to mail notice to the correct address, taxpayers should pursue remedies that may be available. This includes filing a late tax court petition and appeal, if necessary.