This office believes a recent Fifth Circuit Court of Appeals opinion may have a broad impact on the policies and procedures of the Internal Revenue Service. As explained below, the IRS may have a duty to perform due diligence when corresponding with taxpayers through the mail.
The Fifth Circuit Court of Appeals reversed a Tax Court decision that an individual’s petition challenging the IRS’s denial of innocent spouse relief was untimely because it was filed more than 90 days after the IRS issued its determination. The Fifth Circuit reinstated the case because it found the IRS was on notice that its determination was sent to the wrong address. The Fifth Circuit found that the IRS has a duty to search for taxpayer’s correct addresses when sending correspondence. Because the taxpayer acted within 90 days of receiving the determination at her correct address, the petition was timely.
The taxpayer in this case was Pamela R. Terrell who received an assessment for over $660,000 in unpaid taxes. She filed a Request for Innocent Spouse Relief (Form 8857) on September 20, 2006 with the IRS pursuant to section 6015 of the Internal Revenue Code. Under Section 6015(e)(1)(A), the Tax Court has jurisdiction over an individual’s request for innocent spouse relief if a petition is filed at any time after the earlier of the date: (a) the IRS mails a notice of its final determination of relief available to the individual, or (b) 6 months after the date the request is made, and, in either case, not later than the close of the 90th day after the date the IRS mails its notice of final determination.
After Ms. Terrell submitted the Form 8857, she moved. The IRS mailed two notices of determination to her old address denying relief and notifying Ms. Terrell she had 30 days to request a review from IRS Appeals. The US Postal Service returned both notices as undeliverable. After the IRS did not receive a request to review, it mailed to her old address a Notice of Final Determination on April 6, 2007 denying innocent spouse relief and stating she had 90 days to petition the Tax Court for review. This notice was also returned to the IRS as undeliverable.
On April 11, 2007, Terrell filed her 2006 tax return listing her new address. After it received the returned Notice of Final Determination, the IRS searched its database and found her new address from her filed tax return. The IRS then re-mailed the Notice of Final Determination to her new address. She then filed a petition with the Tax Court on July 13, 2007.
The Tax Court dismissed the petition because it was not filed within 90 days of the date of the Notice of Final Determination- April 6, 2007. It held that Terrell had not carried her burden of demonstrating that the Notice was not sent to her “last known address.” The Court stated Ms. Terrell had to file her petition by July 5, 2007, and because she did not file until July 13, 2007, it lacked jurisdiction to hear her claim. Ms. Terrell appealed.
The Fifth Circuit held that, absent a subsequent, clear and concise notification of an address change, the IRS may consider the address on the taxpayer’s most recently filed return as her “last known address.” But this does not dispense with the requirement that the IRS must use reasonable diligence to determine the taxpayer’s address in light of all relevant circumstances.
In this case, when the IRS sent its Notice of Final Determination on April 6, 2007, it should have already known that Terrell’s address on file was incorrect because three separate mailings had been returned as undeliverable. Although the IRS had not received clear and concise notification that her address had changed, the Fifth Circuit found that the IRS could not rely on a lack of notification once it was on notice that its address on file was incorrect.
Because the IRS failed to take any steps to determine Ms. Terrell’s address after receiving the undeliverable mail and before mailing the Notice, the Fifth Circuit found that the IRS did not exercise reasonable diligence. It noted the IRS could have done a search through the Department of Motor Vehicles, contacted Ms. Terrell’s employer, searched using her social security number, or undertaken any number of actions that might have revealed her new address.
The Court went on to hold that because the Notice was not sent to her “last known address,” the Notice was null and void. The statutory petition period began only when the IRS re-sent the Notice to Ms. Terrell’s correct address on May 14, 2007. Because Ms. Terrell filed her petition within 90 days of this date, the Tax Court erred in finding itself without jurisdiction to hear the merits.
To read the complete opinion, see Terrell v. Commissioner of Internal Revenue, ---F.3d ---, 2010 WL 4276021 (5th Cir., November 1, 2010).