James F. McDonough
December 22, 2014
The Last Known Address
rule embodies one of the great unrecognized perils of taxation. The rule provides that the IRS must send notices, such as a Notice of Deficiency for assessed taxes
, to the last known address. A taxpayer has 90 days from the date of the Notice of Deficiency to contest the deficiency in Tax Court otherwise the IRS
may assess and collect the tax.
What constitutes notice of a change of address for purposes of the rule was the subject matter of much litigation. The government has attempted to provide some certainty through regulation and the use of Form 8822 by taxpayers to voluntarily notify the service of a change in address. As one might suspect, taxpayers do not file Form 8822 in every case. The IRS is charged with notice of a change of address where the taxpayer files a return with the new address. Many of the older cases involved taxpayers filing returns with a different service center because of relocation where the notice relates to a prior year whose return was filed in a different service center.
The IRS was deemed to have received notice of the change where it processes a subsequent return. IRS will also use the United States Postal Service database. Generally, if the taxpayer’s old name and address match the old name and address in the Post Office’s database, the new address in the Post Office database will be considered the taxpayer’s last known address unless clear and concise notification is given to the IRS.
Despite case law and regulations providing guidance in the area, there remains some gaps. Consider a recent inquiry to this firm where a non-resident, non-citizen returns to his homeland and does not receive any one of a series of notices from proposed adjustments, through deficiency and levy. Clearly, the USPO data base was of no help to this individual who gave up his apartment many years ago.
There is another remote area that is not in the public consciousness and it involves audit procedures of partnerships. There are two types, TEFRA and non-TEFRA. TEFRA proceedings are designed to centralize issues under examination to eliminate inconsistent results in multiple audit proceedings of tiered partnerships by requiring a determination of the issues in one examination conducted at the highest tier partnership. In Bedrosian
, the Tax Court issued majority, concurring and dissenting opinions in what may only be described as a nightmare of procedural errors and false steps. Although the case involved a Son of Boss tax shelter, the case is more notable because the taxpayer lost the opportunity to opt-out of the TEFRA proceeding and contest on a non-partnership basis. The TEFRA notice was sent to the last known address and thus was held to be valid and the fact that the taxpayer did not receive the notice was irrelevant. The last known address rule also allowed IRS to use TEFRA to extend what had been a blown statute of limitations on the audit which began as an non-TEFRA audit.