D.P.S. v. Commissioner of Internal Revenue

                                 T.C. Memo. 1996-457                                  


                               UNITED STATES TAX COURT                                


                   D------ P. AND D------ J. S---, Petitioners v.                     
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

                           D------ P. S---, Petitioner v.                             
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      


               Docket Nos. 6838-95, 6839-95.        Filed October 10, 1996.           


               Josh O. Ungerman, for petitioners.                                     
               Candace M. Williams, for respondent.                                   


                       MEMORANDUM FINDINGS OF FACT AND OPINION                        
          DAWSON, Judge:  These consolidated cases were assigned to                   
          Special Trial Judge Stanley J. Goldberg, pursuant to the                    








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          provisions of section 7443A(b)(4) and Rules 180, 181, and 183.1             
          The Court agrees with and adopts the opinion of the Special Trial           
          Judge, which is set forth below.
                                                      
                         OPINION OF THE SPECIAL TRIAL JUDGE                           
               GOLDBERG, Special Trial Judge:  These consolidated cases are           
          before the Court on cross-motions to dismiss for lack of                    
          jurisdiction.  Petitioners moved for dismissal on the grounds               
          that the notices of deficiency are invalid because they were not            
          mailed to their last known address.  Respondent moved for                   
          dismissal on the grounds that the notices of deficiency were                
          mailed to petitioners' last known address and the petitions were            
          untimely filed.  A hearing was held on these motions in Dallas,             
          Texas.                                                                      
                                  FINDINGS OF FACT                                    
               Some of the facts have been stipulated and are so found.               
          The stipulation of facts and the exhibits received into evidence            
          are incorporated herein by this reference.  Petitioners resided             
          in Plano, Texas, at the time their petitions were filed.                    
               Petitioner D------ P. S--- (Mr. S---) filed his 1987                   
          individual Federal income tax return on July 2, 1990.  On                   
          February 18, 1992, respondent mailed a notice of deficiency for             
          1987 (the first 1987 notice) to Mr. S--- at 12516 Audelia #209,             

          1   All section references are to the Internal Revenue Code as              
          amended, unless otherwise indicated.  All Rule references are to            
          the Tax Court Rules of Practice and Procedure.                              




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          Dallas, Texas (the Audelia address).  Respondent withdrew the               
          first 1987 notice of deficiency on August 7, 1992.  Therefore,              
          the first 1987 notice is not at issue.  On May 8, 1992, Mr. S---            
          filed a second Federal income tax return for 1987 (the second               
          1987 return).  On both 1987 returns Mr. S--- used the Audelia               
          address.                                                                    
               Sometime after 1987, Mr. S--- married petitioner D------ J.            
          S--- (Mrs. S---).  On November 15, 1991, petitioners filed a                
          joint Federal income tax return for 1990.  On that return                   
          petitioners used the Audelia address.                                       
               In December 1992, petitioners moved to 3907 San Mateo Drive,           
          Plano, Texas (the San Mateo address).  At some point they filed a           
          change of address form with the U.S. Postal Service (postal                 
          service) and requested that all mail sent to the Audelia address            
          be forwarded to the San Mateo address.  They changed their                  
          telephone number.  They also added a recording to their old                 
          telephone number informing callers of their new number.                     
          Petitioners also changed the address on their driver's licenses             
          to the San Mateo address.  They did not send a letter to, or                
          specifically notify, the Internal Revenue Service (IRS) of their            
          move prior to using the San Mateo address on their joint 1992               
          Federal income tax return filed on April 15, 1993.                          
               In late 1992, respondent examined Mr. S---'s second return             
          for the 1987 tax year and petitioners' joint return for the 1990            





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          tax year.  Respondent sent seven letters to petitioners at the              
          Audelia address between November 30, 1992, and March 17, 1993,              
          requesting information pertaining to the examinations.  Four of             
          the letters were sent by Tommy Joe Parrish (Mr. Parrish),                   
          respondent's agent assigned to examine petitioners' returns.                
          Petitioners claim they did not receive any of the letters and               
          were not aware of the examinations.  None of the letters were               
          returned to Mr. Parrish as undeliverable.  According to the IRS             
          computer, on March 25, 1993, the Audelia address was petitioners'           
          last known address.  On March 25, 1993, Mr. Parrish retrieved a             
          telephone number for petitioners.  He wrote the telephone number            
          in his notes from petitioners' case files, and also wrote that              
          the telephone number had changed.  Mr. Parrish claims to have               
          called the new number and left a message on an answering machine.           
          Petitioners acknowledge that the number called is their new                 
          number at the San Mateo address but contend they never received a           
          message from Mr. Parrish.                                                   
               Mr. Parrish also verified that petitioners had filed Federal           
          income tax returns for 1988 through 1991.                                   
               On April 15, 1993, petitioners mailed their 1992 joint                 
          Federal income tax return using the San Mateo address as their              
          home address, and stating the name and address of their tax                 
          preparer.  Attached to the 1992 return were the following:  (1)             
          Mr. S---'s Form W-2 showing the San Mateo address; (2) Mrs.                 





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          S---'s Form W-2 showing the Audelia address; (3) check No. 2017             
          made payable to the IRS with the pre-printed Audelia address                
          crossed out and the San Mateo address handwritten on the check;             
          and (4) a certified mail receipt acknowledging that the return              
          was mailed on April 15, 1993.  The information provided on the              
          1992 return, including petitioners' new address, was processed by           
          the IRS and added to the computer on July 17, 1993.  On May 11,             
          1993, respondent's agent checked the computer system for                    
          petitioners' address and found the Audelia address.  On May 19,             
          1993, respondent sent a notice of deficiency for 1990 to                    
          petitioners at the Audelia address by certified mail.  On May 24,           
          1993, based on the second 1987 return, respondent mailed a second           
          notice of deficiency for 1987 to Mr. S--- at the Audelia address            
          by certified mail.  One envelope was returned to respondent on or           
          about May 26, 1993, stamped by the Postal Service "Moved, Left No           
          Address".  No further effort was made by respondent to contact              
          petitioners until August 25, 1993.  On that date, Sharon Stout, a           
          reviewer with the District Office, sent two letters to                      
          petitioners at the San Mateo address.  Ms. Stout informed them              
          that the time for filing petitions with the Tax Court with                  
          respect to the second 1987 notice and the 1990 notice expired on            
          August 21 and 16, 1993, respectively.  Petitioners filed an                 
          amended 1990 joint Federal income tax return on June 8, 1994.               







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          Petitioners filed petitions with this Court disputing the second            
          1987 notice and the 1990 notice on May 4, 1995.                             
               In the second 1987 notice, respondent determined a                     
          deficiency in Mr. S---'s 1987 Federal income tax of $8,760 and an           
          addition to tax for failure to file a timely return under section           
          6651(a) of $2,190.  In the 1990 notice respondent determined a              
          deficiency in petitioners' 1990 joint Federal income tax of                 
          $51,272, an addition to tax under section 6651(a) of $11,879.50,            
          and an accuracy-related penalty under section 6662(a) of                    
          $9,365.20.  Prior to the hearing, petitioners paid the                      
          deficiencies, additions to tax, and penalties in full.                      
               Assuming, arguendo, that the second 1987 notice and the 1990           
          notice are valid, the 90-day periods for filing petitions with              
          this Court expired on August 21 and 16, 1993, respectively, which           
          dates were not legal holidays in the District of Columbia.  The             
          petitions for each year, as noted above, were not filed until May           
          4, 1995.                                                                    
                                       OPINION                                        
               Section 6212(a) authorizes the Secretary or his delegate,              
          upon determining that there is a deficiency in income tax, to               
          send a notice of deficiency "to the taxpayer by certified mail or           
          registered mail."  Section 6212(b)(1) provides that a notice of             
          deficiency, in respect of an income tax, "shall be sufficient" if           
          it is duly "mailed to the taxpayer at his last known address".              





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          Generally, the Commissioner has no duty to effectuate delivery of           
          the notice after it is mailed.  Monge v. Commissioner, 93 T.C.              
          22, 33 (1989).                                                              
               Neither section 6212 nor the regulation promulgated                    
          thereunder, section 301.6212-1, Proced. & Admin. Regs., defines             
          what constitutes a taxpayer's "last known address".  We have                
          defined it as the address to which, in light of all the                     
          surrounding facts and circumstances, the Commissioner reasonably            
          believed the taxpayer wished the notice of deficiency to be sent.           
          Weinroth v. Commissioner, 74 T.C. 430, 435 (1980); see also Ward            
          v. Commissioner, 907 F.2d 517, 521 (5th Cir. 1990), revg. 92 T.C.           
          949 (1989), and cases cited therein.  Generally, a taxpayer's               
          last known address is the address shown on his most recently                
          filed and properly processed return, absent clear and concise               
          notice of a different address.  Abeles v. Commissioner, 91 T.C.             
          1019, 1035 (1988).  Our holding in Abeles v. Commissioner, supra,           
          reiterated this Court's position as stated in Alta Sierra Vista,            
          Inc. v. Commissioner, 62 T.C. 367, 374 (1974), affd. without                
          published opinion 538 F.2d 334 (9th Cir. 1976), that what is                
          significant is what the Commissioner knew or should have known at           
          the time the notice of deficiency was mailed.  Abeles v.                    
          Commissioner, supra; see also Ward v. Commissioner, supra at 521.           
               Thus, where the Commissioner is aware before mailing the               
          notice of deficiency that the taxpayer has moved, the                       





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          Commissioner is required to exercise reasonable care and                    
          diligence to discover and mail the notice of deficiency to the              
          correct address.  Monge v. Commissioner, supra; see also Ward v.            
          Commissioner, supra at 522 (citing Mulder v. Commissioner, 855              
          F.2d 208, 211 (5th Cir. 1988), revg. and remanding T.C. Memo.               
          1987-363).  Whether the Commissioner has exercised reasonable               
          care and diligence is a question of fact.  Frieling v.                      
          Commissioner, 81 T.C. 42, 49 (1983), and cases cited therein; see           
          also Mulder v. Commissioner, supra.                                         
               In Ward v. Commissioner, supra, the taxpayer mailed a letter           
          to the IRS service center notifying the service center of his new           
          address.  While the address change was pending, the IRS mailed a            
          notice of deficiency to the taxpayer at his old address which was           
          still posted in the central computer.  The Court of Appeals for             
          the Fifth Circuit (the court to which these cases are appealable)           
          observed that a properly instructed agent would have recognized a           
          notation code on the computer record indicating a change of                 
          address was pending for the taxpayer.  Because the IRS knew of              
          the address change, the Court of Appeals held that the IRS was              
          required to exercise reasonable diligence in finding the                    
          taxpayer's last known address, and concluded that the IRS had               
          failed to do so.                                                            
               The Court of Appeals noted, however, that the situation is             
          different if a taxpayer chooses to inform the IRS of an address             





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          change solely by placing the new address on the taxpayer's most             
          recently filed return, without otherwise drawing the attention of           
          the IRS to the information.  In such cases notice of the new                
          address is effective as of the date that the IRS properly                   
          processes the return, rather than as of the date the IRS receives           
          the tax return, provided that the IRS inputs the information                
          without unreasonable delay.  In Ward v. Commissioner, supra at              
          523, the court noted:                                                       
               The IRS receives millions of tax returns annually.  It would           
               be unreasonable to expect the IRS to notice a new address              
               among these returns before the IRS had processed the                   
               information.  Since the taxpayer elects to run the risk that           
               the IRS will issue a notice of deficiency before the IRS               
               inputs the new information, the only burden placed on the              
               IRS is to process the returns in a reasonable amount of                
               time. * * *                                                            
               Petitioners argue that respondent knew that their address              
          had changed prior to mailing the notices of deficiency.  They               
          contend that such knowledge resulted from receipt of petitioners'           
          1992 Federal tax return on or around April 15, 1993, which                  
          reflected the San Mateo address; the knowledge of respondent's              
          agent that petitioners had changed their telephone number; and              
          petitioners' failure to respond to any of the seven letters from            
          respondent's agents.                                                        
               Here the facts do not show that respondent knew or should              
          have known that petitioners' address had changed prior to the               
          date the notices of deficiency were mailed.                                 






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               Because petitioners informed respondent of their address               
          change solely by placing their new address on their 1992 return             
          filed on April 15, 1993, respondent is deemed to have notice of             
          the address change as of the date the return was processed,                 
          provided that respondent properly processed the tax return                  
          information.  Respondent processed petitioners' return and                  
          updated the record on petitioners in her computer system to                 
          reflect the San Mateo address as of July 17, 1993.  The parties             
          have stipulated that returns received by the IRS between February           
          14 and June 1 are considered properly processed if processed on             
          July 16, 1993, and this is within the guidelines for properly               
          processed returns as set forth in Rev. Proc. 90-18, 1990-1 C.B.             
          491.  Thus, as of May 19 and 24, 1993, the dates on which the               
          notices of deficiency were issued, respondent did not have notice           
          of petitioners' change of address based on their 1992 Federal               
          income tax return.                                                          
               Petitioners also argue that respondent's agent, Mr. Parrish,           
          knew or had reason to know that they had changed their address.             
          After Mr. Parrish, the agent assigned to examine petitioners'               
          returns, retrieved petitioners' most recent address (the Audelia            
          address) from the IRS computer system, he went further and                  
          obtained petitioners' current telephone number.  Mr. Parrish                
          recognized that petitioners' telephone number had changed and he            
          wrote the new telephone number in his notes from petitioners'               





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          case file.  It is not clear from the record how Mr. Parrish                 
          obtained petitioners' current telephone number; nonetheless, he             
          did obtain the new telephone number prior to the issuance of the            
          notice of deficiency.  However, we do not believe that this                 
          information was sufficient to give respondent reason to know that           
          petitioners had moved.                                                      
               Mr. Parrish also knew that petitioners had filed Federal               
          income tax returns for 1988 through 1991, and that seven letters            
          sent to the Audelia address had garnered no response.  Four of              
          the seven letters were sent by Mr. Parrish.  It is presumed that            
          a properly addressed letter placed in the care of the Postal                
          Service has been delivered to the addressee.  See Mulder v.                 
          Commissioner, 855 F.2d at 212; Zenco Engineering Corp. v.                   
          Commissioner, 75 T.C. 318, 323 (1980), affd. without published              
          opinion 673 F.2d 1332 (7th Cir. 1981).  Moreover, there is no               
          evidence in the record that any of the letters were returned to             
          respondent.                                                                 
               Respondent was not aware that petitioners had changed their            
          address before the notices of deficiency were mailed.  Respondent           
          exercised due diligence in determining petitioners' last known              
          address at the time the notices of deficiency were mailed by                
          relying on the information contained in the IRS central computer.           
               Petitioners argue, however, that respondent did not exercise           
          reasonable care and diligence in determining and mailing the                





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          notices of deficiency to their last known address.  They contend            
          that because respondent did not contact a number of sources,                
          including petitioners' tax return preparer, the Texas Department            
          of Motor Vehicles, and Mr. S---'s employer, in order to obtain              
          petitioners' new address, respondent failed to exercise                     
          diligence, relying upon Mulder v. Commissioner, supra.  In                  
          Mulder, the IRS mailed two letters to the taxpayer using the                
          address which appeared on the taxpayer's return filed for the               
          year at issue.  Both letters were returned as undeliverable.                
          Thereafter, the IRS issued and mailed a notice of deficiency,               
          certified, return receipt requested, to the same address.  The              
          taxpayer did not receive the notice of deficiency, but instead              
          learned of the deficiency determination when the IRS mailed a               
          statement of taxes due to his new address.  The Court of Appeals            
          for the Fifth Circuit observed that the IRS could have determined           
          the taxpayer's home address by contacting a number of sources and           
          that such efforts were "within the reasonable exercise of                   
          diligence required when the IRS knows or should know that the               
          address on the subject tax return is no longer current."  Mulder            
          v. Commissioner, supra at 212.  This obligation does not arise,             
          however, unless the IRS is aware that the taxpayer has changed              
          addresses.  Because we find that respondent did not know that               
          petitioners had moved, respondent was not obliged to make these             
          additional inquiries in exercising reasonable diligence.                    





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               At least one of the May 1993 notices of deficiency mailed to           
          petitioners' Audelia address was returned to respondent on or               
          about May 26, 1993, stamped "Moved, Left No Address".  In Pomeroy           
          v. United States, 864 F.2d 1191 (5th Cir. 1989), the Court of               
          Appeals for the Fifth Circuit stated:  "The relevant statutes               
          simply require that the deficiency be mailed to the taxpayer's              
          last known address, not that it be received."  Id. at 1195                  
          (taxpayers argued that the IRS should have checked its                      
          administrative file after a notice of deficiency sent to the                
          address on their most recently filed return was returned                    
          undelivered).  In addition, the Court of Appeals reiterated that            
          "'the focus is on the information available to the IRS at the               
          time it issued the notice of deficiency.'"  Id. (quoting Mulder             
          v. Commissioner, supra at 211).  Thus, under this standard, we do           
          not believe that respondent was required to investigate further             
          when one of the notices of deficiency was returned undelivered.             
          Monge v. Commissioner, 93 T.C. at 32-33.                                    
               For the reasons set forth above, respondent's motions to               
          dismiss will be granted, and petitioners' motions to dismiss will           
          be denied.2                                                                 

          2    Petitioners are not without recourse.  Because they paid the
          deficiencies, interest, and penalties in full on May 1, 1995, the           
          time for filing a claim for refund has not yet run.  Sec.                   
          6511(a).  If a timely refund claim is disallowed by respondent,             
          petitioners could file a suit for refund in the U.S. District               
          Court or the U.S. Court of Federal Claims and thus litigate the             
          merits of their tax liabilities for the years in question.                  




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               Appropriate orders and orders of                                       
          dismissal for lack of jurisdiction                                          
          will be entered.                                                            




Last modified: August 31, 2012