The Fifth Circuit reversed and remanded a Tax Court decision in a case the Tax Court had dismissed for lack of jurisdiction due to the taxpayer’s late filing of her petition contesting the IRS’ denial of innocent spouse relief. The appellate court held that the original notice of determination sent by the IRS was null and void because the IRS did not exercise due diligence in locating the taxpayer’s correct address. The court further held that the taxpayer’s limitation period for filing a Tax Court petition did not begin until the IRS remailed the notice to her correct address, and thus the taxpayer’s petition to the Tax Court was timely filed.
Pamela Terrell received an assessment for more than $660,000 in unpaid taxes and filed a Request for Innocent Spouse Relief (Form 8857) dated Sept. 20, 2006, with the IRS. Soon thereafter she moved to a new address but did not notify the IRS of it. The IRS sent to Terrell’s previous address a confirmation of its receipt of Form 8857. In January 2007, the confirmation was returned by the postal service to the IRS as undeliverable. Two weeks later, the IRS sent two preliminary notices of determination denying relief, which were likewise returned. Since the IRS did not receive a request from Terrell to review the determination, on April 6, 2007, it mailed a notice of determination denying section 6015 relief, yet again to the former address, stating that Terrell had 90 days in which to petition the Tax Court for review.
Five days later, Terrell filed her current-year tax return, which listed her new address as her current address. On May 7, when the April 6 notice of determination was returned as undeliverable, the IRS searched its database and found Terrell’s new address. The notice of determination was remailed to Terrell’s new address on May 14, 2007, listing April 6, 2007, as the date of the determination of Terrell’s claim. Terrell filed a petition with the Tax Court on July 13, 2007, which the IRS moved to dismiss for lack of jurisdiction because Terrell had not filed it within 90 days after April 6, 2007.
The Fifth Circuit found that the IRS did not mail the April 6, 2007, notice to Terrell’s “last known address,” as required by section 6015(e). The IRS knew or should have known that its address for Terrell was incorrect, because three prior mailings to Terrell had been returned as undeliverable. Once it is on notice, the IRS is not entitled to rely on lack of notification from the taxpayer that its address on file is incorrect. As a result, the IRS had a duty to exercise reasonable diligence to search for her correct address. The IRS failed to take any steps to determine Terrell’s correct address before mailing the notice and thus did not exercise reasonable diligence, the court said. By failing to do so, the IRS did not mail the notice it sent on April 6, 2007, to Terrell’s “last known address,” and the notice became null and void when it was returned as undeliverable.
Therefore, Terrell’s 90 days began to run only after the IRS re-sent the notice to her correct address on May 14, 2007, the court held. Since Terrell filed her petition within 90 days of that date, her petition was timely filed, and the Tax Court had jurisdiction to hear the merits of her petition, the Fifth Circuit held.
By Karen M. Cooley, CPA, MBA, instructor of accounting, and Darlene Pulliam, CPA, Ph.D., McCray Professor of Business and professor of accounting, both of the College of Business, West Texas A&M University, Canyon, Texas.
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