The Third Circuit held that a taxpayer couple's submission of two forms that used their new address, along with direct communication of the address change to an IRS agent, was sufficient notification. Thus, the appellate court vacated the Tax Court's holding that the IRS had sent a valid notice of deficiency to the taxpayers' last known address of their former residence and that the taxpayers had not provided the IRS with clear and concise notification of the change.
Facts: In June 2015, Damian and Shayla Gregory moved from Jersey City, N.J., to Rutherford, N.J. They did not file a Form 8822, Change of Address, to inform the IRS of their new address. Their 2014 federal income tax return, filed in October 2015, had their Jersey City address on it. After the IRS began an audit of the Gregorys' 2013 return in November 2015, their CPA sent Form 2848, Power of Attorney and Declaration of Representative, to the IRS using the taxpayers' new address. He also used the new address in April 2016 when he filed Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, to extend the filing date for the Gregorys' 2015 tax return. Sometime in the summer of 2016, after the IRS had sent the Gregorys a letter to the Jersey City address informing them that their 2014 tax return was also being audited, the CPA also told an IRS agent during a telephone conversation that the taxpayers had a new address.
On Oct. 13, 2016, the IRS sent the taxpayers, again to their Jersey City address, a notice of deficiency that was subsequently returned to the IRS. On Jan. 17, 2017, more than 90 days after the deficiency notice was sent, the taxpayers became aware of it and filed a petition to the Tax Court for relief.
The Tax Court held that the petition was not timely and that the IRS had provided the taxpayers with sufficient notice of the deficiency because the two forms the Gregorys submitted had not provided the IRS with clear and concise notification of a different address (see "Tax Matters: Taxpayers Did Not Properly Notify IRS of Address Change, the Tax Court Holds," JofA, June 2019, www.journalofaccountancy.com). The taxpayers appealed the decision to the Third Circuit.
Issues: The IRS is required to send a deficiency notice to a taxpayer's last known address, which starts the 90-day period allowed for the taxpayer's response. A taxpayer's last known address is "the address that appears on the taxpayer's most recently filed and properly processed Federal tax return, unless the [IRS] is given clear and concise notification of a different address" (Regs. Sec. 301.6212-2(a)). Clear and concise notification, according to Rev. Proc. 2010-16, may be made orally, electronically, or in writing, in specified manners. Rev. Proc. 2010-16 also specifies that a return for this purpose does not include applications for extensions of time to file a return or powers of attorney. Courts have required the IRS to use reasonable diligence to determine a taxpayer's last known address, with such diligence defined as what "the IRS knew or should have known" when it sent a deficiency notice, including information stored on its computer system (Abeles, 91 T.C. 1019, 1035 (1988)).
The taxpayers argued that their CPA's actions constituted a clear and concise notification of an address change, while the IRS argued that the taxpayers failed to follow clear procedures to officially change their address with the IRS.
Holding: The Third Circuit found, citing the Fifth Circuit decision in Terrell, 625 F.3d 254 (5th Cir. 2010), that "in determining whether the IRS had clear and concise notice of an address change, the proper inquiry is what the IRS knew or should have known." The court held that the CPA's communication to the IRS, which provided the IRS with actual notice of the address change, combined with the receipt of two forms with an updated address, was sufficient notice that the Service knew or should have known of the taxpayers' address change. The court noted that when Rev. Proc. 2001-18, the predecessor of Rev. Proc. 2010-16, was in effect, the Tax Court had twice allowed updated addresses on Form 2848 to be sufficient notice of an address change (Hunter, T.C. Memo. 2004-81, and Downing, T.C. Memo. 2007-291).
The court vacated the Tax Court's decision and remanded the case for further consideration consistent with the appellate court's holding.
- Gregory, No. 19-2229 (3d Cir. 12/30/20), vacating 152 T.C. 129 (2019)
— By Charles J. Reichert, CPA.