What’s Good for the Goose Is Good for the Gander

If you move and don’t notify the IRS, bad things can happen. The IRS can send to your last known address a Notice of Deficiency. Even if you don’t receive it, it will be considered received if it was sent to your last known address.

Today the Tax Court looked at the opposite situation. What happens if you do let the IRS know of your new address and the IRS sends a Notice of Deficiency to your old address?

The case the Court looked at involved an Estate Tax Return. The IRS elected to examine the Estate Tax Return and notified the fiduciary. The fiduciary was forced to move offices and let the IRS Revenue Agent know verbally of his new office address. The IRS also discovered the fiduciary’s home address.

This all occurred in the late 1990s. Eventually the IRS decided to issue a Notice of Deficiency. That notice was sent on December 8, 1999 to the old (bad) address. It was returned as undeliverable. When the 90-day period to contest the Deficiency expired (on March 7, 2000), the IRS assessed the deficiency, tax, and penalty against the Estate. Eventually, the Estate discovered this and filed a Tax Court Petition in 2008.

The question the Court faced was simple: Should the IRS have mailed the Notice of Deficiency to the new address? The Court noted,

The estate argues that respondent knew at the time the deficiency notice was issued that the estate’s address had changed, and that respondent therefore failed to use reasonable care and diligence in mailing the deficiency notice to the estate’s last known address. We agree. Information that the Commissioner knows or should know through use of his computer system is attributable to the Commissioner’s agents. Abeles v. Commissioner, supra at 1030; Buffano v. Commissioner, supra. Respondent’s revenue agent informed the estate’s examiner on May 20, 1999, only six months before the deficiency notice was issued, that respondent’s computer records listed the Crown Point address as a new residential address for Mr. Keenan. We find that the examiner knew of the estate’s new address at the time he issued the deficiency notice to the estate.

The Court noted that had the IRS mailed the Notice to both the old and new addresses the Notice of Deficiency would have been valid. However, because the IRS didn’t use reasonable care the Notice of Deficiency is invalid. Thus, the Estate doesn’t owe the IRS anything.

Yet another reason to document everything you do with the IRS. The IRS is supposed to use reasonable care and diligence. When they don’t and the taxpayer challenges the deficiency the taxpayer will win.

Case: Estate of Paul Rule v. Commissioner, T.C. Memo 2009-309


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