IRS and the Last Known Address Rule

When the IRS issues a Notice of Deficiency (NOD), I.R.C. Sections 6212(a) and (b)(1) require that the NOD be sent to the taxpayer’s “last known address” by certified or registered mail. The taxpayer’s last known address is the address that appears on the most recently filed and processed tax return unless the taxpayer has given the IRS clear and concise notification of a different address. If the IRS has properly mailed the NOD to the taxpayer’s last known address and the taxpayer fails to file a petition with the Tax Court within 90 days, the IRS will assess the tax and penalties included in the NOD. Thereafter, the IRS contacts the taxpayer and begins collection activities.

A taxpayer can challenge the IRS mailing address by filing a petition in Tax Court and, after the IRS files its answer, the taxpayer can file a motion to dismiss for lack of jurisdiction. The IRS can defeat the motion to dismiss by (1) proving it mailed the notice, and (2) did so to the address on the taxpayer’s most recently filed tax return. If the IRS fails to prove the NOD was mailed to the taxpayer’s last known address, the court will conclude the NOD was invalid and the IRS must abate any tax, penalties and interest.

Courts have held that the IRS must exercise reasonable care to ascertain a taxpayer’s last known address and whether the taxpayer gave requisite notification of a change of address, or, in the case of a joint return, the establishment of separate addresses. To determine the taxpayer’s last known address, the IRS manual suggests the following steps:

1. Search the Integrated Data Retrieval System for the most recently filed tax return;
2. If applicable, search both the primary and secondary social security numbers;
3. Search under the Employer Identification Number if the taxpayer has filed a Schedule C;
4. Search the administrative file for “clear and concise” notification since the date fo the last filed return; and
5. Review the power of attorney for a different address.

The manual also states, “In no event should databases or information outside the IRS systems be consulted for addresses. Alternative addresses, to the extent that they are used, must have been provided to the IRS by the taxpayer or his representative (or other agent)”.

In a recent Tax Court case, Phillips v. Commissioner, T.C. Memo 2024-44, the court invalidated a NOD because the IRS used inconsistent and faulty records and transcripts to determine the taxpayer’s last known address. In Phillips, the taxpayer received a $200,000 personal injury settlement in 2014 from the government for permanent loss of vision due to an injury he received while serving time in prison. Mr. Phillips did not file a 2014 tax return and in 2018 the IRS prepared a substitute for return for 2014 that reported the settlement proceeds as income. The IRS sent a NOD to the address in its files, not to the address on the last tax return filed by Mr. Phillips, which was his 2004 tax return. When Mr. Phillips did not respond, the IRS assessed the tax and penalties and began collection activities. The IRS sent collection notices to the same address on the NOD and did not receive any response. In addition, the IRS filed a tax lien. The IRS later notified the State Department that Mr. Phillips was a seriously delinquent tax debtor to begin the process of revoking his passport. The notice of the certification to the State Department was sent to the correct address for Mr. Phillips.

Upon receipt of the notice of certification to the State Department, Mr. Phillips filed a petition with the Tax Court seeking review of the NOD and notice of certification. In his petition, Mr. Phillips contended that the IRS incorrectly determined that the personal injury settlement was taxable, in response to which the IRS filed a motion to dismiss for lack of jurisdiction because Mr. Phillips had not filed a Tax Court petition within the requisite 90 days of the mailing of the NOD. Mr. Phillips argued that the IRS failed to properly notify him and that he never lived at the address on the NOD. In support of its position, the IRS introduced a USPS notice of change of address for Mr. Phillips from the IRS database. However, it was Mr. Phillips’ son, who had the same name, who had filed the USPS notice of change of address not Mr. Phillips. This along with other inconsistencies in the IRS records resulted in not only the court denying the IRS motion to dismiss for lack of jurisdiction, but also in the court invalidating the NOD for the 2014 tax year.

Unfortunately for Mr. Phillips, he may have won the battle, but he ultimately may lose the war. Since Mr. Phillips did not file a 2014 federal tax return, the assessment statute of limitations is still open. The last footnote in the court’s opinion says, “Nothing in the Opinion should be construed as limiting respondent’s ability to issue petitioner a new notice of deficiency for 2014 that is properly mailed to petitioner’s last known address”.

If you would like more information about this blog post or any other tax-related matter, please free to contact me at jcrouch@meadowscollier.com.