In Knudsen v. Commissioner, T.C. Memo 2015-69, the Tax Curt recently denied the IRS’s motion for summary judgment where the taxpayer challenged a proposed collection levy because the IRS failed to establish that it actually mailed the required notices of deficiency to the taxpayer. The Tax Court concluded a trial is necessary to determine whether the IRS actually mailed notices of deficiency to the taxpayer.
The taxpayer failed to file 2004 and 2006 tax returns. The IRS prepared substitute returns [see Code Section 6020(b)] reflecting a deficiency and alleged that it mailed notices of deficiency for 2004 and 2006 to the taxpayer by certified mail. The IRS kept a record of the certified mail numbers but had had no record of notices of non-delivery from the U.S. Postal Service. The taxpayer did not file a petition in Tax Court to challenge the notices of deficiency. The IRS assessed the tax against the taxpayer and sent the taxpayer a notice of proposed levy regarding the assessed tax for the 2004 and 2006 tax years.
The taxpayer pursued a collection due process hearing requesting, among other things, that the IRS verify that its procedures were followed in connection with the assessments. The IRS Settlement Officer denied the taxpayer’s request for a collection due process hearing. The taxpayer then sent the Settlement Officer a letter claiming, among other things, that he disputes the underlying tax liabilities and penalties on the ground that the IRS never mailed to him and he never received notices of deficiency relating to the tax liabilities. The Settlement Officer then ran a “Track and Confirm” search on the U.S. Postal Service’s website. The website confirmed that the 2004 notice of deficiency was delivered, but it did not indicate the full address it was delivered to, showing only the city, state and zip code of the delivery. The Track and Confirm website was unable to confirm whether or not the 2006 notice was delivered because the website only keeps tracking data for two years, and the notice was mailed more than two years before the Track and Confirm search was initiated. The Settlement Officer also obtained copies of “substitute U.S. Postal Service Forms 3877.” However, the forms did not indicate how many pieces of mail the U.S. Postal Service actually received from the IRS and were not signed manually or by stamp.
The Settlement Officer told the taxpayer that if he wanted to continue with a collection due process hearing, he should send all relevant information and documents to the Settlement Officer by the Settlement Officer’s stated deadline. The taxpayer did not respond to the Settlement Officer and the Settlement Officer issued a final adverse notice of determination sustaining the proposed levy relating to the 2004 and 2006 deficiencies. The taxpayer challenged the notice of determination under Section 6330 and the IRS filed a motion for summary judgment.
The Tax Court denied the IRS’s motion for summary judgment. The Tax Court stated, “the key issue before us at this stage, which has been repeatedly raised by petitioner, is whether respondent ever mailed to petitioner the notices of deficiency on which respondent’s tax assessments and proposed levy are based. This is a question that involves not the amounts of petitioner’s underlying tax liabilities but rather the legality of the assessments made against him. As explained, this issue has been repeatedly raised by petitioner and is inherent in the verification requirement of section 6330(c)(1); i.e., it is an issue raised by statute in every CDP case.”
The Tax Court noted that Section 6330(c)(1) places the burden on the IRS “to take the initiative and verify that a notice of deficiency was properly mailed to the taxpayer.” The Tax Court also reasoned that in deficiency cases, the IRS has the burden of proving by “competent and persuasive evidence that a notice of deficiency was properly mailed to a taxpayer” and that the same standard applies in collection due process cases.
The Tax Court identified the standard for proving that a notice of deficiency was mailed: “the Commissioner’s act of mailing may be proven by evidence of his mailing practices corroborated by direct testimony and documentary evidence. The Commissioner’s and the U.S. Postal Service’s compliance with established mailing procedures may raise a presumption of official regularity in favor of the Commissioner and may be sufficient, absent evidence to the contrary, to establish proper mailing of a notice of deficiency. If this presumption is not rebutted, the burden of going forward would shift to the taxpayer.” The Tax Court stated the taxpayer raised a factual issue and the IRS has filed to adequately address it because “a defective Form 3877 does not trigger the presumption of regularity,” and thus the IRS’s motion for summary judgment was denied.
KRISTA HARTWELL – For more information please contact Krista Hartwell at Hartwell@taxlitigator.com or 310.281.3200. Ms. Hartwell is a tax lawyer at Hochman, Salkin, Rettig, Toscher & Perez, P.C. and represents clients throughout the United States and elsewhere involving federal and state, civil and criminal tax controversies and tax litigation. Additional information is available at http://www.taxlitigator.com.