The IRS is under obligation only to mail notices to the taxpayer’s last known address in order to start the clock running on the time period to take specific actions. In the case of Gregory v. Commissioner, 152 TC No. 7,[1] the Tax Court ruled that neither Form 2848, Power of Attorney and Declaration of Representative, nor Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, served to change a taxpayer’s last known address. But the Third Circuit disagreed with that holding, finding that the IRS clearly had notice of the taxpayer’s address in this case.[2]

Facts of the Case

In the case before the Tax Court the taxpayers had moved from Jersey City, NJ to Rutherford, NJ in June of 2015. However, after the move in error they listed their old address on their 2014 income tax return when they filed it in October of 2015. This mistake led to the following events:

On October 13, 2016, the Commissioner sent by certified mail a notice of deficiency to the Gregorys at their Jersey City address. At that time the Gregorys had not yet filed their 2015 Federal income tax return. On November 11, 2016, the U.S. Postal Service marked the notice “Return To Sender/Unclaimed/Unable to Forward” and returned it to the Commissioner. The parties do not dispute that the Gregorys did not actually receive the notice of deficiency.

The Gregorys became aware of the notice of deficiency on January 17, 2017, and filed their petition that day.

Since January 17, 2017 is more than 90 days after October 13, 2016, the IRS argued that their petition had not been timely filed with the Tax Court and asked that their petition be dismissed for lack of jurisdiction.

The Gregorys had sent documents to the IRS between the date they filed their 2014 tax return using the wrong address and when the IRS issued the notice of deficiency. Those documents had shown the proper address in Rutherford. The Gregorys contended that these documents should serve as putting the IRS on notice with regard to their new address.

IRC §6212 which governs the process by which the IRS issues the notice of deficiency to the taxpayer provides:

(a) In general

If the Secretary determines that there is a deficiency in respect of any tax imposed by subtitles A or B or chapter 41, 42, 43, or 44 he is authorized to send notice of such deficiency to the taxpayer by certified mail or registered mail. Such notice shall include a notice to the taxpayer of the taxpayer’s right to contact a local office of the taxpayer advocate and the location and phone number of the appropriate office.

(b) Address for notice of deficiency

(1) Income and gift taxes and certain excise taxes

In the absence of notice to the Secretary under section 6903 of the existence of a fiduciary relationship, notice of a deficiency in respect of a tax imposed by subtitle A, chapter 12, chapter 41, chapter 42, chapter 43, or chapter 44 if mailed to the taxpayer at his last known address, shall be sufficient for purposes of subtitle A, chapter 12, chapter 41, chapter 42, chapter 43, chapter 44, and this chapter even if such taxpayer is deceased, or is under a legal disability, or, in the case of a corporation, has terminated its existence.

The term “last known address” is defined in Reg. §301.6212-2 which begins:

(a)General rule. Except as provided in paragraph (b)(2) of this section, 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 Internal Revenue Service (IRS) is given clear and concise notification of a different address. Further information on what constitutes clear and concise notification of a different address and a properly processed Federal tax return can be found in Rev. Proc. 90-18 (1990-1 C.B. 491) or in procedures subsequently prescribed by the Commissioner.

As of October 13, 2016 the most recently filed and properly processed tax return of the Gregorys was that 2014 return showing the old address. However, since that time they filed a Form 2848 power of attorney form (filed in November 2015) and an extension request, presumably for their 2015 income tax return, in April of 2016. Both of these forms listed the Gregory’s current address in Rutherford.

Revenue Procedure 2010-16 is the most current IRS ruling on what constitutes a tax return and neither of those forms is listed as being a return. In fact, at Section 5.01(4) of the procedures the IRS states:

The term “return” does not include applications for extension of time to file a return or powers of attorney. Thus, for example, a new address listed on Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, or on a Form 2848, Power of Attorney and Declaration of Representative, will not be used by the Service to update the taxpayer’s address of record.

But the regulation cited above provides that even the last return filed and processed contains a no longer valid address, the taxpayer’s address can still be updated by giving clear and concise notice to the IRS of the address change.

Tax Court Ruling

But the Tax Court points out that the instructions to both forms make clear that they will not serve to the IRS on notice of an address change:

Form 2848 and its instructions make clear that the form does not provide the Commissioner with clear and concise notification that the taxpayer’s address has changed. The instructions to the 2014 Form 2848 explicitly state: “Address information provided on Form 2848 will not change your last known address with the IRS.” The 2014 Form 2848 also explicitly cautions users that it will “not be honored for any purpose other than representation before the IRS.” The Commissioner has conveyed to taxpayers that Form 2848 will not change their last known address. In effect, the Gregorys used forms that explicitly state that they are not to be used to update a taxpayer’s address but now want the Commissioner to honor those forms to update to their address.

Similarly, the instructions to the 2015 Form 4868 warn taxpayers that filing the form will not update their address. The instructions state: “If you changed your mailing address after you filed your last return, you should use Form 8822, Change of Address, to notify the IRS of the change. Showing a new address on Form 4868 will not update your record.”

The opinion also cites an additional provision in Rev. Proc. 2010-16 found at Section 5.04(1)(a) that provides:

Clear and concise written notification is a written statement signed by the taxpayer and mailed to an appropriate Service address informing the Service that the taxpayer wishes the address of record changed to a new address. In addition to the new address, this notification must contain the taxpayer’s full name and old address as well as the taxpayer’s social security number, individual taxpayer identification number, or employer identification number. Filers of a joint return should provide both names, social security numbers, and signatures. Individuals who have changed their last name should provide the last name shown on the most recently filed return and the new last name. In all cases, clear and concise written notification must be specific as to a change of address. Thus, a new address reflected in the letterhead of taxpayer correspondence will not by itself serve to change a taxpayer’s address of record.

The Tax Court had previously held, in the case of Hunter v. Commissioner, TC Memo 2004-81, that a Form 2848 had served to provide the IRS with proper notice of an address change. But the Tax Court points out that this case can no longer be relied upon, as the instruction for Form 2848 at the time the Hunters filed that form did not put taxpayers on notice that it would not serve to update their address with the IRS. Based on those instructions, the Hunters could reasonably assume that their last known address would be updated once the IRS received that form.

But in the interim the IRS has changed the instructions to Form 2848, so the Court notes:

But that assumption is no longer reasonable. Since 2004 the Commissioner has issued clear guidance informing taxpayers of what actions will and will not change their last known address with the Commissioner. We noted in Hunter that section 301.6212-2, Proced. & Admin. Regs., which had been issued in January 2001 to define the term “last known address”, was not yet effective; it is effective for this case. And at the time we decided Hunter, Rev. Proc. 2001-18 had not yet been superseded by Rev. Proc. 2010-16. The earlier revenue procedure did not specifically address Form 2848. And perhaps most notably, the warning on the Form 2848 that it would not be used for any purpose other than representation was not included in the form at issue in Hunter, and the instructions to Form 2848 were silent regarding a taxpayer's last known address. The Forms 2848 at issue here expressly state that they will not be honored for any purpose other than representation before the IRS.

Thus, neither Form 2848 nor Form 4868 will serve to change the taxpayer’s last known address for purposes of issuing a notice of deficiency. The IRS mailing the notice to the old, no longer used address will begin the running of the 90-day period to file a petition with the Tax Court.

Note that this was a published opinion of the Tax Court, thus is meant to be relied upon by the court in future decisions—so that in the same facts, the taxpayer would get the same bad end result.

Third Circuit Says Not So Fast…

However, the taxpayers decided to appeal this case. In this case, since they resided in New Jersey their appeal was heard by a panel of three judges for the Third Circuit Court of Appeals. The Third Circuit hears cases from Pennsylvania, New Jersey, Delaware, and the U.S. Virgin Islands and, under the Golsen rule,[3] their rulings will bind the Tax Court in those states and the USVI.

The Third Circuit, while noting that the IRS did provide specific guidance that the taxpayers had not followed in Revenue Procedure 2010-16, pointed out that case law had found a second path to establishing a last known address, noting:

In addition to these IRS instructions, courts have required the IRS to use “reasonable diligence” to determine a taxpayer’s last known address. This reasonable diligence requirement “is rooted in equity.” Reasonable diligence is measured by what “the IRS knew or should have known at the time it sent the [n]otice” of deficiency, including information it should know “through the use of its computer system.”[4]

The Third Circuit found, in this case, the IRS reasonably knew or should have known the taxpayers’ correct address:

...[T]he IRS had actual notice that the Gregorys had moved. Besides the power of attorney forms and extension request, Chaffee testified that in the summer of 2016—before the IRS issued the SNODs—he told the IRS agent conducting the audit that the Gregorys had moved. 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. We conclude that actual notice to the IRS agent combined with an updated address on two forms is sufficient notice that the IRS knew or should have known that the Gregorys had changed addresses. The Tax Court erred in finding otherwise.[5]

The Third Circuit returned the case to the Tax Court to move forward with the case given the finding that the IRS had failed to send the notice to the taxpayers’ last known address.

Impact of the Decision

What the Third Circuit did from a practical standpoint was to override the Tax Court’s hard and fast holding that taxpayers generally had to comply with Revenue Procedure 2010-16 if they wanted to be able to claim the IRS had not sent a notice to their last known address. This decision introduces a “facts and circumstances” inquiry into such situations.

As was noted earlier, the Golsen rule will generally require the Tax Court to follow this ruling for cases from New Jersey, Pennsylvania, Delaware and the U.S. Virgin Islands, looking to the facts and circumstances of the situation. But while the Court of Appeals may have overturned the results of this case, the fact it is a published decision isn’t changed—and outside the Third Circuit the Tax Court may continue to apply this case.

That is, while it is possible the Tax Court will reconsider the issue if it comes up in a case not in those states, for now we have to assume the Tax Court will apply the requirement to conform to Revenue Procedure 2010-16 to provide a notice of a change of address that is binding on the IRS. A contrary decision in a single Court of Appeals generally will not cause the Tax Court to revise a position—they often wait to see if other Circuits agree.

As well, even in the Third Circuit advisers should strongly suggest their clients file the Form 8822 to formally put the IRS on notice when there is a change. Remember that even under the Third Circuit’s view this is a “facts and circumstances” test, and the IRS is likely to look to differentiate a taxpayer’s facts from those in Gregory.

[1] Gregory v. Commissioner, 152 TC No. 7, March 13, 2019, https://www.leagle.com/decision/intco20190313f44 (retrieved January 1, 2021)

[2] Gregory v. Commissioner, 152 TC No. 7, reversed CA3, Case No. 19-2229, December 30, 2020, https://www2.ca3.uscourts.gov/opinarch/192229np.pdf (retrieved January 1, 2021)

[3] Golsen v. Commissioner of Internal Revenue, 54 T.C. 742 (1970), aff'd on other grounds, 445 F.2d 985 (10th Cir. 1971), cert. denied, 404 U.S. 940 (1971)

[4] Gregory v. Commissioner, CA3 Case No. 19-2229, p. 6

[5] Gregory v. Commissioner, CA3 Case No. 19-2229, p. 7