Pamela Terrell v. CIR

Filing

PUBLISHED OPINION FILED. [09-60822 Reversed and Remanded] Judge: CES , Judge: ECP , Judge: JWE Mandate pull date is 12/23/2010 [09-60822]

Pamela Terrell v. CIR ase: 09-60822 C

Document: 00511280726 Page: 1 Date Filed: 11/01/2010

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IN THE UNITED STATES COURT OF APPEALS United States Court of Appeals FOR THE FIFTH CIRCUIT Fifth Circuit FILED
November 1, 2010 N o . 09-60822 Lyle W. Cayce Clerk

P A M E L A R. TERRELL P e titio n e r­ A p p e lla n t v. C O M M IS S I O N E R OF INTERNAL REVENUE R e s p o n d e n t­ A p p e lle e

A p p e a l from the Decision of the United States Tax Court

B e fo r e STEWART, PRADO, and ELROD, Circuit Judges. P R A D O , Circuit Judge: P a m e la R. Terrell appeals the Tax Court's order dismissing her petition fo r lack of jurisdiction. The Tax Court found it lacked jurisdiction because T e r r e ll filed her petition more than ninety days after the Commissioner of I n t e r n a l Revenue ("Commissioner") sent her a Notice of Final Determination (" N o t ic e " ). Terrell argues that because the Commissioner did not send the N o tic e to her "last known address," as required by I.R.C. § 6015(e), this Court s h o u ld find her petition timely as it was filed within ninety days of the Internal R e v e n u e Service ("IRS") mailing the Notice to her correct address. T h e IRS was on notice that its address on file for Terrell was incorrect, b e c a u s e the United States Postal Service ("USPS") had already returned three

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No. 09-60822 o f the IRS's prior mailings to Terrell as undeliverable. The IRS thus had a duty t o exercise reasonable diligence to search for her correct address, but failed to do s o before sending the Notice. The Notice sent on April 6, 2007 was, therefore, n o t sent to her "last known address," and became null and void when it was s u b s e q u e n t ly returned as undeliverable. Terrell's ninety days began to run only a ft e r the IRS re-sent the Notice to her correct address on May 14, 2007. Because T e r r e ll filed her petition with the Tax Court within ninety days of the May 14th N o tic e , her petition was timely. Accordingly, we REVERSE the ruling of the Tax C o u r t and REMAND for a determination of the petition's merits. I . FACTUAL AND PROCEDURAL BACKGROUND A fte r receiving an assessment for over $660,000 in unpaid taxes, Terrell file d a Request for Innocent Spouse Relief (Form 8857) dated September 20, 2 0 0 6 with the IRS. She listed her then-current address on her Request (the " N o r t h Richland Hills address"). Soon after filing the Form 8857, she moved to a new address (the "Dallas address"). Terrell claims that she submitted a C h a n g e of Address form to the USPS, but the record contains no evidence of this a p a r t from Terrell's declaration. O n December 13, 2006, the IRS mailed a confirmation of receipt of Form 8 8 5 7 to the North Richland Hills address, but USPS returned the letter to the I R S as undeliverable on January 24, 2007. On February 7, 2007, the IRS mailed t w o preliminary notices of determination denying relief. The preliminary notices in fo r m e d Terrell that she had thirty days to request a review of the d e t e r m in a t io n from IRS Appeals. On February 28, 2007, USPS returned the p r e lim in a r y notices to the IRS as undeliverable. After the IRS did not receive a request to review the determination from T e r r e ll, it mailed the Notice on April 6, 2007, to the North Richland Hills a d d r e s s , denying § 6015 relief and stating that Terrell had ninety days to p e t it io n the Tax Court for review. On April 11, 2007, Terrell filed her 2006 tax 2

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No. 09-60822 r e t u r n , listing the Dallas address as her current address. On May 7, 2007, the N o tic e was returned to the IRS as undeliverable. After receiving the returned N o tic e , the IRS searched its database, found the Dallas address, and re-mailed t h e Notice to that address on May 14, 2007. The Notice the IRS sent to the D a lla s address was identical to the one sent on April 6, 2007, and also listed A p r il 6, 2007 as the date of determination of Terrell's claim. Terrell admits that s h e received the Notice in mid-May. Terrell filed a petition with the Tax Court o n July 13, 2007. T h e Commissioner moved to dismiss the petition for lack of jurisdiction b e c a u s e Terrell had not filed it within ninety days after April 6, 2007. Terrell r e s p o n d e d that the ninety-day limit began to run only in mid-May when she a c t u a lly received the Notice, or, in the alternative, that the Tax Court should e x e r c is e its equitable power to allow her petition. After a hearing, the Tax Court d is m is s e d Terrell's petition for lack of jurisdiction. The Tax Court found that, as a court of limited jurisdiction lacking general e q u it a b le powers, it was barred from hearing Terrell's claim because her petition fe ll outside the ninety-day limit of § 6015(e). It held that Terrell had not carried h e r burden of demonstrating that the Notice was not sent to her "last known a d d r e s s ." The Tax Court found that the IRS acted with reasonable diligence to a s c e r t a in her "last known address," because, after the USPS returned the first N o tic e , the IRS searched its database, found Terrell's current address, and res e n t a copy of the Notice. The Tax Court therefore found that Terrell had to file h e r petition by July 5, 2007, and because she did not file the petition until July 1 3 , 2007, it lacked jurisdiction. Terrell timely filed this appeal. II. JURISDICTION AND STANDARD OF REVIEW T h is Court has jurisdiction to review final decisions of the Tax Court under 2 6 U.S.C. § 7482(a)(1).

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No. 09-60822 T h is Court "appl[ies] the same standard of review to decisions of the Tax C o u r t that [it] appl[ies] to district court decisions." Green v. Comm'r, 507 F.3d 8 5 7 , 866 (5th Cir. 2007) (citing Arevalo v. Comm'r, 469 F.3d 436, 438 (5th Cir. 2 0 0 6 )). "Findings of fact are reviewed for clear error and issues of law are r e v ie w e d de novo." Id. (citing Arevalo, 469 F.3d at 438)). "Clear error exists w h e n this [C]ourt is left with the definite and firm conviction that a mistake has b e e n made." Id. (citing Streber v. Comm'r, 138 F.3d 216, 219 (5th Cir. 1998)). I I I . DISCUSSION T e r r e ll argues that the IRS did not mail the Notice to her "last known a d d r e s s ," because the IRS failed to conduct a "reasonably diligent" search for her a d d r e s s before mailing the Notice. She asserts that her ninety-day petition p e r io d did not begin until she received the re-sent Notice, making her petition t im e ly and giving the Tax Court jurisdiction.1 O u r inquiry into these claims proceeds in two parts. First, we must d e t e r m in e whether the IRS failed to exercise "reasonable diligence" in locating T e r r e ll's correct address and thereby failed to send the Notice to her "last known a d d r e s s " as required by § 6015(e). Second, if we find that the IRS failed to e x e r c is e "reasonable diligence" and the Notice was therefore not sent to her "last k n o w n address," we must determine the date on which Terrell's petition period s t a r t e d in order to assess whether the Tax Court had jurisdiction over her p e titio n . A. V a li d i t y of the April 6, 2007 Notice A n individual who requests Innocent Spouse Relief "may petition the Tax C o u r t (and the Tax Court shall have jurisdiction) to determine the appropriate

Terrell also advances several alternative arguments in favor of jurisdiction in the event that this Court finds her petition to the Tax Court was untimely, including equitable estoppel, equitable tolling, and due process. Because we find jurisdiction on the basis that her petition was timely filed within the statutory period, we need not address these arguments.

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No. 09-60822 r e l i e f available . . . not later than the close of the 90th day after" the date the I R S "mails, by certified or registered mail to the taxpayer's last known address, n o tic e of the Secretary's final determination of relief available to the individual." I.R.C. § 6015(e)(1)(A). Although there is a dearth of cases interpreting § 6015, t h e Tax Court and the parties correctly cite to analogous cases from IRC §§ 6212 a n d 6213 concerning the IRS sending tax deficiency notices.2 See Estate of C o w a r t v. Nicklos Drilling Co., 505 U.S. 469, 479 (1992) ("[I]dentical terms w it h in an Act bear the same meaning."). In both § 6015 and § 6213, the Tax C o u r t has no jurisdiction over a taxpayer's petition if it is not filed before the d e a d lin e . I n order to have jurisdiction to hear a taxpayer's petition, § 6015(e) r e q u ir e s that the taxpayer request review within ninety days of the IRS sending n o tic e to the taxpayer's "last known address." I.R.C. § 6015(e)(1)(A). The Tax C o u r t 's jurisdiction is a question of law that we review de novo. Ferguson v. C o m m 'r , 568 F.3d 498, 502 (5th Cir. 2009). However, whether the IRS properly s e n t notice to the taxpayer's "last known address," thereby starting the ninetyd a y response period, is a question of fact that we review for clear error. Ward v . Comm'r, 907 F.2d 517, 521 (5th Cir. 1990). "`[L]ast known address' is a term of art and refers to that address which, in light of all relevant circumstances, the IRS reasonably may consider to be the a d d r e s s of the taxpayer at the time the notice of deficiency is mailed." Mulder v. C o m m 'r , 855 F.2d 208, 211 (5th Cir. 1988) (emphasis added) (citing Brown v. C o m m 'r , 78 T.C. 215, 218 (1982)). This Court has interpreted Mulder as

s t a n d in g for the rule that "absent a subsequent, clear and concise notification of

Section 6212(b)(2) directs the IRS to send a notice of deficiency regarding a joint income tax return "by certified mail or registered mail to each spouse at his last known address." I.R.C. § 6212(b)(2). Section 6213(a) provides that the taxpayer may file a petition for redetermination of such deficiency within ninety days of the date the IRS mails the notice. I.R.C. § 6213(a).

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No. 09-60822 a n address change, the IRS is entitled to consider the address on the taxpayer's m o s t recently filed return as the taxpayer's `last known address.'" Pomeroy v. U n ite d States, 864 F.2d 1191, 1194 (5th Cir. 1989) (citations omitted). This rule, h o w e v e r , does not dispense with the requirement that the IRS must use " r e a s o n a b le diligence" to determine the taxpayer's address in light of all relevant c ir c u m s t a n c e s . When the IRS knows or should know at the time of mailing that t h e taxpayer's address on file may no longer be valid because of previously r e t u r n e d letters, "reasonable diligence" requires further investigation. See

M u ld e r , 855 F.2d at 212 (finding no "due diligence" where "two letters posted s h o r t ly before the notice . . . were returned undelivered" and the notice itself was n e ith e r delivered nor returned); see also Pomeroy, 864 F.2d at 1195 ("Given that t h e two returned letters put the IRS on notice that the taxpayer had changed his a d d r e s s , the IRS in Mulder should have done further investigation prior to s e n d in g the deficiency notice . . . ."); Ward, 907 F.2d at 522 ("[W]hen the IRS was a w a r e before mailing the deficiency notice that the taxpayer had moved, the IRS w a s required to exercise greater diligence . . . ."); Follum v. Comm'r, 128 F.3d 1 1 8 , 119­120 (2d Cir. 1997) ("The Commissioner has an obligation to exercise r e a s o n a b le diligence to ascertain the taxpayer's correct address if prior to m a ilin g the deficiency notice she has become aware that the address last known t o the agency may be incorrect."). H e r e , the Tax Court clearly erred in finding that the IRS exercised r e a s o n a b le diligence. The proper inquiry for reasonable diligence examines the fa c t s the IRS knew or should have known at the time it sent the Notice. The Tax C o u r t instead focused on the fact that after the IRS sent the Notice and it was r e t u r n e d as undeliverable, it then checked its database and found an updated a d d r e s s from Terrell's recently filed tax return. But when the IRS sent the N o tic e on April 6, it should have already known that Terrell's address on file was in c o r r e c t because three separate mailings had been returned as undeliverable. 6

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No. 09-60822 A lt h o u g h the IRS had not received "clear and concise notification" that her a d d r e s s had changed, the IRS is not entitled to rely on a lack of notification once it is on notice that its address on file is incorrect. See Pomeroy, 864 F.2d at 1195. B e c a u s e the IRS failed to take any steps to determine Terrell's correct a d d r e s s after receiving the returned mail and before mailing the Notice, we are c o m p e l l e d to find it did not exercise reasonable diligence. The IRS could have d o n e a computer search through the DMV, contacted Terrell's employer, s e a r c h e d using Terrell's social security number, or undertaken any number of a c t io n s that might have located the Dallas address. See Mulder, 855 F.2d at 212 (lis tin g different actions taken in other cases that might constitute reasonable d ilig e n c e ). Because the IRS failed to exercise reasonable diligence, the IRS did n o t mail the Notice to Terrell's "last known address." B. E f f e c t i v e Start Date of the Petition Period H a v in g determined that the Notice sent on April 6 was not sent to Terrell's " l a s t known address," we must now determine the date on which Terrell's n in e t y -d a y petition period began. The Commissioner urges this Court to adopt t h e "no prejudice" rule espoused by the First, Second, Third, Sixth, Ninth, and E le v e n t h Circuits.3 This rule holds that despite failing to mail the notice to the
See Sicari v. Comm'r, 136 F.3d 925, 930 (2d Cir. 1998) (holding that the IRS satisfies its duties under § 6212 if it can prove "that the envelope containing the notice was in fact delivered . . . ." (citation omitted)); Patmon & Young Prof'l Corp. v. Comm'r, 55 F.3d 216, 217 (6th Cir. 1995) ("[N]otice of deficiency that is actually received without delay prejudicial to the taxpayer's ability to petition the Tax Court is sufficient [to meet the conditions of § 6212(a)]." (internal quotation marks and citations omitted) (alteration in original)); Borgman v. Comm'r, 888 F.2d 916, 917 (1st Cir. 1989) ("A notice of deficiency that is actually received without delay prejudicial to the taxpayer's ability to petition the Tax Court is sufficient to toll the statute of limitations as of the date of mailing." (citations omitted)); Mulvania v. Comm'r, 769 F.2d 1376, 1378 (9th Cir. 1985) ("[A] notice of deficiency actually, physically received by a taxpayer is valid under § 6212(a) if it is received in sufficient time to permit the taxpayer, without prejudice, to file a petition in the Tax Court . . . ."); Pugsley v. Comm'r, 749 F.2d 691, 692­693 (11th Cir. 1985) ("We do not determine whether the notice was sent to Pugsley's `last known address,' since even if it was not, Pugsley was not prejudiced because he `received actual notice of the deficiency with ample time remaining to file a petition.'"(footnote and citation omitted)); Delman v. Comm'r, 384 F.2d 929, 934 (3d Cir. 1967) (holding that where the taxpayer actually
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No. 09-60822 t a x p a y e r 's "last known address," the IRS satisfies the statutory notice r e q u ir e m e n t if the taxpayer actually receives the notice without delay prejudicial t o her ability to petition the Tax Court. Under the "no prejudice" rule, the C o m m is s io n e r asks us to apply the ninety days beginning from April 6, as T e r r e ll still had ample time to respond after receiving the re-sent Notice. Terrell urges this Court to adopt the position of the Fourth, Seventh, and D .C . Circuits.4 These courts have held that where the IRS fails to send the n o tic e to the taxpayer's "last known address," but the taxpayer receives s u b s e q u e n t actual notice, the limitations period begins to run on the date the t a x p a y e r receives actual notice. Under this rule, the ninety days would begin w h e n Terrell received the Notice the IRS re-sent on May 14. We decline, however, to weigh in on this circuit split. We hold that b e c a u s e the IRS not only failed to send the original Notice to Terrell's "last k n o w n address," but also had the Notice returned as undeliverable, the Notice a s originally sent is null and void. As the Notice was returned undelivered to t h e IRS, we need not decide whether we would apply the "no prejudice" rule if t h e original Notice had actually reached Terrell. Our decision is in line with the distinction adopted by the Ninth Circuit in Mulvania. In Mulvania, the IRS sent an erroneously addressed notice of

received the notice of deficiency despite the IRS failing to mail the notice to his last known address, "the date of mailing by the [IRS] commenced the running of the time for filing the petition for redetermination."). Gaw v. Comm'r, 45 F.3d 461, 468 (D.C. Cir. 1995) ("[B]ecause the IRS failed to . . . use reasonable diligence to ascertain an address at which the Gaws would receive the deficiency notice, . . . the time for the Gaws to file a petition for redetermination did not begin to run until the Gaws actually received that notice." (citations omitted)); Powell v. Comm'r, 958 F.2d 53, 57 (4th Cir. 1992) ("When notice of a deficiency is not sent to a taxpayer's last known address, subsequent actual notice of the deficiency will commence the running of the ninety-day period." (citations omitted)); McPartlin v. Comm'r, 653 F.2d 1185, 1192 (7th Cir. 1981) ("When notice of a deficiency is not sent to the taxpayer's `last known address,' subsequent actual notice of the determined deficiency will commence the running of the 90 day period." (citations omitted)).
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No. 09-60822 d e fic ie n c y to the taxpayer, which was eventually returned as "[n]ot deliverable a s addressed." Mulvania, 769 F.2d at 1377. While the mistake here was based o n a typographical error, the notice was similarly not sent to the taxpayer's "last k n o w n address." Despite its adherence to the "no prejudice" rule, the Ninth C ir c u it distinguished situations where the original notice of deficiency is r e t u r n e d to the IRS as undeliverable. The Ninth Circuit held that this notice " b e c a m e null and void when it was returned to the IRS." Id. at 1379; see also H o l o f v. Comm'r, 872 F.2d 50, 56 (3d Cir. 1989) (citing agreement with the M u lv a n ia "null and void" principle). The Mulvania court further distinguished t h is situation from one where "the notice was improperly addressed, but the p o s t a l authorities nonetheless delivered the letter to the taxpayer."5 Mulvania, 7 6 9 F.2d at 1379. T h is "null and void" principle does not conflict with the decisions of the o t h e r Circuits that have adopted the "no prejudice" rule. The cases the

C o m m is s io n e r cites from these Circuits all concern situations where, despite the I R S 's error, the original notice was actually delivered either to the taxpayer h im s e lf, the taxpayer's Post Office box, or the taxpayer care of his accounting fir m . See Sicari, 136 F.3d at 927 (USPS informed taxpayers of notice waiting at P o s t Office); Patmon & Young Pro. Corp., 55 F.3d at 216 (notice sent to Post O ffic e box returned as "refused" and "unclaimed"); Borgman, 888 F.2d at 917 (n o t ic e automatically forwarded to the taxpayer by USPS); Pugsley, 749 F.2d at 6 9 2 (notice automatically forwarded to the taxpayer by USPS); Delman, 384 F.2d a t 930 (notice sent to the taxpayer care of his accounting firm and duplicate sent

The Ninth Circuit went on to note that the taxpayer "never physically received a notice of deficiency." Mulvania, 769 F.2d at 1379. In Mulvania, unlike the case at hand, the IRS never sent another notice after the first one was returned. We do not think that this distinction is material. The rule in Mulvania is that when the IRS commits an error in mailing a notice to the taxpayer, that notice becomes "null and void" upon the USPS returning it as undeliverable. Id. That the IRS did not re-send the notice in Mulvania, as it did here, does not change the fact that the original notice was null and void when it was returned.

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No. 09-60822 t o his attorney by regular mail, who promptly informed the taxpayer). Here, u n lik e these cases and like the taxpayer in Mulvania, Terrell never received the o r ig in a l Notice sent by the IRS. Therefore, the "no prejudice" rule is not directly a p p lic a b le to the facts at hand. We reach only our narrow holding today and le a v e for another day the question of whether this Court will adopt the "no p r e ju d ic e " rule or instead the "actual notice" rule. T h e Commissioner expresses concern that failing to adopt the "no p r e ju d ic e " rule creates a difficulty in determining the effective date of the Notice b e c a u s e of practical problems in discerning the date when the taxpayer received t h e Notice. Our decision does not, however, implicate this concern. After the o r ig in a l Notice was returned as undeliverable, the IRS subsequently mailed a s e c o n d Notice on May 14 to the correct address. As the May 14 mailing was le g a lly effective, we use the mailing date of this Notice as the beginning of the n in e t y day petition period rather than the day Terrell received the Notice. Because Terrell properly filed her petition within ninety days after May 14, the T a x Court was not without jurisdiction to hear the petition. I V . CONCLUSION G iv e n the IRS's notice that Terrell's address on file was no longer valid, it failed to exercise "reasonable diligence" in locating Terrell's correct address b e fo r e sending the original Notice. Therefore, the Notice was not sent to

T e r r e ll's "last known address." This, and the fact that the Notice was returned b y USPS as undeliverable, rendered the original Notice null and void. The s t a t u t o r y petition period began only when the IRS re-sent the Notice to Terrell's c o r r e c t address on May 14, 2007. As Terrell filed her petition within ninety days o f this date, the Tax Court erred in finding itself without jurisdiction to hear the m e r it s of Terrell's petition. REVERSED and REMANDED.

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