IRS Failed to Find Taxpayer’s New Address in Innocent Spouse Case

TERRELL v. COMMISSIONERU.S. COURT OF APPEALS, 5TH CIRCUIT

Docket No. 09-60822

Issue: Whether the taxpayer had filed an innocent spouse relief determination request in a timely manner when the IRS received returned undelivered Notices from the US Post Office. This case is an appeal of a Tax Court Decision in which the Tax court sided with the IRS.

Facts: In September 2006 Pamela R. Terrell, a resident of Texas, received a notice of deficiency of over $660,000 in unpaid taxes. Terrell filed a Request for Innocent Spouse Relief dated September 20, 2006 with the IRS. She listed her then-current address on her Request. Soon after filing the Request, she moved to a new address.

Terrell claims that she submitted a Change of Address form to the USPS, but the record contains no evidence of this apart from Terrells declaration. On December 13, 2006, the IRS mailed a confirmation of receipt of her Request to the old address, but the United States Postal Service (USPS) returned the letter to the IRS as undeliverable on January 24, 2007.

The IRS sent two more notices which were returned as undeliverable. The IRS then, on April 6, 2007, mailed a Notice to the old address, denying innocent spouse relief and stating that Terrell had ninety days to petition the

Tax Court for review. On April 11, 2007, Terrell filed her 2006 tax return, listing the new Dallas address as her current address. On May 7, 2007, the April 6th Notice was returned to the IRS as undeliverable. After receiving the returned Notice, the IRS searched its database, found the new address, and re-mailed the Notice to that address on May 14, 2007. Terrell filed a petition with the Tax Court on July 13, 2007. The Tax Court agreed with the IRS that the petition was filed more than 90 after the Notice date of April 6, and refused her request for a hearing, which she appealed to the Circuit Court.

Analysis and Conclusion: The higher Court reversed the Tax Courts ruling. They noted that the IRS had not done due diligence in discovering the taxpayers current address, even though they had received returned mail. They determined that the returned notices were invalid, and that the 90 days to petition the Tax Court should have begun when the taxpayer actually received the notice of the rejection of her innocent spouse claim on May 14, 2007. Therefore, her Tax Court petition was timely.

Source: National Association of Tax Professionals