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A case of "chutzpah" - court limits how far IRS must go for "last known address." (Tax Court rules on notices of deficiency)

The involvement of the Markses in promoting tax shelters made them targets of both a criminal indictment and civil investigations. In 1982, the URS sent them deficiency notices involving $1.4 million in taxes. The IRS sent the notices to four Florida addresses the Markses had used, including the address found on the Markses' most recent federal income tax return and on recent correspondence with the revenue service.

All four notices were returned as undeliverable. The couple had moved to Canada but had not notified the IRS of their new address. In fact, the Markses were fugitives--to gain release on bond from the district court after a criminal indictment, they had agreed not to change their Florida address without first informing the court. They never notified the court of the move to Canada, and their attorney instead told the district court that they were merely away on a business trip.

The Markses claimed they never received the 1982 notices and did not receive actual notice of the deficiency until 1988. They filed a Tax Court petition 90 days after the date they said they received actual notice. The Tax Court threw out the petition.

To be valid, a Tax Court petition must be filed within 90 days of receipt of a valid deficiency notice. The Markses claimed the 1982 deficiency notices were not valid because none was mailed to their "last known address." They said the IRS knew they had moved to Canada and thus had a duty to mail duplicate notices there.

The courts interpret last known address as last known permanent address or temporary address of definite duration. The IRS must exercise reasonable diligence in determining a taxpayer's last known address. Generally, the IRS can use the address appearing on the taxpayer's last filed tax return as the last known address.

Result: For the IRS. The 1982 notices of deficiency were valid; thus the petition was thrown out for lateness. The Markses did not tell the IRS the Canada address was definite or permanent. In fact, they tried to hide their whereabouts since they were fugitives. Thus, they cannot use this argument to bootstrap themselves out of a deficiency. The court referred to this as one of its developing line of "chutzpah" decisions.
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Publication:Journal of Accountancy
Date:Jan 1, 1992
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