It is unnerving getting mail from the IRS. For taxpayers who know they have tax problems, it can be tempting to simply ignore the mail with the hope that the IRS will simply go away. This is almost always a bad idea. But there are some very limited circumstances when not receiving IRS mail can actually eliminate the taxpayer’s tax liability. This article addresses one of these limited circumstances.
The IRS Tax Assessment
We typically assess our Federal income tax liability by computing it and reporting it to the IRS each year. The IRS accepts these self-computed amounts in most cases. It simply notes the tax liability in its computer system. This notation is referred to as “assessing” the tax.
In other cases the IRS changes the amount of tax reported on the taxpayer’s tax return. It is also common for the IRS to add tax liabilities where the taxpayer did not file tax returns. There are a number of rules the IRS has to follow in doing this.
The Notice of Deficiency
One of the rules is that the IRS may not increase the amount of tax without first mailing the taxpayer a notice of deficiency. The notice of deficiency is simply a letter saying that the additional amount of tax is due and affording the taxpayer the right to contest the increase.
To be valid, the notice of deficiency must be mailed to the taxpayer’s last known address. This is typically the address the taxpayer provided on its last tax return that was mailed to the IRS. This requirement only means that the IRS has to mail the notice, not that the taxpayer has to receive the notice.
Mailed to the Correct Address
There have been a number of court cases involving questions as to whether the IRS mailed the notice to the correct address. Some of these cases address situations where the IRS notices were returned to the IRS as undeliverable. This can make it more difficult for the IRS to show that the notice was actually mailed to the correct address. Some taxpayers have had their tax assessments overturned by the courts based on this.
This generally only happens when the IRS can not show that the notices were in fact mailed to the correct address. The IRS will often establish that that the notice was mailed to the correct address by having an IRS employee testify as to notations in the IRS’s records. The courts will often accept this evidence on its face.
Of course, the IRS records actually have to have these notations in order for the IRS employee to testify that they do. The IRS’s records may or may not reflect that the tax assessment was mailed to the correct address. The IRS typically does not volunteer this information. It is up to taxpayers to inquire about what the IRS’s records say.
The take-aways are that taxpayers (1) should not intentionally avoid the receipt of mail from the IRS and (2) should consider contesting the liability if they did not receive a notice of deficiency from the IRS.