Phillips v. Commissioner

T.C. Memo. 1996-196

UNITED STATES TAX COURT

CHARLES T. AND JOAN B. PHILLIPS, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 4706-94. Filed April 23, 1996.

Thomas E. Redding and Sallie W. Gladney, for petitioners.

John F. Eiman and Thomas Fenner, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

FAY, Judge: This case is before the Court on the parties'

cross-motions to dismiss for lack of jurisdiction. The parties

have stipulated that petitioners1 filed a petition with the U.S.

Tax Court on March 21, 1994, more than 90 days after both notices

of deficiency were mailed. On May 20, 1994, respondent filed a

1
All references to petitioner are to Mr. Charles T.
Phillips.
 - 2 -

motion to dismiss for lack of jurisdiction on the ground that

petitioners did not timely file a petition in this case within

the 90-day period of section 6213(a), taking into account

sections 7502 and 7503.2 On July 22, 1994, petitioners filed

their own Motion to Dismiss for Lack of Jurisdiction, contending

that jurisdiction is lacking because respondent failed to

properly issue the statutory notices of deficiency to peti-

tioners' last known address, as required under section 6212(b).

This Court has jurisdiction to decide whether we have jurisdic-

tion of a case. Brannon's of Shawnee, Inc. v. Commissioner, 69

T.C. 999 (1978).

The primary issue for decision is whether respondent

properly issued two statutory notices of deficiency, dated

March 22, 1993, and June 24, 1993, to petitioners, pursuant to

section 6212.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found.

The stipulations and the stipulated exhibits are incorporated

herein by this reference. Due to the complexity of the facts, a

hearing on the parties' motions held in Houston, Texas, lasted a

day and a half and involved over 10 hours of testimony.

2
All section references are to the Internal Revenue Code in
effect for the taxable years in issue, and all Rule references
are to the Tax Court Rules of Practice and Procedure, unless
otherwise indicated.
 - 3 -

At the time the petition was filed, petitioners resided in

Houston, Texas. Petitioners were husband and wife during the

taxable years 1987, 1988, and 1989. Petitioners filed their

original Federal joint income tax return for 1987 on March 26,

1990, their original Federal joint income tax return for 1988 on

June 4, 1990, and their original Federal joint income tax return

for 1989 on June 28, 1990. All three returns listed petitioners'

address as 3205 Riva Ridge in Austin, Texas (the Riva Ridge

address). Petitioners also filed an amended U.S. individual

income tax return (Form 1040X), for the tax year 1987 on June 20,

1991. On the Form 1040X, petitioners also listed the Riva Ridge

address as their home address. Petitioners resided at the Riva

Ridge address until June 6, 1991, when they moved to 4080

Savannahs Trail in Merritt Island, Florida (the Merritt Island

address).

In March 1991, Revenue Agent Alan Myers (Revenue Agent

Myers) was assigned to audit petitioners' 1987 and 1988 Federal

income tax returns. On or about July 15, 1991, Revenue Agent

Myers mailed a letter to petitioners at the Riva Ridge address

informing them that their 1987 and 1988 Federal income tax

returns had been placed under examination. The July 15, 1991,

letter included Revenue Agent Myers' telephone number and mailing

address, and it requested that petitioners contact Revenue Agent

Myers if they had any questions. The July 15, 1991, letter was

received by petitioners at their Merritt Island address even
 - 4 -

though the letter was mailed to their Riva Ridge address. After

receiving the letter, petitioners did not inform Revenue Agent

Myers of their move to the Merritt Island address. Petitioners

did however, file a change of address form with the U.S. Postal

Service for their move from the Riva Ridge address to the Merritt

Island address.

Revenue Agent Myers, in his examination of petitioners'

Federal income tax returns, relied primarily on financial

records, depositions, and other information held by the Resolu-

tion Trust Corp. (RTC), which was involved in a bankruptcy

proceeding commenced by petitioners in Houston, Texas, in 1989.

Revenue Agent Myers learned of petitioners' move to Merritt

Island in the summer of 1991 from Mary Wilson, an attorney with

RTC.

In April 1992, Christa Morgan (Revenue Agent Morgan), a

revenue agent in Florida, began an income tax examination of

Classified Property Management Corp. (CPMC), a corporation with

which petitioners were associated. Revenue Agent Myers contacted

Revenue Agent Morgan to coordinate the individual and corporate

audits. In early May 1992, petitioner told Revenue Agent Morgan

that, on May 13, 1992, he and his wife were moving to 6591 Bayou

Glen in Houston, Texas (the Bayou Glen address). Revenue Agent

Morgan informed Revenue Agent Myers of petitioners' move to the

Bayou Glen address.
 - 5 -

Also in the spring of 1992, Evelyn Napolitano (Revenue Agent

Napolitano), another revenue agent in Florida, contacted peti-

tioners regarding the collection of employment tax from peti-

tioner's professional corporation, Charles T. Phillips, P.C.

Around May 6, 1992, petitioners informed Revenue Agent Napolitano

of their impending move to the Bayou Glen address. Based on

petitioner's statements to Revenue Agent Morgan and Revenue Agent

Napolitano, petitioners' address was changed to the Bayou Glen

address on the Internal Revenue Service's computer records by

September 1992.

In June 1992, after petitioners moved to the Bayou Glen

address, the CPMC audit was transferred from Revenue Agent Morgan

to Revenue Agent Myers. Also in the spring of 1992, the employ-

ment tax collection matter was transferred to Revenue Officer

Herma Mills (Revenue Officer Mills). Neither Revenue Agent Myers

nor Revenue Officer Mills was aware at any time during the years

in issue of each other's investigation of these tax liabilities.

On August 4, 1992, Revenue Officer Mills informed petition-

ers by a certified letter addressed to Charles T. Phillips, P.C.,

at the Bayou Glen address, of the Internal Revenue Service's

intention to make a levy against the assets of that corporation

to satisfy unpaid employment tax liabilities for all of 1990 and

the first 3 quarters of 1991. Petitioner signed the return

receipt for this letter on August 7, 1992.
 - 6 -

On August 27, 1992, Revenue Officer Myers informed peti-

tioners, by letters addressed to petitioners at the Bayou Glen

address and the Merritt Island address, that he was beginning

audits of petitioners' Federal individual income tax returns for

the 1989 and 1990 tax years. The letter to the Bayou Glen

address was sent by certified mail, and the return receipt for

that letter was signed by petitioner on August 31, 1992. The

certified letter sent to the Merritt Island address was returned

unclaimed. Although petitioners received the August 27, 1992,

letter, they never contacted Revenue Agent Myers regarding this

letter, and Revenue Agent Myers sent no further correspondence to

petitioners. By February 1993, Revenue Agent Myers finished the

examination of petitioners' 1987, 1988, and 1989 tax years.

On October 5, 1992, Mrs. Phillips mailed a Form 3575, change

of address form, to the U.S. Postal Service, indicating that

petitioners were moving from the Bayou Glen address to 5376

Brownway in Houston, Texas (the Brownway address). Petitioners

never notified the Internal Revenue Service of their move to the

Brownway address.

On November 4, 1992, Revenue Officer Mills made a field call

to the Bayou Glen address and was told by the property manager

that petitioners had moved. Revenue Officer Mills then filed a

request for new address with the U.S. Postal Service. The Postal

Service informed Revenue Officer Mills of petitioners' new Brown-

way address.
 - 7 -

On February 9, 1993, Revenue Officer Mills made a field call

to the Brownway address and spoke to the property manager on the

premises. Revenue Officer Mills left a calling card on the peti-

tioners' door. Revenue Officer Mills received no response to the

calling card.

Revenue Officer Mills learned petitioners' telephone number

at the Brownway address by issuing a summons to the manager at

the Brownway address. Revenue Officer Mills received no response

to telephone calls she had made to petitioners. On February 22,

1993, Revenue Officer Mills prepared and submitted to her manager

a report of currently not collectible taxes regarding Charles T.

Phillips, P.C. This report was entered into respondent's

computer system on February 25, 1993. The address shown on the

report was not entered into respondent's computer.

On February 22, 1993, Revenue Officer Mills prepared and

submitted to her manager a Form 4183, Recommendation Regarding

100-percent Penalty Assessment. On the Form 4183, Revenue

Officer Mills listed petitioner's address as the Brownway address

and the address of Charles T. Phillips, P.C., as the Bayou Glen

address. Revenue Officer Mills listed the Bayou Glen address as

the current address for Charles T. Phillips, P.C., because her

records indicated that the current address for the corporation

was the Bayou Glen address. Revenue Officer Mills listed the

Brownway address as petitioner's current address because, as a
 - 8 -

result of her own efforts in locating petitioner, she believed

the Brownway address to be his current address.

On February 24, 1993, Group Manager Ronald W. Hopper mailed

a letter prepared by Revenue Officer Mills to petitioner at the

Brownway address. The letter informed petitioner that the

Internal Revenue Service proposed to assess against him a penalty

under section 6672 and that, if he did not agree, he should

contact her within 10 days with additional information to support

his position. The letter also informed petitioner that he had a

right to appeal the determination within 30 days of the date of

the letter, and, if Revenue Officer Mills did not hear from him,

the penalty would be assessed against him. Petitioner did not

respond to the February 24, 1993, letter.

On March 19, 1993, Revenue Officer Mills received via fac-

simile, two powers of attorney from a certified public accountant

(C.P.A.) representing petitioner and Charles T. Phillips, P.C.

The powers of attorney listed the Brownway address as the peti-

tioners' current address. Revenue Officer Mills received no

other information from petitioner, and, in June 1993, Revenue

Officer Mills closed the audit of Charles T. Phillips, P.C., and

recommended a section 6672 assessment against petitioner for the

employment tax liabilities of the corporation. Although Revenue

Agent Mills believed the Brownway address was petitioners'

current address, she did not update respondent's computer files
 - 9 -

upon closing her records because she had not received any

notification from the taxpayers that they had moved.

On March 22, 1993, a statutory notice of deficiency for the

tax years 1987 and 1988 was mailed by certified mail to peti-

tioners at the Bayou Glen address. On June 24, 1993, a notice of

deficiency for the 1989 taxable year was mailed by certified mail

to petitioners at the Bayou Glen address. At the time of mailing

of both notices of deficiency, the Internal Revenue Service

personnel involved in the preparation and mailing of the notices

did not know of petitioners' Brownway address.

Mr. Mladenka, the mail carrier at the Richhill Post Office

who delivered the mail at the Bayou Glen address, crossed out the

Bayou Glen address on both notices of deficiency and handwrote

petitioners' Brownway address on the face of both notices of

deficiency. Mr. Mladenka then forwarded the notices of

deficiency to the Julius Melcher Post Office for delivery to the

Brownway address.

On March 25, 1993, Mr. Jared Horton, a mail carrier at the

Julius Melcher Post Office, attempted to deliver the March 22,

1993, notice of deficiency to petitioners at the Brownway

address; however, after he rang the doorbell twice, nobody

answered the door. Mr. Horton then placed a Form 3849 (yellow

slip) in petitioners' mailbox at the Brownway address. The

yellow slip informed petitioners that the Postal Service was

holding a certified letter for them and that the petitioners
 - 10 -

could either pick it up at the Post Office or have the mail

carrier attempt delivery again. Mr. Horton returned the letter

to the Postal Service, where the dates April 2, 1993, and April

9, 1993, were written on the face of the notice of deficiency.

On April 2, 1993, a second yellow slip was prepared by a postal

clerk and given to the mail carrier for delivery to the Brownway

address. This second notice reminded petitioners that a

certified letter was waiting for them at the station and that it

would remain there, available for pickup, until April 9, 1993, at

which time it would be returned to the sender if not claimed.

The March 22, 1993, notice of deficiency was not claimed by

petitioners and was returned to the Internal Revenue Service

marked "unclaimed". The Internal Revenue Service received the

return envelope and its contents on April 16, 1993. The June 24,

1993, notice of deficiency underwent a similar process.

In compliance with Internal Revenue Manual provisions for

undelivered notices of deficiency, respondents' Examination

Support and Processing Branch (ESP Branch) places a returned

notice of deficiency in a taxpayer's administrative files. The

ESP Branch does not update respondent's computer system to

reflect a new address shown on a returned notice of deficiency

based on a handwritten address placed on the envelope, because

employees of the ESP Branch do not know who wrote the address on

the envelope. Since the Brownway address was handwritten on both

of petitioners' returned notices of deficiency, petitioners'
 - 11 -

address was not changed in respondent's computer, and neither of

the returned notices of deficiency was reissued to the Brownway

address.

OPINION

This Court's jurisdiction to redetermine a deficiency

depends upon the issuance of a valid notice of deficiency and a

timely filed petition. Rule 13(a), (c); Monge v. Commissioner,

93 T.C. 22, 27 (1989). Section 6212(a) expressly authorizes

respondent, after determining a deficiency, to send a notice of

deficiency to the taxpayer by certified or registered mail. It

is sufficient for jurisdictional purposes if respondent mails the

notice of deficiency to the taxpayer's "last known address".

Sec. 6212(b)(1); Frieling v. Commissioner, 81 T.C. 42, 52 (1983).

If a deficiency notice is mailed to the taxpayer's last known

address, the notice is valid for purposes of section 6212 even if

not actually received by the taxpayer. King v. Commissioner, 857

F.2d 676, 679 (9th Cir. 1988), affg. 88 T.C. 1042 (1987);

Frieling v. Commissioner, supra at 52. The taxpayer, in turn,

has 90 days (or 150 days under circumstances not present herein)

from the date the notice of deficiency is mailed to file a

petition for a redetermination of the deficiency in this Court.

Sec. 6213(a).

There is no dispute in the instant case that the notices of

deficiency were mailed on March 22, 1993, and June 24, 1993,

respectively, and that the petition was filed on March 21, 1994,
 - 12 -

more than 90 days after the mailing of the second deficiency

notice. Respondent argues that the petition was untimely and

should be dismissed for lack of jurisdiction.

Petitioners contend that the notices of deficiency were not

mailed to their last known address. Petitioners argue that,

because petitioner submitted to Revenue Officer Mills a power of

attorney on March 19, 1993, listing the Brownway address as

petitioners' current address, and because Revenue Officer Mills

possessed independent knowledge that the Brownway address was

petitioners' address at that time, the Internal Revenue Service

had clear and concise notice of petitioners' change of address to

the Brownway address, prior to the issuance of the two notices of

deficiency. We need not address petitioners' contentions in

those respects. As explained more fully below, we hold that the

notices in question are valid on the ground that petitioners

received "actual notice" of respondent's deficiency determina-

tions, since the notices in question were promptly forwarded to

petitioners' Brownway address.

The purpose of section 6212 is "to afford a taxpayer notice

of the Commissioner's determination and an opportunity to liti-

gate the validity of such determination in this Court without

first paying the claimed deficiency." Mulvania v. Commissioner,

81 T.C. 65, 67 (1983), affd. 769 F.2d 1376 (9th Cir. 1985).

The purpose of section 6212 is accomplished when the

taxpayer receives "actual notice" of the deficiency determination
 - 13 -

in ample time to file a petition with this Court, without regard

to whether the taxpayer resides at the address to which the

notice was sent. See Goodman v. Commissioner, 71 T.C. 974, 977

(1979); Patmon & Young Professional Corp. v. Commissioner, T.C.

Memo. 1993-143, affd. 55 F.3d 216 (6th Cir. 1995). Thus, we must

determine whether petitioners received actual and timely notice

of the deficiency determination. We hold that petitioners did

receive such notice. A notice of deficiency is valid if mailed

to the wrong address but forwarded by the Postal Service and

actually received by the taxpayer without delay prejudicial to

the taxpayer's ability to file a timely petition. Borgman v.

Commissioner, T.C. Memo. 1984-503, affd. 888 F.2d 916, 917-918

(1st Cir. 1989); Yusko v. Commissioner, 89 T.C. 806 (1987).

Additionally, a taxpayer may not defeat actual notice by refusing

delivery of the deficiency notice, even if the notice were mailed

to the wrong address. Patmon & Young Professional Corp. v.

Commissioner, supra.

In the instant case, delivery of the notices of deficiency

was not delayed; the Postal Service timely forwarded both notices

to the Brownway address. Although petitioners deny that they

received the yellow slips from the Postal Service at the Brownway

address, petitioners acknowledge that they timely received other

mail sent to them by respondent at that address. Additionally,

at the hearing, petitioner testified that he was unaware of any

problems in the delivery of mail to the Brownway address.
 - 14 -

"Once respondent places the deficiency notice within the

taxpayer's grasp [in ample time to file a petition with the Tax

Court, respondent] * * * satisfies the requirement of section

6212; if the taxpayer turns a blind eye to that information, she

does so at her own peril." Patmon & Young Professional Corp. v.

Commissioner, supra.

The evidence in this case shows that the U.S. Postal Service

attempted delivery of both notices of deficiency and that peti-

tioners had adequate notice and time to obtain the notices of

deficiency from the local Post Office. There is no indication in

the record that anything was amiss in the normal handling of the

mail in question.

We find that petitioners in the case herein received actual

notice of the deficiency with ample time remaining to file a

petition. Petitioners have failed to produce any evidence, other

than self-serving testimony, to explain their failure to claim

the notices of deficiency and to file a petition in a timely

manner. Thus, we hold that the notices of deficiency are valid.

Therefore, since the petition in this case was not timely, we

shall grant the Commissioner's motion to dismiss for lack of

jurisdiction.

An appropriate order of

dismissal for lack of

jusisdiction will be entered

be issued.