Caraker Law Firm Blog

Proper Notice of Deficiency Proceedings - I.R.C. 6212

Posted by Chad Caraker on Tue, Feb 26, 2019 @ 09:40 PM

In Daniel Sadek v. Comm’r, T.C. Memo 2018-174, Filed October 16, 2018, the Tax Court takes up the issue of what is deemed to be an appropriate address for the issuance of a notice of deficiency. The rule is set out in I.R.C. section 6212(b)(1): a deficiency notice sent to the taxpayer’s last known address, shall be sufficient. Treasury Regulation section 301.6212-2(a) elaborates: “A taxpayer’s last known address is the address that appears on the taxpayer’s most recently filed and properly processed Federal tax return, unless the IRS is given clear and concise notification of a different address.” In this case, taxpayer’s most recently filed tax return was for 2005, which was filed October 19, 2009. The IRS issued a notice of deficiency for 2005 and 2006 in excess of $25 million dollars, to his address in both California and Nevada. This notice was issued August 25, 2011. Petitioner filed his petition with the Tax Court on January 4, 2017. From September 2010 through May 2014 Petitioner lived in Beirut, Lebanon. Despite the seemingly straightforward notification provision, Petitioner made a couple of arguments that the IRS should have known where he was living. First, the Petitioner argued that the IRS had used his bankruptcy filings to determine that he also had a home in Nevada. The Petitioner argued that the IRS should have known better as the automatic stay had been lifted during the bankruptcy proceedings to allow both lenders to foreclose – thus he no longer could have lived there. There was no evidence the foreclosure actually took place, and no other address was referenced in any bankruptcy filing. Next, while residing in Beirut, Lebanon, the Petitioner was the subject of an investigation by the FBI relating to his former mortgage business. Petitioner had several communications from Beirut with the FBI during this time. The testifying agent indicated that the FBI never had Petitioner’s address, and even if they did, they would not share the details of an ongoing criminal investigation with non-law enforcement agents of the IRS. The Court declined to “impute to the [IRS] the knowledge of the entire Federal Government.” That simply is not the requirement of the statute referenced above. The Court explained that even if the FBI had the address, and even if the Petitioner had provided the State Department with an address while in Lebanon, “change of address information that a taxpayer provides to another government agency, is not clear and concise notification of a different address,” per Treasury regulation section 301.6212-2(b)(1). Petitioner’s petition was deemed untimely and the deficiency stood.

Tags: IRS Shutdown, notice of deficiency, address used by IRS

Tax Responsibilities during government shutdown

Posted by Chad Caraker on Thu, Oct 10, 2013 @ 03:00 PM

Government shutdown

Government shutdown does not relieve tax responsibilities of individuals and businesses.

Some individual and business taxpayers are wondering if they still need to meet their tax obligations, even though the federal government is shut down.  The easy answer is absolutely. The IRS has had to dramatically reduce its workforce during the shutdown, but the extension date of October 15, 2013 remains for individual return filers of Form 1040 who timely filed for an extension to file their returns.   Additionally, employment tax returns due October 31, 2013 for 3rd Quarter remain due on that date.  Businesses that are required to deposit their employment taxes remain obligated to deposit timely.  So, for example, the next monthly deposit due date for Form 941 is October 15, 2013.  That date will be the due date, regardless of whether or not the federal government is open or closed.

Failure to meet proper filing and payment deadlines could result in significant penalties.  It is unclear if the IRS would waive penalties based on reasonable cause.  It is presumed that the argument for failure to file or pay while the government is shut down would be that the taxpayer assumed there would be no federal employees to accept the return or payment. IRS automated phone lines and the official IRS website make it very clear that the taxpayer is required to continue filing and paying taxes during the government shutdown.  It is believed that there would be limited relief for late filers and payers based on this argument.  First time penalty abatement requests may very well be honored, however.

Taxpayers should note that penalties associated with non-payment and non-filing can be significant.  An individual or corporate taxpayer that fails to properly deposit will be assessed with a failure to deposit penalty that could be as high as 10% of the amount of underpayment.  Additionally, late payment penalties could apply that equal ½% of the unpaid tax for each month, or part of a month, that the taxpayer doesn’t pay a balance.  This penalty maxes out at 25%.
Failure to timely file penalties are some of the fastest accruing penalties the IRS assesses.  The IRS will assess a penalty equal to 5% of the unpaid tax for each month or part of a month that you file late.  This penalty will accrue monthly until is maxes at 25%.  This can happen quickly - in only five months.  If a taxpayer is on extension for his or her 1040 and has a due date of October 15, 2013, but assumes it is not necessary to timely file because the government is not open, then the taxpayer would be assessed a 5% penalty, at a minimum, even if they file their return on October 16, 2013 - assuming the government re-opened on that day. 

Heed the advise on the IRS website: “Individuals and businesses should keep filing their tax returns and making deposits with the IRS, as they are required to do so by law” during the current lapse in appropriations which has resulted in the current federal government shutdown.

If you have any questions regarding these issues, please don’t hesitate to contact our office. 

Tags: employment taxes, Income Taxes, Government Shutdown, IRS, IRS Shutdown, Penalties