On June 22, 2020 National Taxpayer Advocate Erin Collins issued a blog post advising readers to keep an eye out for notices with expired action dates. The post notes that “during the shutdown, the IRS generated more than 20 million notices; however, these notices were not mailed. As a result, the notices bear dates that now have passed, some by several months and some of the notices require taxpayers to respond by deadlines that have also passed.” I will repeat myself once or twice in this post but if I am reading it correctly the IRS is knowingly and intentionally creating a false entry on thousands, perhaps tens of thousands, of taxpayers’ official records of account.
The NTA describes as a silver lining the fact that the IRS is granting additional time to respond before interest or penalties apply and that the IRS is putting inserts with the letters to explain something about the mismatch in the date of mailing and the dates on the letters. I will talk more about some of the letters the NTA mentions in her blog post. I found myself wondering about several things that were not explained in the NTA’s blog post. Why did the IRS print these notices? Why doesn’t the IRS shred the notices and recycle the paper in order to issue new notices with the proper dates on the notices? Why hasn’t the IRS issued a news release or Tax Tip about the notices to alert taxpayers and practitioners? Prior to the NTA blog post, the IRS only released this information though its National Public Liaison (NPL), which, while helpful, does not reach a wide audience. And while many people read the NTA blog posts, I don’t think it has a readership on a par with broadly released statements from the IRS.
The IRS might think it has communicated to practitioners. It pushed this news out through the NPL on June 9. The stakeholder liaison is an inadequate way to disseminate important news. On the day of the stakeholder liaison email, IRS quietly updated the page on IRS operational status to include the information. It also posted this news as a “Statement on Balance Due Notices” here. I do not want to detract from the important discussion of the decision itself, but it is also worth mentioning that the information the IRS has made public on this situation and the method and medium of making it public, fails to signal the importance of this action.
Yesterday the NTA released her 2021 Objectives Report to Congress, which confirms the information in her blog post. Kudos to the NTA for including the problem of outdated notices in the news release accompanying the report. This will help get the word out to practitioners.
In a letter to Commissioner Rettig, Representatives Neal and Lewis expressed their concern over the outdated notices and suggested that the IRS take steps to “ensure no taxpayers are penalized” for the IRS’s inability to timely process correspondence. For the reasons explained below, this will not be easy to do if the IRS moves forward with its plan to mail the outdated notices.
The NTA states that several dozen kinds of IRS notices will be mailed in the next month or two. Maybe there is still time for the IRS to reconsider its decision to send out-of-date notices. I hope so. Here, I will discuss a few of the notices she mentioned. Before starting the specific discussion, I note that many of these notices are required by statute. I draw a distinction between statutorily required notices and other types of IRS notices. While the best practice would be to send out notices on the date listed on the notice for all notices, the purposeful mailing of misdated statutorily required notices creates a more serious problem.
No matter what an insert says, the taxpayer will receive a statutorily mandated notice triggering statutorily prescribed duties and response times with the wrong date on the notice and the wrong date(s) for responding. In the last two sentences of her blog post the NTA mentions that the IRS computer system will show as the business record of the IRS the wrong date. She says “[c]ompounding confusion surrounding notice dates, IRS transcripts for taxpayers’ accounts will also reflect incorrect dates for some of the notices.”
This could have grave consequences for both taxpayers and the IRS if the dates on the letters compromise the IRS business records. First, taxpayers who do not keep the envelope and the letter may have trouble proving that the dates on the letter did not reflect the actual mailing date when making a future challenge. Second, if the IRS builds a business record which it knows contains inaccurate information it makes all of its records suspect. Courts regularly rely on certified transcripts from the IRS for the accuracy of the date an action took place. If the IRS knowingly puts the wrong dates into its system of records, that calls the entire system into question. This could have consequences for the IRS far beyond the consequences of recycling these letters and making sure that its records accurately reflect actions taken.
Here you have the NTA saying that the IRS business record is inaccurate. That could be powerful evidence in court to strike at many IRS actions taken that stem from 2020. It also has the potential to support grounds for damages if certain collection actions occur after a wrongful assessment or wrongful filing of a notice of federal tax lien. It may present the possibility that in a CDP case a taxpayer may wish to lean on a rights-based failure to inform argument as a grounds to invalidate the proposed collection action.
Notice and Demand
IRC 6303 requires that the IRS send out a notice and demand letter within 60 days of the making of an assessment. Case law going back at least three decades holds that the failure to send the notice and demand letter within the 60-day period does not invalidate the assessment but there is some possibly contrary case law. The failure impacts the timing of the creation of the federal tax lien. IRC 6321 and 6322 provide that the federal tax lien arises upon assessment, notice and demand and failure to pay within the demand period. Ordinarily, failure to pay within the demand period causes the federal tax lien to relate back to the date of assessment. If the IRS sends out the notice and demand beyond the 60-day period, the FTL will only arise upon non-payment and will not relate back to assessment.
You might say “so what,” because who cares about the FTL. Only after the IRS filed the notice of federal tax lien (NFTL) does the IRS create a perfected lien. The unperfected FTL still, however, has meaning. For example, it attaches to property transferred for less than full value. If a fight arises regarding the attachment of the FTL, the actual date of the mailing of the notice and demand letter matters. Because of the pandemic, the IRS could not avoid sending out many notice and demand letters after the 60-day period. Sending them out beyond the time frame must occur due to no fault of the IRS but sending a significantly backdated letter will undoubtedly confuse many recipients and may cause some to even challenge the validity of a notice which on its face asks the taxpayer to do something impossible. If the notice and demand letter is invalid, the IRS has real problems because it would not have created the FTL, which has many consequences, including but certainly not limited to violating disclosure of a taxpayer’s liability if the IRS records a notice of federal tax lien when no underlying lien exists.
There is also the problem of the address. The IRS must mail the notice and demand letter to the taxpayer’s last known address. The IRS must use the taxpayer’s address as shown on the taxpayers most recently filed and properly processed return, unless clear and concise notification of a different address is provided. See, e.g., Duplicki v. Comm’r, T.C. Summary Opinion 2012-117. If these notices have been sitting in the bowels of a service center for months during the filing season, it is quite possible that many taxpayers have filed returns between the time of the creation of the notice and demand letter and the mailing of that letter. The NTA does not mention if the insert changes the address on the letter. I imagine it does not. While many paper returns filed in the past few months remain in the parking lots of the service centers to which they were sent, the vast majority of taxpayers filed electronically. Many of those returns will have gone through processing, and the IRS will know the taxpayer’s new address before these musty notices get mailed. Mailing the notice and demand letters to something other than the taxpayer’s last known address will create an invalid notice and demand letter creating the same problems described above. Maybe these are all notice and demand letters based on returns filed with insufficient remittance and processed early in the filing season, so the notice on the letter is the address on the most recent return. If these notices do not come from that source, the likelihood that a fair percentage will bear an address other than the last known address is reasonably high. This means taxpayers should be prepared to challenge the notices on this basis, which is not often done.
Math Error Notices
As most readers know the name math error notice is a misnomer. Subsection 6213(g)(2) provides the definition of math error notice. Sixteen different actions trigger the sending of a math error notice only one of which is 1+1=3. Earlier this year, Les updated Chapter 10 of the treatise “IRS Practice and Procedure” and adopted the practice of the Taxpayer Advocate Service of calling this notice the summary assessment authority notice. For this post I will stick with the misleading language of the statute, but errors in math play a small role in these notices.
The math error notice provides an exception to the need for the IRS to send a notice of deficiency in order to make an assessment. Instead of a 90-day letter offering the chance to go to Tax Court, the taxpayer receiving a math error notice has 60 days to write back to the IRS expressing disagreement or the IRS will make the assessment. We have not written enough about math error notices but some of our prior posts on this topic exists here, here, here and here. Nina Olson wrote often about these notices as the NTA. Find some of her writings here, here, here and here.
This notice cuts off rights. Most taxpayers fail to respond giving the IRS a shorter, easier path to assessment than the notice of deficiency. Math error notices confuse taxpayers in the best of times as discussed in some of the NTA annual reports. If you couple the ordinary confusion of these notices with dates that make no sense, the likelihood of a failure to response undoubtedly goes up.
Note that the math error notice must be mailed to the taxpayer’s last known address and the discussion above concerning notices with something other than the last known address applies here. If the math error notice goes to the wrong address but the IRS makes an assessment following a failure of the taxpayer to respond, then the IRS has a bad assessment and all of the things that flow from a bad assessment. These “things” can take a lot of time and effort to unwind. They can also cause the IRS to lose the right to assess if the unwinding occurs after the statute of limitations on assessment has passed.
On a smaller scale the government faced a similar problem in the government shutdowns of 2013 and 2018-2019. The system seems to generate notices automatically at certain points in time. The system does not understand when the government ceases to operate. In the prior shutdowns it sent out notices of deficiency and collection due process notices while the government was closed, but those letters didn’t have the wrong date and the taxpayer could still file a Tax Court petition or CDP request in the right time frame.
Collection Due Process Notices
I wrote a blog post in 2018 about a CDP case in which the Revenue Officer went to the taxpayer’s house to deliver the CDP notice but the taxpayer’s dog deterred the RO from making delivery. He went back to his office and mailed the CDP notice to the taxpayer to avoid bodily injury; however, he mailed the notice two days later. When he mailed the notice, it still bore the date of his canine-thwarted personal delivery effort. The Tax Court concluded that the time to make a CDP request runs from the date of mailing (or delivery) and not the date on the CDP notice.
Now the IRS will throw into the system potentially thousands of wrongly dated CDP notices, causing the recipients confusion and filing dates that may or may not fall within 30 days of the actual date of mailing. How many taxpayers will keep the letter and the envelope? Will the IRS have the correct date of mailing in its database or the original date of mailing? Remember that these mailings result not from a single RO working a case but from a mass-produced effort at the service centers.
Are CDP notices sent by the IRS with knowingly wrong dates valid CDP notices? If invalid, it makes all downstream levy actions wrongful. Will the CDP notices be sent to the taxpayer’s last known address or to some other address? If sent to something other than the taxpayer’s last known address, the CDP notices are not good.
Conclusion
The IRS should throw away these letters. (Recycle them please with appropriate taxpayer identification precautions.) Send new letters in which the dates on the letters match the dates of mailing. Yes, this will be expensive in cost of production of the letters and the time it takes to create the new letters. But it may prove less expensive than the alternative. It certainly will create less confusion among the taxpayers receiving the letters, the representatives trying to assist the letters, and the courts interpreting the IRS actions.