For those of you who earn your living representing clients before the IRS, it comes as no surprise that sometimes the IRS fails to comply with a statutory mandate. The question that Hom v Commissioner, 140 T.C. No 11 and other cases consider is what effect, if any, flows from the IRS’s failure to abide by what Congress specifically told it to do when it comes to putting information on a 90-day letter?
Steve and I are updating Chapter 10 in the venerable Saltzman treatise on procedure, and we address this case and others like it in that chapter. This issue, like so many issues implicating tax procedure, benefits from context.
For the most part, courts have typically given broad discretion to the Service even if the notices of deficiency it issues are vague or sloppy. In Scar v. Commissioner, 814 F2d 136 (9th Cir. 1987) the Ninth Circuit required that the notice contain sufficiently accurate information to establish that the Service had made a determination about the taxpayer’s return. The court held the notice sent to the taxpayer was invalid because it referred to losses related to a business in which the taxpayer had no involvement. The Ninth Circuit later clarified in Clapp v. Commissioner, 875 F2d 1396 (9th Cir. 1989) that there is no affirmative showing required to satisfy the determination requirement but the notice will be held invalid if it facially shows no determination has been made.
The IRS Restructuring and Reform Act of 1998 added two requirements for notices of deficiency: the notice must include (1) the last date on which the taxpayer can petition the Tax Court for a redetermination and (2) the phone number and address for the Taxpayer Advocate Service’s local office and a statement regarding the taxpayer’s right to contact that office (the lTAS requirement is in the code at Section 6212(a); the former is an off-code statutory requirement.
Courts have been addressing the effect of notices that do not comply with the Restructuring Act’s directive on stat notices. In Hom v Comm’r, the Tax Court is the latest to address the issue. In Hom, the statutory notice did not include the TAS’s phone number and address. The taxpayer argued that the notice was invalid, thus bringing into question the ability for the IRS to timely assess an additional liability. The court held that the notice without the specific contact information was valid because the taxpayer suffered no prejudice. The notice did inform the taxpayer of his right to contact the taxpayer advocate office and directed him to the IRS’s website to obtain the office’s contact information. The taxpayer did not allege he attempted to contact the TAS office, and the court found he would have been able to obtain the office’s contact information based on his knowledge of computer use and internet access.
Another court reached an opposite result in a similar case, though one that dealt with a taxpayer who lived in Guam and where the facts were more favorable to the taxpayer. In Marangi v. Government of Guam, 319 F.Supp. 2d 1179, 1184 (D. Guam 2004) the notice included no information about the taxpayer’s right to contact a taxpayer advocate office. In addition, the Court found it important that Guam’s version of the revenue service had not established an advocate office in Guam.
Hom is consistent with the Ninth and Tenth circuits, which have held that the failure to include the last date to file the petition will not invalidate the notice. See Elings v. Comm’r, 324 F3d 1110, 1113 (9th Cir. 2003); Smith v. Comm’r, 275 F3d 912, 914-15 (10th Cir. 2001). Those cases, drawing on general administrative law principles (even more important these days following Mayo) have also focused on whether the error has a prejudicial effect.
While it seems somewhat anomalous to there being no consequence for the IRS’s omission on stat notices, it is hard to fault the result in Hom. Failing to include the TAS office address and phone number, while not insignificant, does not directly relate to the ability to challenge the IRS in Tax Court. The failure to include the last date to petition the Tax Court, on the other hand, may lead to circumstances where practitioners can more readily demonstrate prejudicial effect. In 1998, Congress added the last petition date requirement because it determined “that taxpayers should receive assistance in determining the time period within which they must file a petition in the Tax Court and that taxpayers should be able to rely on the computation of that period by the IRS.” S. Rep. No. 105-174, 90 (1998). Based on this legislative intent, the IRS’s omission of a last petition date itself could seem to prejudice taxpayers, especially if the taxpayer has characteristics that suggest it was in a class of taxpayers most likely to benefit from the legislative mandate, such as those with limited education or who have language or literacy issues. A key will be to suggest (if the facts so support, of course) that the IRS’s failure to comply may have reasonably contributed to failing to meet the 90-day deadline.