October 7, 2006

The IRS and the “Last Known Address” Rule

Houston Tax Attorney Blog

Houston Tax Attorney

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Receiving IRS notices in a timely fashion is critical. There can be very serious consequences for failing to respond to the IRS. It can often result in the amount of tax that is owed to be increased and cause the taxpayer to forfeit certain rights. Given the importance of receiving IRS notices, many taxpayers are surprised to find out that there is no requirement that the taxpayer actually receives most IRS notices.

The IRS’s Obligation is to Send Notices

In general, the IRS is only required to send IRS notices to the taxpayer’s “last known address.” The courts have defined the phrase “last known address” as:

the taxpayer’s last permanent address or legal residence known by the IRS, or the last known address of a definite duration to which the taxpayer has directed the IRS to send all communications during such period.

Generally the taxpayer’s “last known address” is the address on the taxpayer’s most recently filed tax return, unless the taxpayer notifies the IRS that they have a different address.

The IRS’s obligation typically ends there.

The Obligation to Notify the IRS of Address Changes

It is incumbent on the taxpayer to keep the IRS apprised of the taxpayer’s current address. This obligation is not absolute, however. If the IRS is aware of a new address, the IRS must exercise “reasonable care” in ascertaining the correct address.

When it Really Matters

In most cases, this “last known address” issue arises when the taxpayer receives a letter from their bank or a letter from their employer, which indicates that the IRS has levied or seized their bank account or wages. At that point, the taxpayer contacts to the IRS only to find out that the IRS had sent several IRS notices to an incorrect address. The IRS is very quick to cite the “last known address” rule in these situations.

These missed notices can be most severe when IRS tax penalties and interest are accruing, as the taxpayer may not be put on notice of their tax debt for years or even decades. In these cases, the penalties and interest can be substantial and may even exceed the amount of the original tax debt.

While this rule may be necessary to keep taxpayers honest, it often harms taxpayers who honestly do not receive IRS notices.

Why This Issue is More Common Today Than in the Past

This type of issue was not as pronounced in the recent past, as in the past most taxpayers did not relocate as frequently as they do today. The reality is that in today’s society taxpayers frequently move to several different addresses in several different states and countries several times each year (especially when you think about airplane pilots, professional athletes, and traveling salesmen).

So what is today’s mobile taxpayer to do? The IRS answer is that taxpayers are to submit IRS Form 8822 to update their address with the IRS each time they move. That is the official answer, but it is not one that is realistic.

For example, say a hypothetical taxpayer has lived in three countries, six United States states, thirty cities, and they have had forty different addresses in the past decade. That would produce forty Form 8822’s and ten federal tax returns (and maybe more tax returns, depending on the taxpayer’s assets and business interests).

In the event that the taxpayer timely filed each and every one of these forms (and kept proof that they submitted the forms), it would be nearly impossible for the IRS to establish that they mailed each notice to the taxpayer’s “last known address.” Given these facts, by the time the IRS processed the taxpayer’s Form 8822 the taxpayer would have already been living at a new address and have submitted a new Form 8822 to the IRS. Imagine the IRS backlog if every taxpayer submitted a Form 8822 every time that they changed addresses.

So why do the current rules work and work in favor of the IRS? Because taxpayers almost never submit Form 8822 to the IRS when they move. So what is the lesson for taxpayers who do not want to pay their taxes? Get in the regular habit of sending in Form 8822’s to the IRS.

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