IRS Negligently Sent Notice of Intent to Levy to Wrong Address

Transcription

1 IRS Negligently Sent Notice of Intent to Levy to Wrong Address Music v. U.S., (DC GA 4/17/2014) 113 AFTR 2d A district court has ruled that IRS was negligent in sending a notice of levy to an address which it had ample evidence was no longer taxpayer's current address. The court found that the taxpayer didn't suffer any direct economic damages as a result of IRS's negligence, but the court did award costs to the taxpayer and distinguished several previous cases that didn't award costs in similar circumstances. The taxpayer, Laurie Music, last filed a tax return sometime during the '90s. That return showed that she lived in Summerfield, FL. Sometime around '98, she moved to Blue Ridge, GA and worked there. She did not leave a forwarding address with the Postal Service, and she did not inform IRS that she had moved. She did not file a tax return for the years ' Sometime in 2005, IRS sent a letter to the Summerfield address stating that it had not received Music's returns. IRS did not receive a response to that letter. IRS found that one of Music's W-2s showed a Blue Ridge address, and IRS sent the same letter to that address. Music received the letter mailed to Blue Ridge, and frivolously responded that she didn't have to file a tax return; she also said that she hadn't received any letter other than the Blue Ridge letter. In late 2005, Music moved to Epworth, GA. She did not leave a forwarding address with the Postal Service, and she did not inform IRS that she had moved. IRS sent her a letter after she frivolously claimed, on Form W-4, that she was exempt from withholding. Music responded with a letter that showed her Epworth address. IRS responded but sent that response to the Summerfield address. The 1

2 letter was returned to IRS, who then readdressed it to the Epworth address. Music received that letter and sent IRS a response that showed her Epworth address. Music failed to file her returns. IRS sent a notice of deficiency to the Summerfield address. IRS got no response to that notice. IRS then sent a notice and demand for payment to Summerfield, to which Music didn't respond and, in June, 2010, sent a notice of intent to levy to Summerfield. When Music didn't respond, IRS issued a notice of levy to Music's employer. Music quit her job the day after she received her levied paycheck. She claimed that the diminution in her paycheck as a result of the levy forced her to quit her job because her net income was insufficient to pay the costs of commuting to and from work in addition to her living expenses. Music did not contact IRS before she quit her job. Music did not attempt to get another job after she left her position with her last employer. IRS may levy upon taxpayer property only if it sends the taxpayer notice of the impending levy at least thirty days before the levy goes into effect. IRS provides satisfactory notice by (1) giving the notice to the taxpayer, (2) leaving the notice at the taxpayer's dwelling or usual place of business, or (3) sending the notice by certified or registered mail to the taxpayer's "last known address." (Code Sec. 6331(d)(2)) In general, a taxpayer's last known address is the address that appears on the taxpayer's most recently filed tax return. The taxpayer's last known address will not change unless IRS is given "clear and concise notification of a different address." (Reg (a)) The U.S. may be liable for taxpayer damages incurred due to the intentional, reckless, or negligent disregard of any provision of the Code by an IRS officer or employee in connection with the collection of a taxpayer's federal tax. (Code Sec. 2

3 7433(a)) Code Sec allows the damaged taxpayer to recover the sum of "actual, direct economic damages sustained by the plaintiff as a proximate result" of IRS's conduct and the "costs of the action." (Code Sec. 7433(b)) Reg (c) lists the items that are considered "costs of the action." The taxpayer has the obligation to mitigate her actual, direct economic damages. (Code Sec. 7433(d)(2)) The court first noted that, while the statutory and regulatory framework provides that the taxpayer has the burden to show that she gave IRS clear and concise notification of a new address, that framework does not immunize IRS from using common sense. IRS must exercise "reasonable diligence in determining the last known address." (Navolio, (CA ) 103 AFTR 2d ) IRS's burden to exercise reasonable diligence is distinct from the taxpayer's burden to notify IRS of a change in her address. (Sicari, (CA ) 81 AFTR 2d ) The court said that numerous courts have found that IRS failed to exercise reasonable diligence when it continued to send correspondence to the taxpayer's last known address even though mail sent to that address was returned undelivered. See, e.g., Terrell (CA ) 106 AFTR 2d By June 2010, the date on which IRS sent the notice of intent to levy, at least one and as many as three letters sent to Music's Summerfield address had been returned undelivered. The court said that that fact alone was sufficient to find that IRS failed to exercise reasonable diligence. Moreover, any concerns initially raised by a history of undelivered mail would have been confirmed by a cursory glance at Music's file. Music's employer was located in Georgia, and Music responded only to IRS correspondence sent to Georgia addresses. Despite these clear indications that Music no longer lived at her Summerfield address and almost certainly lived outside Florida, IRS sent the notice of intent to levy to Music's Summerfield address. Every piece of evidence pointed to IRS's blind reliance on its master file's "last known address" despite 3

4 obvious indications that Music no longer lived at that address. IRS presented no evidence tending to indicate reasonable diligence on its part. Instead, IRS emphasized Music's failure to update her address despite clear opportunities to do so. The court pointed out numerous steps that IRS could have taken but didn't take, including sending a notice of intent to levy to Music's business address. Code Sec does not require the notice to be sent to the taxpayer's last known address; IRS satisfies its statutory obligation by giving the notice to the taxpayer in person or leaving the notice at the taxpayer's "dwelling or usual place of business." The court determined that Music had no actual, direct economic damages because her damages were not the proximate result of IRS' negligent actions. Music would have suffered the same "damages" even if she received the notice of intent to levy. Music claimed that she did not need to file a tax return because her "wages" were not considered "income" under the Code. Her position was patently frivolous. Music's damages were a result of the size of her outstanding tax liability relative to her income; whether she received effective notice would not change her income or her tax liability but instead would change only when she became aware of that liability's existence. And Music's quitting her job was not a natural and probable consequence of an incorrectly addressed letter. She could have called IRS before quitting her job to contest the levy. Regs expressly authorize a post-levy collection due process hearing, and Music could have worked with IRS to reduce the levy to an amount that would allow her to continue working. (Reg ) The court did award Music an amount for the fees that she incurred that are listed in Reg (c). It noted that the effect of Code Sec. 7433(c)'s "cost of the action" language is that a taxpayer suffers recoverable damages 4

5 simply by filing the suit. The court said it recognized that this interpretation of the statute necessarily conflicts with a significant number of courts that have dismissed Code Sec claims by holding that the taxpayer did not suffer any actual, direct economic damages. It cited, for example, Abel, (DC OR 2000) 85 AFTR 2d , Gessert, (CA ) 111 AFTR 2d , and Chick, (DC OH 2000) 86 AFTR 2d