King v. C.I.R.

• Decision Date: 21 September 1988
• Docket Number: No. 87-7418,87-7418
• Citation: 857 F.2d 676
• Parties: -5661, 88-2 USTC P 9521 William L. KING and Darlene E. King, Petitioners-Appellees, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 676

857 F.2d 676

62 A.F.T.R.2d 88-5661, 88-2 USTC P 9521

William L. KING and Darlene E. King, Petitioners-Appellees, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellant.

No. 87-7418.

United States Court of Appeals Ninth Circuit.

Argued and Submitted August 12, 1988.

Decided Sept. 21, 1988.

Gilbert S. Rothenberg, Dept. of Justice, Washington, D.C., for respondent-appellant.

Charles M. Meadows, Davis, Meadows, Owens, Collier & Zackry, Dallas, Tex., for petitioners-appellees.

Appeal from an Order of the United States Tax Court.

Before WRIGHT and POOLE, Circuit Judges, and HUPP, District Judge. ^*

POOLE, Circuit Judge:

The Commissioner appeals from the Tax Court's order dismissing the Kings' petition for lack of jurisdiction. The Tax Court held that the Commissioner failed to exercise reasonable diligence to ascertain the Kings' last known address and that therefore the notice of deficiency mailed to the Kings' former address was invalid. We have jurisdiction pursuant to 26 U.S.C. Sec. 7482 (1982 & Supp. IV 1986) ¹ and we affirm.

FACTS AND PROCEEDINGS BELOW

The essential facts are undisputed and are set forth in the Tax Court's opinion. See King v. Commissioner, 88 T.C. 1042, 1043-46 (1987). The following is a brief summary.

Taxpayers filed Federal income tax returns for 1978 and 1979 with the Internal Revenue Service Center in Austin, Texas. At that time, taxpayers resided at 7140 Mossvine Drive in Dallas. When the Dallas District Director's Office selected taxpayers' 1978 and 1979 returns for review, taxpayers filed two powers of attorney with the Dallas office listing the Mossvine address.

In October 1980, taxpayers moved to 17223 Club Hill Drive in Dallas. However, taxpayers subsequently filed with the Dallas office an additional power of attorney and a Form 4549 erroneously listing their Mossvine address. Taxpayers first used their Club Hill address on correspondence with the IRS in April 1981, when they requested an extension of time to file their 1980 return. On June 15, 1981, taxpayers filed their 1980 return using their Club Hill address. Both the request for extension and the return were filed with the Austin Service Center.

On August 17, 1981, the Dallas office sent taxpayers a 30-day letter at the Mossvine address, which was forwarded to the Club Hill address. On September 17, 1981, taxpayers' attorney (Billings) responded by filing a verified protest letter which erroneously listed the Mossvine address. Several weeks later, Mr. King's secretary called Billings to inform him that the Mossvine address was no longer correct, but Billings did not inform the IRS of the change.

In December 1981, the Austin Service Center sent two Statements of Adjustment covering the 1978 and 1979 tax years to taxpayers at the Club Hill address.

On February 19, 1982, the Dallas office mailed a notice of deficiency to the Mossvine In July 1982, the IRS assessed the deficiency and began collection procedures. Taxpayers sought to enjoin the collection by filing suit in federal district court. That suit was eventually dismissed without prejudice, and taxpayers filed the instant petition in the Tax Court on December 4, 1984. Both parties moved for dismissal. On April 23, 1987, the Tax Court issued an opinion concluding that "the notice of deficiency was not sent to [taxpayers'] last known address and it is therefore invalid." King v. Commissioner, 88 T.C. at 1050. The Commissioner's motions for reconsideration and to vacate the order of dismissal were denied on June 2, 1987, and the Commissioner brought this appeal.

                address, with copies to taxpayers' accountant and attorney. 2   The notice was returned as undeliverable in March, 1982.  When the notice was returned, appeals officer Dwyer reviewed the administrative file to determine if the notice had been sent to the correct address, but he concluded that it had been and took no further action.  At no time did Dwyer request a computer search of the records of the Austin Service Center
                

ISSUE

Did the Tax Court err in finding that the Commissioner did not mail the notice of deficiency to the taxpayers' last known address?

STANDARD OF REVIEW

We consider first the question of what standard of review we should apply. In Cool Fuel, Inc. v. Connett, 685 F.2d 309, 312 (9th Cir.1982), we stated: "[i]t is a question of fact as to what knowledge the IRS acquires concerning the taxpayer's address." Findings of fact are reviewed under the clearly erroneous standard. United States v. McConney, 728 F.2d 1195, 1200-01 (9th Cir.) (en banc), cert. denied, 469 U.S. 824, 105 S.Ct. 101, 83 L.Ed.2d 46 (1984). Here, however, neither party disputes the historical facts as found by the Tax Court; rather, the dispute centers on the Tax Court's ultimate conclusion that the Commissioner did not mail the notice to the taxpayers' "last known address."

The Commissioner argues that de novo review is appropriate, citing Scar v. Commissioner, 814 F.2d 1363 (9th Cir.1987), in which we stated: "In order to decide whether the Tax Court had jurisdiction we review de novo the Tax Court's interpretation of section 6212(a)." 814 F.2d at 1366. However, the issue before the court in Scar was not a determination of the taxpayers' "last known address;" rather, the question was:

whether a form letter that asserts that a deficiency has been determined, which letter and its attachments make it patently obvious that no determination has in fact been made, satisfies the statutory mandate.

Scar, 814 F.2d at 1367. The Scar court treated this issue as one of pure statutory interpretation, since the legal standard had not been established. Here, by contrast, both the historical facts and the legal standard ("reasonable diligence") are established, and the only question is the proper application of the standard to these facts. Thus, "last known address" is a mixed question, and the standard of review should be determined under the analysis set forth in McConney.

Under McConney, "the key to the resolution of this question is the nature of the inquiry that is required." 728 F.2d at 1202. The operative distinction is whether the inquiry is "essentially factual," i.e., founded on the fact-finder's "experience with the mainsprings of human conduct," or whether it requires "judgment about the values that animate legal principles." Id.

We find further guidance in McConney 's discussion of two tax cases: Helvering v. Tex-Penn Oil Co., 300 U.S. 481, 57 S.Ct. 569, 81 L.Ed. 755 (1937), and Commissioner v. Duberstein, 363 U.S. 278, 80 S.Ct. 1190, 4 L.Ed.2d 1218 (1960). In Tex-Penn The nontechnical nature of the statutory standard, the close relationship of it to the data of practical human experience, and the multiplicity of relevant factual elements, with their various combinations, creating the necessity of ascribing the proper force to each, confirm us in our conclusion that the primary weight in this area must be given to the conclusions of the trier of fact.

                the Supreme Court reviewed de novo the question whether a transaction fell within the non-recognition of gains provisions of the Code.  This court commented that Tex-Penn "required an analysis of the intricacies of the corporate reorganization provision of the Internal Revenue Code and the legislative purpose in exempting certain gains from immediate taxation."   McConney, 728 F.2d at 1203.  In Duberstein, the Supreme Court held that whether a donation was a "gift" was subject to clearly erroneous review.  363 U.S. at 289-91, 80 S.Ct. at 1198-1200.  The Court explained
                

363 U.S. at 289, 80 S.Ct. at 1198-99, quoted in McConney, 728 F.2d at 1203 n. 10.

Here, the "last known address" inquiry requires an examination of the totality of the circumstances and a balancing of many relevant factual elements, factors which indicate that the inquiry is "essentially factual." We therefore conclude that clearly erroneous review is appropriate. ³ Our conclusion is in accord with the two other circuits which have specifically addressed this issue. See McPartlin v. Commissioner, 653 F.2d 1185, 1189 (7th Cir.1981); Johnson v. Commissioner, 611 F.2d 1015, 1019 (5th Cir.1980).

DISCUSSION

The IRS must give notice to the taxpayer before it may assess or collect any deficiency. I.R.C. Sec. 6213(a). A notice of deficiency is valid, even if it is not received by the taxpayer, if it is mailed to the taxpayer's "last known address." I.R.C. Sec. 6212(b)(1); see Wallin v. Commissioner, 744 F.2d 674, 676 (9th Cir.1984); United States v. Zolla, 724 F.2d 808, 810 (9th Cir.), cert. denied, 469 U.S. 830, 105 S.Ct. 116, 83 L.Ed.2d 59 (1984). ⁴

The Tax Court has established, and this court has adopted, the following frequently cited rule:

[W]hile the Commissioner is bound to exercise reasonable diligence in ascertaining the taxpayer's correct address, he is entitled to treat the address appearing on a taxpayer's return as the last known in the absence of clear and concise notification from the taxpayer directing the Commissioner to use a different address.

Alta Sierra Vista, Inc. v. Commissioner, 62 T.C. 367, 374 (1974) (citations omitted), aff'd mem. 538 F.2d 334 (9th Cir.1976); see Wallin, 744 F.2d at 676.

This circuit has consistently held that "a subsequently filed tax return with a new address does give the IRS notice" of a change of address. Wallin, 744 F.2d at 676; see also Zolla, 724 F.2d at 810 ("a taxpayer's last known address is that on his most recent return"); accord Cyclone Drilling, Inc. v. Kelley, 769 F.2d 662, 664 (10th Cir.1985) ("we follow the Ninth Circuit in our view that a taxpayer's subsequent return bearing a new address provides the IRS with 'clear and concise' notice."). ⁵ For example, in Cool Fuel, Inc. v Connett, the taxpayer had moved more than a year before the notice of deficiency was mailed, and had used its new address on its quarterly employment tax returns. We held that "[t]hese subsequently filed tax returns provided the IRS with notice...