Pyo v. Comm'r of Internal Revenue

• Decision Date: 23 October 1984
• Docket Number: Docket No. 28344-83.
• Citation: 83 T.C. 626,83 T.C. No. 34
• Parties: KI P. PYO and BOUNG K. PYO, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: U.S. Tax Court

83 T.C. 626

83 T.C. No. 34

KI P. PYO and BOUNG K. PYO, Petitioners

v.COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 28344-83.

United States Tax Court

Filed October 23, 1984.

On or about April 13, 1981, the District Director of Internal Revenue at Los Angeles mailed a statutory notice of deficiency covering the taxable years 1976 and 1977 to petitioners at the address shown on their income tax returns for those years. Prior to this mailing, the same District Director's office corresponded with petitioners on numerous occasions concerning their income tax liabilities for the taxable years 1978 and 1979 at another address shown on petitioners' income tax returns for these subsequent years. Petitioners did not receive the notice of deficiency mailed on April 13, 1981, until about April 1, 1982. HELD: While a taxpayer is required to notify the Commissioner of a change of address, once a District Director's office begins to correspond with a taxpayer at a given address, the taxpayer has satisfied his duty of notifying that District Director's office of his change of address. The Commissioner did not, in this case, exercise reasonable diligence in ascertaining petitioners' correct address when he mailed the notice of deficiency and he did not mail it to petitioners' last known address. ROBERT S. SCHRIEBMAN, for the petitioners.

KAREN J. SIMONSON, for the respondent.

OPINION

GOFFE, JUDGE:

The Commissioner determined deficiencies in petitioners' Federal income tax and additions to tax as follows:

+------------------------------------------------+
                ¦      ¦                   ¦Negligence addition  ¦
                +------+-------------------+---------------------¦
                ¦Year  ¦Deficiency in tax  ¦sec. 6653(a) 1      ¦
                +------+-------------------+---------------------¦
                ¦      ¦                   ¦                     ¦
                +------+-------------------+---------------------¦
                ¦1976  ¦$23,816            ¦$1,191               ¦
                +------+-------------------+---------------------¦
                ¦1977  ¦13,125             ¦656                  ¦
                +------------------------------------------------+
                

This case is before the Court on the parties' cross motions to dismiss for lack of jurisdiction. Petitioners' motion is premised upon the Commissioner's alleged failure to mail the notice of deficiency to petitioners' last known address in accordance with section 6212(b)(1). Respondent asserts that this Court lacks jurisdiction because petitioners did not file their petition within 90 days of the mailing of the notice of deficiency to them as required by section 6213(a).

The parties have stipulated most of the underlying facts of this case. ² The stipulation of facts and accompanying exhibits are incorporated herein by reference.

Petitioners, husband and wife, resided in Torrance, California, when they filed their petition. During part of 1976 and 1977, petitioners owned and operated, as sole proprietors, a retail liquor store known as ‘Carmela's Liquor‘ in Hawthorne, California, and a gas station in Los Angeles, California. They timely filed Federal income tax returns for the taxable years 1976 and 1977 with the Internal Revenue Service Center in Fresno, California, reporting gross receipts from these businesses in the amounts of $180,033 for 1976 and $286,488 for 1977. On both Federal income tax returns, petitioners entered their address as 17039 Faysmith, Torrance, California (hereafter referred to as the ‘Faysmith‘ address).

In January 1979, petitioners moved to a new residence at 3004 Carolwood Lane, Torrance, California. At such time, petitioners filed a change of address form with the U.S. Postal Service. They timely filed their 1978, 1979, 1980 and 1981 Federal income tax returns with the Fresno Service Center. On these returns, petitioners entered their address as 3004 Carolwood Lane, Torrance, California (hereafter referred to as the ‘Carolwood‘ address).

During 1978, 1979 and 1980, petitioners' income tax returns for the taxable years 1976 and 1977 were examined by Internal Revenue Service agents of the Los Angeles District Director's office. During this examination, the IRS agents met with petitioners and mailed materials to them at their liquor store. David Z. Hong, an accountant and tax return preparer, filed an unsigned power of attorney form on behalf of petitioners with the Internal Revenue Service in connection with this examination. The Internal Revenue Service accepted this power of attorney form and acknowledged him as petitioners' representative during this examination.

On or about March 5, 1980, petitioners executed a Form 872, which extended the period of limitations for assessment for the taxable year 1976 to April 30, 1981. This form, which listed petitioners' Faysmith residence, was first delivered to Mr. Hong, who obtained petitioners' signatures. Neither petitioners nor their representative, Mr. Hong, corrected this form to reflect their current residence at the Carolwood address before it was returned to the Los Angeles District Director's office. Upon its return to the Los Angeles District Director's office, the Form 872 was signed by an Internal Revenue Service employee and a copy of the fully executed agreement was mailed to petitioners at the Faysmith address accompanying a cover letter dated April 8, 1980. The record does not indicate whether petitioners ever received the letter dated April 8, 1980, or the Form 872.

On or about September 26, 1980, the Los Angeles District Director's office mailed a notice to petitioners at their Carolwood address informing them that their Federal income tax return for the taxable year 1978 was being examined. On or about October 30, 1980, the Los Angeles District Director's office mailed a report of the examination of the taxable year 1978 to petitioner at their Carolwood address. On or about November 19, 1980, the same office mailed to petitioners at their Carolwood address materials concerning their Federal income tax return for the taxable year 1978.

According to a ‘Report Transmittal,‘ the Internal Revenue Service mailed another Form 872 to petitioners at the Faysmith address in January 1981 which requested an additional extension of the period of limitations for assessment for the taxable years 1976 and 1977. The report recites that the Form 872 was not returned by the Postal Service or by petitioners.

On or about March 9, 1981, the Fresno Service Center mailed a ‘Statement of Adjustment to Your Account‘ to petitioners at their Carolwood address as a result of the examination of their Federal income tax return for the taxable year 1978. Finally, on or about April 10, 1981, the Los Angeles District Director's office mailed a notice to petitioners at their Carolwood address advising them that their Federal income tax return for the taxable year 1979 had been selected for examination.

On or about April 13, 1981, a statutory notice of deficiency bearing this date covering petitioners' returns for the taxable years 1976 and 1977, was mailed to them at their Faysmith address from the Los Angeles District Director's office. Using the bank deposits method of analysis, the Commissioner determined that petitioners were liable for the deficiencies in Federal income tax and additions to tax previously set forth in this opinion. The unopened envelope containing the notice of deficiency was immediately returned to the Los Angeles District Director's office prior to the expiration of the applicable period of limitations for assessment marked ‘NOT DELIVERABLE AS ADDRESSED UNABLE TO FORWARD.‘ The record is devoid of evidence of any additional efforts by Internal Revenue Service personnel to ascertain another address to which this document could be mailed to petitioners. No copy of the notice of deficiency was mailed to Mr. Hong, who represented petitioners for the taxable years covered by the notice of deficiency.

In response to an inquiry by petitioners, the Internal Revenue Service mailed a letter dated March 29, 1982, which was received by petitioners on or about April 1, 1982. The Internal Revenue Service informed petitioners that: (1) a notice of deficiency with respect to the taxable years 1976 and 1977 had been mailed to their last known address; (2) the notice of deficiency was returned to the Internal Revenue Service as undeliverable; (3) the 90-day period for filing a petition with the U.S. Tax Court had lapsed; (4) the taxes and additions to tax determined in the statutory notice of deficiency had been assessed; and (5) if petitioners still desired to contest this matter, they must first pay the tax and then file a claim for refund. This letter was mailed to petitioners by ordinary mail at their Carolwood address and enclosed a copy of the notice of deficiency dated April 13, 1981.

On or about May 20, 1982, the Los Angeles District Director's office filed a Notice of Federal Tax Lien Under Internal Revenue Laws in the amount of $51,497.94 with the Los Angeles County Recorder, Los Angeles, California, with respect to the taxes and additions to tax contained in the statutory notice of deficiency for the taxable years 1976 and 1977. On May 31, 1983, a Notice of Levy covering the amounts determined in the statutory notice of deficiency for the taxable years 1976 and 1977 was served upon petitioners' bank in Gardena, California.

At all relevant times herein, the computer of the Fresno Service Center contained the names, addresses and social security numbers of taxpayers shown on their most recent Federal income tax returns on file with the Internal Revenue Service. At the time the notice of deficiency was first mailed to petitioners, this computer system contained petitioners' Carolwood address. Although the employees of the Los Angeles District Director's office who prepared the notice of deficiency mailed to petitioners had access to this computer system when the statutory notice was first mailed to petitioners, they did not use this system to ascertain the address to which the...