Sicari v. C.I.R., Docket No. 97-4186

• Decision Date: 27 February 1998
• Docket Number: Docket No. 97-4186
• Citation: 136 F.3d 925
• Parties: -954, 98-1 USTC P 50,237 Anthony SICARI and Esther Sicari, Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
• Court: U.S. Court of Appeals — Second Circuit

Page 925

136 F.3d 925

81 A.F.T.R.2d 98-954, 98-1 USTC P 50,237

Anthony SICARI and Esther Sicari, Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.

Docket No. 97-4186.

United States Court of Appeals Second Circuit.

Argued Dec. 2, 1997.

Decided Feb. 27, 1998.

Sheldon Eisenberger, New York City, for appellants.

Michelle B. O'Connor, Washington, DC (Loretta C. Argrett, Asst. Atty. Gen., David English Carmack, Tax Div., Dept. of Justice, Washington, DC, on the brief), for appellee.

Before: WINTER, Chief Judge, NEWMAN and WALLACE, ^* Circuit Judges.

JON O. NEWMAN, Circuit Judge:

This appeal concerns the duty of the Commissioner of Internal Revenue (the "Commissioner") to use reasonable diligence, when sending a notice of deficiency to a taxpayer, in ascertaining the taxpayer's "last known address." A notice sent to such address is a prerequisite to collection of an income tax deficiency, and the mailing of a proper notice starts a 90-day time period in which the taxpayer may challenge the assessment of the deficiency in the Tax Court. Usually, disputes as to whether the required notice was properly addressed concern a taxpayer who has moved to a location different from the one known to the Commissioner. This appeal, however, involves the extraordinary circumstances of taxpayers whose address has changed twice within one year even though they have never moved at all.

Anthony Sicari and his wife appeal from the March 4, 1997, order of the Tax Court (Howard A. Dawson, Judge), holding that their petition for a redetermination of income tax deficiencies was untimely, and dismissing the action for lack of subject matter jurisdiction. The Sicaris contend that the notice of deficiency was insufficient because the Commissioner sent it to the wrong address notwithstanding his actual knowledge that the Sicaris' home had been assigned a new, more precise address designation. We conclude, on the precise facts of this case, that the Tax Court erred in finding that the Commissioner acted with the requisite reasonable diligence, and we remand for a determination as to whether the notice of deficiency, regardless of improper addressing, was in fact delivered to the Sicaris.

Background

Since 1976, the Sicaris have lived in the same house in the small upstate community of Gardiner, New York, in Ulster County. Their home is located along Route 208, a two-lane state highway. Before 1991, the Sicaris' official mailing address was simply "Route 208, Gardiner, New York 12525" (the "Route 208 address"). In January 1991, the United States Post Office assigned the Sicaris' residence a rural route box number, and the Sicaris' mailing address became "Route 208, Box 1370, Gardiner, New York 12525" (the "Box 1370 address"). In January 1992, the Post Office again changed the Sicaris' address, this time assigning their home a street number to facilitate the implementation of a "911" emergency notification system. At this time, the Sicaris' official address became "871 Route 208, Gardiner, New York 12525" (the "871 address").

In the fall of 1992, the Internal Revenue Service ("IRS" or "the Service") determined deficiencies in the Sicaris' federal income taxes for the tax years 1983 through 1986. On October 9, 1992, the Service's Albany, New York District Office issued a statutorily required notice of deficiency concerning these tax underpayments. The notice was sent to the Sicaris by certified mail, return receipt requested, in an envelope bearing the Route 208 address.

On November 10, 1992, the envelope was returned, unopened, to the Examination Support and Processing Unit at the IRS District Office in Albany. The envelope bore a "Return to Sender" stampmark in red ink, and the "REASON CHECKED" for the return was "Unclaimed." In addition, the words "Return unclaimed" had been handwritten on the face of the envelope. The envelope also listed two dates on which the Sicaris' postal carrier purportedly had delivered notices to the Sicaris informing them that they needed to come to the Post Office to claim the envelope, and the date on which the envelope was returned to the Service. Curiously, the date of the "1st Notice" was listed as "9-24"--presumably a reference to September 24, 1992, which preceded the date of the enclosed notice of deficiency by more than two weeks. The date of the "2d Notice" was listed as "10-16"; the date of "Return" was listed as "10-19." The Service made no further effort to contact the Sicaris concerning the tax deficiencies.

At the time the notice of deficiency was prepared, the Service was aware that the Sicaris had begun to use the Box 1370 address in numerous filings and items of correspondence. For example, the Sicaris had used the Box 1370 address in requests for extensions (pertaining to returns for the 1990 and 1991 tax years) filed with the Service in April 1991 and April 1992. In addition, Anthony Sicari had used the Box 1370 address in connection with personal bankruptcy proceedings in the Bankruptcy Court for the Southern District of New York that were monitored by the Special Procedures Unit of the Collection Division at the Albany District IRS Office. Anthony Sicari listed the Box 1370 address on the petition he filed commencing those proceedings in June 1992; the Special Procedures Unit received prompt notice of this filing and recorded the Box 1370 address in the Service's Automated Insolvency System ("AIS") computer database.

In June 1992, the Special Procedures Unit sent Anthony Sicari two letters, both using the Box 1370 address; these letters explained his obligation to file federal tax returns during the pendency of the bankruptcy proceedings. In September 1992, just over two weeks before the notice of deficiency was sent, the Special Procedures Unit filed in the Bankruptcy Court a Proof of Claim form, which also listed the Box 1370 Address.

Internal Revenue Agent James Manico, a member of the Quality Measurement Staff at the Albany District IRS Office, was responsible for ascertaining the Sicaris' address for the notice of deficiency. To determine the Sicaris' last known address, Manico reviewed the Sicaris' administrative file and instructed a clerk to run a computer search. The clerk searched two IRS databases but did not search the AIS database in which the Sicaris' Box 1370 address was stored. The search of the administrative file and the two IRS databases that were searched did not alert Manico to a change in (or refinement of) the Sicaris' address. ¹ Nothing in the record explains why the clerk did not search the AIS database.

The Sicaris claim that they did not receive actual notice of the alleged deficiency until June 1995, when they met with an Internal Revenue agent to discuss an unrelated matter. The Sicaris commenced the present action two weeks later, on June 27, 1995, by filing a petition for redetermination of the deficiencies in the Tax Court. The Service moved to dismiss for lack of subject matter jurisdiction, arguing that the petition was untimely.

After a hearing, Special Trial Judge Norman Wolfe concluded that the notice was sufficient and ruled that the petition was untimely. Judge Dawson adopted Judge Wolfe's opinion and dismissed the action. See Sicari v. Commissioner of Internal Revenue, 73 T.C.M. (CCH) 2136, 1997 WL 87252 (1997).

Discussion

"In order to collect a deficiency in income tax, the Commissioner must have mailed a notice of deficiency by certified or registered mail to the taxpayer at his last known address." Follum v. Commissioner of Internal Revenue, 128 F.3d 118, 119 (2d Cir.1997); see 26 U.S.C. §§ 6212(a), (b)(1) (1994). Generally, to challenge the assessment of a tax deficiency, a taxpayer must file a petition for redetermination in the Tax Court within 90 days of the mailing of the notice of deficiency. See id. § 6213(a). However, when the notice of deficiency was mailed to the Sicaris in October 1992, Anthony Sicari's bankruptcy proceeding was still pending, and the automatic stay imposed by the Bankruptcy Code prevented the Sicaris from commencing any action in the Tax Court. See 11 U.S.C. § 362(a)(8) (1994).

To account for this bar, the Internal Revenue Code provides that where a notice of deficiency is issued to a debtor who is the subject of pending bankruptcy proceedings, the 90-day period does not begin to run until 60 days following the conclusion of bankruptcy proceedings. See 26 U.S.C. § 6213(f)(1). Because the Bankruptcy Court did not dismiss Anthony Sicari's bankruptcy proceeding until September 14, 1994, the Sicaris had until February 13, 1995, to file a petition for redetermination of the deficiencies described in the October 9, 1992, notice. The Sicaris missed this deadline.

Ordinarily, a late petition to the Tax Court will be dismissed for lack of subject matter jurisdiction, and the taxpayer's only remedy will be to pay the deficiency and bring a refund suit in the District Court. See Hoffenberg v. Commissioner of Internal Revenue, 905 F.2d 665, 666 (2d Cir.1990). The Sicaris seek to avoid this result by contending that the notice of deficiency was insufficient because it was mailed to the outdated Route 208 Address. When a notice of deficiency is defective, the 90-day clock does not begin to run, and the Tax Court lacks jurisdiction over a petition for redetermination directed to the deficiencies described in the defective notice. See Ward v. Commissioner of Internal Revenue, 907 F.2d 517, 521 (5th Cir.1990). ²

The "last known address" to which the notice of deficiency must be sent is "the taxpayer's 'last permanent address or legal residence known by the Commissioner or the last known temporary address of a definite duration to which the taxpayer has directed the commissioner to send all communications.' " Tadros v. Commissioner of Internal Revenue, 763 F.2d 89, 91 (2d Cir.1985) (citation omitted). As we explained in Tadros:

Although the mailing of notice to the taxpayer's last known...