ST. Joseph Lease Capital v. Comm'r of Internal Revenue, 99-2473

• Decision Date: 28 September 2000
• Docket Number: No. 99-2473,99-2473
• Citation: 235 F.3d 886
• Parties: (4th Cir. 2000) ST. JOSEPH LEASE CAPITAL CORPORATION, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee. . Argued:
• Court: U.S. Court of Appeals — Fourth Circuit

Page 886

235 F.3d 886 (4th Cir. 2000)

ST. JOSEPH LEASE CAPITAL CORPORATION, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.

No. 99-2473.

UNITED STATES COURT OF APPEALS, FOR THE FOURTH CIRCUIT.

Argued: September 28, 2000.

Decided: December 20, 2000.

Appeal from the United States Tax Court. (Tax Ct. No. 95-249)

COUNSEL: Henry G. Zapruder, BAKER & HOSTETLER, L.L.P., Washington, D.C., for Appellant. Gilbert Steven Rothenberg, Tax Division, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee. ON BRIEF: Paula M. Junghans, Acting Assistant Attorney General, Ellen Page DelSole, Tax Division, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee.

Before NIEMEYER and MICHAEL, Circuit Judges, and Frederick P. STAMP, Jr., Chief United States District Judge for the Northern District of West Virginia, sitting by designation.

Affirmed by published opinion. Judge Niemeyer wrote the opinion, in which Judge Michael and Chief Judge Stamp joined.

OPINION

NIEMEYER, Circuit Judge:

We are presented with the question under the Tax Code of whether the mailing by the Internal Revenue Service ("IRS") of a misaddressed notice of income tax deficiency suspended-under 26 U.S.C. § 6503(a) -the running of the three-year limitations period within which the IRS must assess taxes due. For the reasons that follow, we affirm the United States Tax Court's decision that this period of limitations was suspended by the mailing, when the taxpayer received actual notice of the deficiency and still had sufficient time within which to file a petition under 26 U.S.C.§ 6213(a) for a Tax Court redetermination of the deficiency.

I

St. Joseph Lease Capital Corporation ("the taxpayer") filed federal income tax returns on October 15, 1991, for the tax years 1985-1990. The period of limitations within which the IRS could assess a deficiency for those returns was three years, and would thus expire on October 15, 1994, absent tolling. See 26 U.S.C. § 6501(a).

Following an audit of these returns, the IRS mailed a deficiency notice to the taxpayer on October 6, 1994, shortly before the expiration of the three-year limitations period. Two copies of the notice of deficiency were mailed to the taxpayer, addressed as follows:

St. Joseph Lease Capital Corporation Post Office Box 19307 Alexandria, Virginia 22320 and St. Joseph Lease Capital Corporation 6019 Tower Court Alexandria, Virginia 22320

In addition, the IRS mailed a copy of the notice of deficiency to the taxpayer's attorney, Roger A. Pies, at his address in Washington, D.C. The taxpayer had earlier appointed Pies its attorney-in-fact for purposes of income tax matters for the 1985-1990 tax years. The addresses that the IRS used were those maintained in its computer and were concededly accurate up until August 1994, although they became inaccurate by the time of the October 6 mailing. In late August 1994, the taxpayer hired a new attorney, Robert M. Levin, to represent it in connection with tax matters, and on September 1, 1994, the taxpayer submitted to the IRS a new Form 2848, which appointed Levin, in place of Pies, as taxpayer's attorney-infact. Around the same time, the taxpayer's parent corporation sent the IRS a Form 851 (affiliation schedule) that listed a new street address for the taxpayer at 218 North Lee Street, Alexandria, Virginia 22314. A few weeks later, on September 21, 1994, the taxpayer itself sent the IRS a Form 8822 (change of address) by overnight courier, also listing this address as the taxpayer's new address.

Because the taxpayer's change of attorney and new addresses had not, as of October 6, 1994, been incorporated in the IRS's computer information base, all three copies of the notice of deficiency mailed on October 6, 1994, were misaddressed, and all three were returned. The first returned notice was stamped "Box Closed, No Forwarding Order." The second was stamped "Return to Sender, Unclaimed." And the third was returned unopened with a cover letter from Pies stating that he no longer represented the taxpayer.

The IRS did nothing with the returned notices until specifically requested to do so several weeks later. When the taxpayer's new attorney, Levin, discovered on November 2, 1994, that a deficiency notice had been mailed to the taxpayer in early October, he requested a copy of the notice. The IRS faxed him a copy on November 10, 1994. It was thus received by the taxpayer more than three years after the taxpayer initially filed its returns.

On January 3, 1995, the taxpayer filed a petition with the United States Tax Court for a redetermination of its tax deficiency. In that proceeding, the parties filed cross-motions for summary judgment on whether the IRS was barred from assessing a deficiency because it misaddressed the notices of deficiency and the taxpayer received actual notice more than three years after filing its returns. The Tax Court concluded that even assuming that the IRS did not mail the notice of deficiency to the taxpayer at its last-known address^* -a condition that would have conclusively imputed notice to the taxpayer under 26 U.S.C. § 6212(b) -its mailing of the October 6 notice effectively tolled the statute of limitations because the taxpayer actually received a copy of the notice by fax on November 10, 1994, and the taxpayer had ample time to file a timely petition with the Tax Court.

Following the Tax Court's ruling, the parties entered into a settlement that resolved their dispute regarding the amount of taxes due, but they expressly preserved the taxpayer's right to appeal the Tax Court's determination of the statute of limitations issue. This appeal was taken to review the single issue of whether any of the misaddressed October 6 notices suspended the running of the three-year limitations period pursuant to 26 U.S.C. § 6503(a)(1), a question of law that we review de novo. See Balkissoon v. Commissioner of Internal Revenue, 995 F.2d 525, 527 (4th Cir. 1993).

II

The Tax Code provides that the IRS must assess any deficiency in the payment of income taxes within three years after a return is filed, see 26 U.S.C. § 6501(a), and generally no assessment can be made until a notice of deficiency has been mailed to the taxpayer, see id. § 6213(a). When a notice of deficiency is mailed to the taxpayer, the three-year period is extended 90 days from the mailing to permit the taxpayer an opportunity to petition the Tax Court for a redetermination of the deficiency. See id. §§ 6213(a), 6503(a). If the taxpayer files a petition for a redetermination of the deficiency, the three-year period is extended yet further until 60 days following the date when the decision of the Tax Court on the taxpayer's petition becomes final. See id. § 6503(a). Until the Tax Court's decision becomes final, the IRS may not take any steps to assess and collect the taxes claimed. See id. § 6213(a). If the taxpayer fails to take advantage of the 90-day window within which to petition the Tax Court for a redetermination, the IRS may assess the deficiency and begin collecting the tax immediately after the 90 days have run. The taxpayer, however, does not lose the opportunity to challenge the assessment of deficiency merely because it fails to petition the Tax Court. It may pay the taxes and then sue the United States for a refund in federal district court. See id. §§ 6212(a), 6213(a), 6511, 6532(a), 7422.

Thus, the IRS's mailing of a notice of deficiency simultaneously serves two functions. First, it tolls the three-year statute of limitations, and second, it commences a process that enables the taxpayer to challenge the deficiency.

In this case, the parties agree that the IRS mailed a notice of deficiency by certified mail within three years after the taxpayer filed its returns. The taxpayer contends, however, that because the IRS misaddressed the notice, the mailing was "a nullity" and ineffective for all purposes. Without a mailing, the statute of limitations under 26 U.S.C. § 6503(a) was never tolled, and therefore the IRS could not assess any deficiency after October 15, 1994, as it purported to do. The IRS contends to the contrary that its October 6 notice of deficiency was valid and, having been mailed to taxpayer before the expiration of three years from the taxpayer's filing of its returns, tolled the statute of limitations. It argues that the defect in mailing was of no consequence "because taxpayer actually received[the notice] without prejudicial delay and filed a timely petition."

To resolve this dispute, we begin with the statutory language, as we must. Section 6503(a)(1) provides that the three-year period of limitations for making an assessment is suspended "after the mailing of a notice under § 6212(a)." Section 6212(a) requires that the notice of deficiency to the taxpayer include notice "of the taxpayer's right to contact a local office of the taxpayer advocate and the location and phone number of the appropriate office" and authorizes that the notice be sent to the taxpayer by certified mail or registered mail. This section imposes no other requirements for the mailing. Significantly, the mailing that suspends the running of the limitations period under § 6503(a)(1) is explicitly a § 6212(a) mailing; there is no requirement that the deficiency notice be mailed as required by§ 6212(b), which conclusively imputes notice to the taxpayer if the notice is mailed to the taxpayer's "last-known address." Accordingly, we conclude that § 6503(a) means what it says -in order to suspend the running of the limitations period under § 6503(a), a mailing must comport with the requirements of § 6212(a), but need not comport in any way with § 6212(b).

The taxpayer contends that in reading § 6503(a), we should infer that a mailing must be received by the taxpayer in order for it to suspend the running of the three-year limitations period. To support this argument, the taxpayer relies upon Mulvania v....