Playing Defense for Mobile Taxpayers
Peter Chandler, Tax Principal
We often overlook the importance of the address that taxpayers use on the face of their tax returns. Aside from informing the IRS and state taxing authorities where to send their refunds, the address on the returns also suggests where the taxpayers would receive notices and inquiries about their returns. We encourage taxpayers to pay particular attention to this issue when they change their residency, especially if they do so frequently.
There are both practical and important procedural reasons why the taxing authorities should always have a correct address for every taxpayer. For example, it is obviously in a taxpayer’s interest for the government to know where to send a refund check; once a refund check is mailed to an incorrect address, it can take years to trace, cancel and re-issue it. Even more important, the government is required to notify taxpayers (at their “last known address”) of many post-filing developments affecting their tax liabilities. If the taxing authority’s record of the “last known address” is incorrect, notices sent to the incorrect address will nevertheless be considered effective, and a taxpayer’s failure to make a timely response can preclude any further appeal or review of the government’s action. Examples (amongst many others) of actions which can become final without a taxpayer’s response include:
- Deficiency assessments
- Denial of opportunities for hearings concerning tax liens
- Seizures and sales of taxpayers’ property
- Assertion of liability in transferee cases
Despite the sometimes draconian results to unfortunate taxpayers, the IRS does offer helpful guidance on how to communicate to them a change in address. Revenue Procedure (“Rev. Proc.”) 2010-16 is the most recent comprehensive statement on the subject.
According to the Rev. Proc., the IRS will “generally” update their records to use the address shown on the “most recently filed and properly processed” tax return. For this purpose, “returns” include most individual and business Income Tax returns, Excise and Employment tax returns, and Estate, Gift, and Generation–Skipping Tax returns, but do not include extensions or Powers of Attorney. A tax return will be considered “properly processed” upon the expiration of a 45 day period beginning on the day after the return is received by the IRS Processing Center; maintaining proof of delivery can thus become critical for yet another reason. The Service should also recognize a change in address provided by the taxpayer to the U.S. Postal Service’s “National Change of Address” database. In either case, a taxpayer is dependent on the proper processing, by a large government (or quasi-governmental) agency, of filings that are not expressly intended to accomplish the required notification. The IRS therefore recommends a more direct approach.
We heartily endorse the IRS’s recommendation that taxpayers communicate changes in their “last known address” by “clear and concise written notification.” According to the Rev. Proc.,
- “Clear and concise written notification is a written statement signed by the taxpayer and mailed to an appropriate Service address informing the Service that the taxpayer wishes the address of record changed to a new address. In addition to the new address, this notification must contain the taxpayer’s full name and old address as well as the taxpayer’s social security number, individual taxpayer identification number, or employer identification number. Filers of a joint return should provide both names, social security numbers, and signatures. Individuals who have changed their last name should provide the last name shown on the most recently filed return and the new last name. In all cases, clear and concise written notification must be specific as to a change of address.”
To simplify matters even further, the Service provides Form 8822 (Change of Address) which incorporates all of the prescribed elements of an effective notification. By far the simplest and most effective protective action is to complete and file Form 8822, following the instructions to the form.
Naturally, we highly recommend the use of a delivery method, like Certified Mail, that will yield conclusive proof that the notification was received at a correct address.
Despite this straightforward direction, and the several simple procedures described in the Rev. Proc., it is astounding how much litigation arises over whether notifications of address changes were effective. The cases address (among other things):
- Was the content of the alleged notification sufficient to inform the IRS?
- Was the notification timely filed?
- Was the notification filed in the right place?
Clearly these cases arise because the taxpayers are not aware of the need to maintain current contact information. When the problem with the government arises, the taxpayers (and occasionally the government) have to rely on what they happened to do rather than what they should have done.
Another effective defense for mobile taxpayers is to authorize someone else to receive notifications from the taxing authorities. A Power of Attorney (“POA”) authorizes the IRS to divulge otherwise confidential information about a taxpayer to the person(s) named on the POA. The prescribed form (Form 2848) can direct the IRS to send copies of any notices or other correspondence directly to the named representative(s). If a taxpayer is uncertain whether he or she will receive mail at the address on file with the IRS, it makes sense to authorize someone else to receive a copy. The named representative should be someone who will likely know how to respond to an IRS notice, and who would have access to information with which to respond. Taxpayers who should give serious consideration to filing a Power of Attorney include:
- Taxpayers who expect to move within the next year
- Students living away from home
- Taxpayers who travel away from home frequently
- Taxpayers whose names and/or marital status are changing
We encourage our readers to verify that the address shown on their most-recently filed tax return is accurate and represents a consistent and dependable means of receiving potentially important communications from the IRS. If any uncertainty exists, consider completing a Form 8822 or if appropriate, Form 2848. There are too many to cover in this space, but many states have their own power of attorney and address change forms that should be considered as well. The few minutes it takes to do so can save significantly more time, aggravation or even permanent loss – each made worse by the fact that it could so easily have been avoided.
If you have any questions or would like to discuss these proposed changes further, please contact Peter Chandler at 1.800.244.7444.
Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.