In 2016 the IRS enhanced their focus on employment tax enforcement throughout the country. An employment tax return filed by April 15 of the year following that in which the applicable quarter falls is “deemed filed” on April 15 of the following year. Where no return is filed, the three-year assessment period does not begin to run and the IRS can make the assessment at any time.
A recent district court case, United States v. Wallis, 117 AFTR 2d 2016-583 (WD VA 2/1/2016), discusses the applicable statute of limitations for assessing trust fund recovery penalties under Code Section 6672 and the notice provisions that are required before the IRS can assess the penalty.
Wallis owned two corporations, United and Boss, and was a co-owner of a third corporation, Pizza Planet. United did not file employment tax returns for any of the four quarters of 2000. Pizza Planet failed to file employment tax returns for the first quarter of 2000. The IRS made “substitute for return” assessments for employment taxes against United and Planet Pizza.
Boss filed its employment tax return for the second quarter of 2002 on July 31, 2003, for the third quarter of 2002 on October 31, 2002, and for the fourth quarter of 2002 on January 31, 2003. Wallis was in bankruptcy from January 31 to May 21, 2002.
On April 12, 2006, the IRS sent Wallis a Letter 1153, informing him that it had determined that he was a responsible person liable for the failure of the companies to pay employment taxes. Wallis did not protest the proposed determinations and the Government assessed the tax.
The Government sued Wallis to collect the trust fund penalty assessments and to also collect income taxes that Wallis owed. The Government moved for summary judgment. The Court granted the motion as to all liabilities, except for those relating to Planet Pizza because there were issues of fact that were in dispute.
What interests us is the period of limitations on assessment and the IRS Notices provisions relating to the trust fund recovery penalty.
THE PERIOD OF LIMITATIONS ON ASSESSING TRUST FUND PENALITES. The IRS can assess a trust fund recovery penalty within three years of the latter of a) the date the Form 941 employment tax return is deemed filed or b) the date when the Form 941 is actually filed. An employment tax return filed by April 15 of the year following that in which the quarter falls is “deemed filed” on April 15 of the following year. Where no return is filed, the three-year assessment period does not begin to run and the IRS can make the assessment at any time.
In addition, certain events toll the statute of limitations on assessment. The assessment period is tolled while a taxpayer’s bankruptcy case is pending plus an additional 60 days. A notice the IRS has determined that the taxpayer may be liable for the trust fund penalty tolls the period of limitation for 90 days.
After discussing these rules, the district court applied them to Wallis’ case. Since no returns had been filed for quarters in question for Planet Pizza or United, the IRS could assess the penalty at any time. For United, since the returns for the third and fourth quarters of 2002 were filed on time, they were deemed filed on April 15, 2003. Since the IRS sent the notice of determination to Wallis on April 12, and Wallis had an intervening bankruptcy, the court held that the IRS “had until well after July 6, 2006 to make its section 6672 assessment against Wallis, which it successfully accomplished.”
THE TRUST FUND RECOVERY PENALTY NOTICE PROVISIONS. Internal Revenue Code §6672(b)(1) requires the IRS to give a responsible person notice that he may be subject to a trust fund penalty assessment. The IRS provides notice by either hand delivery or by mailing a Letter 1153 to the taxpayer’s last known address as determined under Internal Revenue Code §6212. According to the court:
The Service meets its duties by sending notice to the taxpayer’s “last known address,” a term of art defined in Treasury Regulation section 301.6212-2(a) as: the address that appears on the taxpayer’s most recently filed and properly processed Federal tax return, unless the Internal Revenue Service (IRS) is given clear and concise notification of a different address. See e.g., Bullard v. United States, 486 F. Supp. 2d 512, 516 (D. Md. 2007); Mason, 132 T.C. at 318. Further information on what constitutes clear and concise notification of a different address and a properly processed Federal tax return can be found in Rev. Proc. 90-18 (1990-1 C.B. 491) or in procedures subsequently prescribed by the Commissioner. Treas. Reg. section 301.6212-2(a).
CHANGING THE LAST KNOWN ADDRESS. Under Rev. Proc. 2001-18, taxpayers could change their address using a written notifications or by giving the Service “clear and concise oral notification.” For either notification, the Service had a “45-day processing period” to update its records.
Wallis claimed he was not given proper notice sent to his last known address. The court rejected this argument, because the notice was sent to was the address listed on his most recently filed tax returns that were filed prior to the date of the Letter 1153 and it was the same address used on his dealings with banks and everyone he paid by check. Wallis never gave the IRS “clear and concise notice” of a different address. Therefore, the IRS gave proper notice.
The Wallis case is a reminder that, when dealing with the IRS, it is important to give timely notice of any change of address. Failure to give proper notice can deprive a taxpayer of valuable rights to challenge a proposed liability pre-assessment, either through an appeal to the IRS Appeals Office or, in the case of notices of deficiency for income, estate and gift taxes, by petitioning the Tax Court.
NOTE: For many types of returns, a taxpayer can change their address by submitting IRS Form 8322. For more information, see https://www.irs.gov/Help-&-Resources/Tools-&-FAQs/FAQs-for-Individuals/Frequently-Asked-Tax-Questions-&-Answers/IRS-Procedures/Address-Changes/Address-Changes
About the Author
Robert Horwitz has over 35 years of experience as a tax attorney specializing in the representation of clients in civil and criminal tax cases, including civil audits and appeals, tax collection matters, criminal investigations, administrative hearings and in civil and criminal trials and appeals in federal and state courts. He has served as a member of the Executive Committee of the Taxation Section of the State Bar of California and is Chair of the Taxation Section for 2015-2016 year. He was previously Chair of the Tax Procedure and Litigation Committee of the State Bar Taxation Section.