For income taxes, the IRS generally has only 3 years to assess any additions to tax from the due date or filing date of a taxpayer’s return. Before assessing tax, the IRS must send a notice of deficiency to the taxpayer. This notice extends the 3 year period for 90 days, during which the taxpayer can file in the Tax Court to contest the proposed tax. Code Section 6213(a) provides that no assessment of tax can be made until the notice of deficiency is sent. A recent case addresses how the IRS must prove it mailed the notice of deficiency when the mailing is disputed.
The burden of proof on mailing is on the IRS. The Internal Revenue Service Manual provides a procedure to the IRS that it should follow. It provides that the record of certified and registered mailing should be kept on PS Form 3877 together with the certified/registered mail numbers, which are supplied by the United States Postal Service. Each PS Form 3877 is to be labeled with, “Notices of Deficiency, for the years indicated, have been sent to the following taxpayers.” Certified/registered mail numbers of each individually mailed notice are recorded on the form, along with the name and address of each addressee. Multiple addresses are separately entered. In the “Remarks” column of PS Form 3877, the tax years to which the notice is applicable are entered. At the Post Office, the postal employee will compare the certified/registered mail number of each notice against the number recorded in PS Form 3877, and subsequently sign and date PS Form 3877. If the IRS produces the above items, it is presumptive proof of proper mailing. Note that the actual receipt of the notice by the taxpayer is not required – just proof of mailing to the proper address.
The failure to prove a PS Form 3877 is not fatal to the IRS – the IRS can attempt to prove mailing by other means. In the current case, the court noted that there is no well-defined precedent of what proof is required. The court went through the applicable cases and came up with the following method of review and analysis:
(1) The IRS has the burden of proving proper mailing of a notice of deficiency by competent and persuasive evidence.
(2) When the IRS has (a) established the existence of a notice of deficiency and (b) produced a properly completed PS Form 3877 certified mail log, it is entitled to a presumption of mailing, and the burden shifts to the taxpayer to rebut that presumption by clear and convincing evidence.
(3) In the absence of a properly completed PS Form 3877, when the existence of a notice of deficiency is not in dispute, the IRS must come forward with evidence corroborating an actual timely mailing of the notice of deficiency
(4) When the parties dispute the existence of the notice of deficiency itself, the IRS bears the burden of establishing both the existence of the notice itself, as well as timely mailing of that specific notice.
The court then applied the facts for 2 tax years to the above analysis. For tax year 1992, the IRS had a copy of the notice of deficiency and also had mail return-receipt cards, but it did not have a PS Form 3877. The IRS also provided testimony that the notices of deficiency was sent by certified mail and that the cards they produced would correspond to the only certified mail sent to the IRS in that year. The court held that these facts came within (3) above and were enough to corroborate timely mailing.
For tax year 1995, the facts fell into (4) above since the IRS could not produce a copy of a notice of deficiency. There was no transmittal letter to the taxpayer’s counsel informing them that a notice had been sent to the taxpayer. The IRS did provide 1) testimonial evidence regarding internal IRS procedure for notice preparation at the Manhattan office, 2) Appeals Case Memorandums indicating that a statutory notice was approved, 3) computer control cards suggesting a 1995 notice existed, and 4) two postal return-receipts. The court rejected this proof as being sufficient because the IRS could not cross-reference the postal receipts to any specific items of correspondence.
The foregoing analysis provides a useful algorithm for analyzing timely mailing cases regarding notices of deficiency.
Welch v. U.S., 109 AFTR 2d 2012-xxxx, 05/18/12 (U.S. Court of Appeals for the Federal Circuit)