Docket Nos. 2533-91, 2534-91.

65 T.C.M. 2004 (1993)

T.C. Memo. 1993-77

Gayle I. Berg v. Commissioner. Charles M. Berg v. Commissioner.

United States Tax Court.

Filed March 8, 1993.

Attorney(s) appearing for the Case

Patrick E. McGinnis and Justin L. Goldner, 9595 Wilshire Blvd., Beverly Hills, Calif., for the petitioners. Donna F. Herbert and Mark A. Weiner, for the respondent.

Memorandum Findings of Fact and Opinion

DAWSON, Judge:

These consolidated cases were assigned to Special Trial Judge Larry L. Nameroff pursuant to section 7443A(b)(4) and Rules 180, 181, and 183.1 The Court agrees with and adopts the opinion of the Special Trial Judge, which is set forth below.

Opinion of the Special Trial Judge

NAMEROFF, Special Trial Judge:

These consolidated cases are before the Court on cross-motions to dismiss for lack of jurisdiction. Petitioners contend that this Court lacks jurisdiction because the notices of deficiency mailed to them by respondent were not sent to their last known address within the meaning of section 6212(b)(1). Respondent contends that the Court lacks jurisdiction because petitioners failed to file timely petitions. Sec. 6213(a). Where jurisdiction is lacking because of the Commissioner's failure to issue a valid notice of deficiency, we will dismiss on that ground rather than for a taxpayer's failure to timely file a petition with this Court. Heaberlin v. Commissioner [Dec. 24, 131], 34 T.C. 58, 59 (1960).

The key issue is whether the notices of deficiency were mailed to petitioners' "last known address" within the meaning of section 6212(b)(1). To resolve that issue, we must decide whether respondent exercised reasonable care and due diligence in ascertaining petitioners' address. Alternatively, if we decide that the notices of deficiency were not sent to their last known address, we must then decide whether petitioners received the notices of deficiency in sufficient time to permit them to file timely petitions with this Court.

Findings of Fact

Some of the facts have been stipulated and are so found. The stipulation of facts and attached exhibits are incorporated herein by this reference. Petitioners resided in British Columbia, Canada, at the time the petitions were filed herein. Petitioner Charles M. Berg (hereinafter petitioner when used in the singular) was a Canadian citizen.

Respondent determined deficiencies in and additions to petitioners' Federal income taxes for 1979, 1980, and 1981, and issued notices of deficiency as follows:

                                                                       Additions to Tax
Petitioners                               Year    Deficiency      Sec. 6653(b)   Sec. 6654(a)

Charles M. Berg .......................   1979   $1,422,830.00   $  721,415.00        --
and Gayle I. Berg

Charles M. Berg .......................   1980    2,085.639.80    1,042,819.90   $132,886.54
                                          1981      184,235.60       92,117.80     14,117.02
Gayle I. Berg .........................   1980    2,085,639.80    1,042,819.90    132,886.54
                                          1981      184,235.60       92,117.80     14,117.02

Petitioners filed a joint 1979 Federal income tax return on February 23, 1981, which showed their address as 208 South Crescent Drive, Beverly Hills, California, 90012 (hereinafter referred to as the South Crescent Drive address). Petitioners neither filed Federal income tax returns for subsequent years nor notified respondent of a change of address. Respondent's joint notice of deficiency for 1979 and individual notices of deficiency for 1980 and 1981, all dated February 23, 1987, were sent by certified mail to petitioners at the South Crescent Drive address. Duplicate original notices of deficiency were also sent to petitioners at Post Office Box 2000, Beverly Hills, California 90013 (hereinafter referred to as the P.O. Box 2000 address), the post office box which had been used by the defunct law firm of Berg & Allen. Petitioner had been a partner of Berg & Allen. On February 23, 1987, both petitioners were living at 17505 Hillview, Whiterock, British Columbia, Canada (hereinafter referred to as the Hillview address).

In 1979, the Internal Revenue Service began a criminal investigation of petitioner. Sometime in January 1980, Special Agent Robert Hessler (Hessler) was assigned to petitioner's criminal investigation. Shortly thereafter, he caused a TC 914 control2 to be input on petitioner's computer account for the years 1979, 1980, and 1981. During the criminal investigation, on September 3, 1981, a search warrant was executed at the law offices of Berg & Allen, which resulted in the seizure of 98 boxes of documents and records. Following the search and seizure, the United States Attorney began a grand jury investigation of petitioner. Hessler assisted the United States Attorney in the grand jury investigation. On August 23, 1983, the grand jury for the Central District of California issued a 24-count indictment against petitioner. The indictment was placed under seal and so remained until approximately July 17, 1990.

Prior to the indictment in August 1983, petitioners moved to Canada. Although Hessler did not have an address for petitioner at that time, he thought petitioners had left the United States and were residing in Canada. After the indictment, Hessler contacted the Royal Canadian Mounted Police (RCMP) requesting that they inform him if petitioner attempted to enter the United States, so that he could be apprehended. In June 1986, Hessler was advised by a document from Interpol that petitioner resided in Canada at the Hillview address.

In January 1982, Revenue Agent Claire Felong (Felong) was assigned to the Berg & Allen audit project. After reviewing the records that had been seized, she believed there were indications of fraud by petitioners. Thus, she began gathering information which pertained to petitioners' individual Federal income tax liabilities. During the course of her audit, Felong sent petitioners certified letters to: The South Crescent Drive address; a Fourth Street address in Santa Monica, California; and an apartment that was co-owned by petitioner and his sister. All of the certified letters were returned by the post office as undeliverable.

After the certified letters were returned, Felong: (1) Conducted a search of the IRS computer system (the AIMS system) to determine whether another address existed on file for petitioners; (2) sent out postal tracers to the addresses contained in the administrative file; (3) contacted the legal department of the Crocker Bank to determine whether they had an address for petitioners; and (4) having heard that petitioners might be residing in Vancouver, Canada, checked the Vancouver3 telephone directory. Although Felong found an entry in the Vancouver telephone directory for "C.M. Berg," she believed she did not have sufficient information upon which to conclude that this was petitioners' listing, particularly because there was no reference to petitioner Gayle Berg. Moreover, Felong had been informed by Hessler not to contact petitioners because any contact might impair the pending criminal case.

In addition, Felong contacted Hessler regularly every 6 months to inquire whether he had a more recent address for petitioners. Although Hessler indicated that he thought the petitioners were in Canada, he neither provided her with an address nor indicated to her that he had knowledge of such an address.

In May 1985, Felong transferred the individual audit of petitioners to Revenue Agent Louise Stopher (Stopher). After being assigned the Berg audit, Stopher sent a fraud referral letter to the Criminal Investigation Division (CID) regarding petitioners. In addition, she sent certified letters to the addresses contained in the administrative file. When the certified letters were returned as undeliverable, Stopher: (1) Sent postal tracers to each of the addresses in the administrative file; (2) obtained transcripts of account for petitioners to determine whether there was a different address listed for them; (3) spoke to bank officials at petitioners' bank to determine whether they had a different address for petitioners; and (4) searched public property records. All efforts were to no avail.

In 1986, CID rejected the fraud referral proposed by Stopher and authorized the Examination Division to "take any action deemed necessary."

On February 19, 1987, Revenue Agent Thomas Winford (Winford), the fraud reviewer for the Quality Review Staff for the Los Angeles District, received petitioners' files. His responsibilities included reviewing proposed additions to tax for fraud and drafting the notices of deficiency. According to respondent's records, the 6-year period of limitations for assessing taxes with respect to 1979 was to expire on February 23, 1987 (unless respondent could prove fraud on the part of petitioners). Thus, Winford believed that he had 3 business days to review the file and issue the notice of deficiency for that year.

Prior to issuing a notice of deficiency, Winford routinely checked a taxpayer's file for a more recent address. If the file contained more than one address, he would mail duplicate notices of deficiency to such addresses. In following these procedures, Winford saw a notation in the Berg file that petitioners were residing in Canada. Attempting to obtain an address, he contacted: The Philadelphia Service Center to determine whether petitioners had filed a return for any tax year subsequent to 1979; Louis Binda, the manager of the field group that had the Berg & Allen project; Vicky McIntire, the manager of the AIMS units; Felong; and Hessler. Hessler informed Winford that he was prohibited from providing Winford with any further information because the case was still "in grand jury."4 Winford also contacted Stopher and Revenue Agent Chuck Wong (another revenue agent who had been assigned to petitioners' audit). Finally, Winford conducted computer searches using petitioners' taxpayer identification numbers. The only addresses available to him were South Crescent Drive and P.O. Box 2000. Accordingly, on February 23, 1987, respondent mailed duplicate original notices of deficiency to these 2 addresses.

The notices of deficiency sent to the South Crescent Drive address were returned as undeliverable. The notices sent to the P.O. Box 2000 address were received by a former attorney of the Berg & Allen law firm who continued to represent a number of the firm's clients. To facilitate his service to such clients, the attorney contracted with the Postal Service to continue paying the fees on P.O. Box 2000 so that he could continue to receive their mail. Although the notices of deficiency may have been forwarded to petitioners at the Hillview address, the evidence in this record does not establish with reasonable certainty whether petitioners received the deficiency notices in sufficient time to have permitted them to file timely petitions in this Court.


It is well settled that to maintain a case in this Court there must be a valid notice of deficiency and a timely filed petition. Monge v. Commissioner [Dec. 45,827], 93 T.C. 22, 27 (1989); Pyo v. Commissioner [Dec. 41,573], 83 T.C. 626, 632 (1984). A valid notice of deficiency must be mailed to the taxpayer's "last known address" by either certified or registered mail. Actual receipt of the notice of deficiency by the taxpayer is not required if it was mailed to the last known address. King v. Commissioner [88-2 USTC ¶ 9521], 857 F.2d 676, 681 (9th Cir. 1988), affg. on other grounds [Dec. 43,864] 88 T.C. 1042 (1987); United States v. Zolla [84-1 USTC ¶ 9175], 724 F.2d 808, 810 (9th Cir. 1984).

The term "last known address" is not defined in either the Internal Revenue Code or the regulations. However, this Court has defined the phrase to mean "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 during such period." Brown v. Commissioner [Dec. 38,765], 78 T.C. 215, 218 (1982). In general, that address will be the address reflected on the taxpayer's most recently filed Federal income tax return, absent clear and concise notification of a different address. Abeles v. Commissioner [Dec. 45,203], 91 T.C. 1019, 1035 (1988); Weinroth v. Commissioner [Dec. 36,976], 74 T.C. 430, 435 (1980); Alta Sierra Vista, Inc. v. Commissioner [Dec. 32,649], 62 T.C. 367, 374 (1974), affd. without published opinion 538 F.2d 334 (9th Cir. 1976).

Once the Commissioner becomes aware of a change of address from the address on a taxpayer's most recently filed return, reasonable care and due diligence in ascertaining the correct address must be exercised. Pyo v. Commissioner, supra at 633. Whether the IRS has exercised reasonable care and due diligence must be determined in light of all the facts and circumstances. Weinroth v. Commissioner, supra. The relevant inquiry is to the Commissioner's knowledge of a taxpayer's last known address. Keeton v. Commissioner [Dec. 36,966], 74 T.C. 377, 382 (1980); Alta Sierra Vista, Inc. v. Commissioner [Dec. 32,649], 62 T.C. at 374. Knowledge at the time of mailing a notice of deficiency is that which the Commissioner knew or should have known with respect to the taxpayer's last known address in light of all the surrounding facts and circumstances. Abeles v. Commissioner, supra.

The parties agree that petitioners did not provide respondent with notification of their change of address from Beverly Hills, California, to Vancouver, Canada. However, petitioners contend that, under the due diligence standard, respondent should have sent the notices of deficiency to the Hillview address because respondent had knowledge of that address through Hessler, and that Hessler's actual knowledge of their address should be imputed to the Examination Division. We agree with petitioners that respondent did not exercise reasonable care and due diligence. Hessler had specific knowledge of petitioners' Hillview address. He was aware that the Examination Division was in the process of issuing notices of deficiency to petitioners, and, without legally sufficient cause or justification, he declined to advise Felong, Stopher, or Winford of that address. Winford had specifically asked Hessler for the Canadian address in connection with the preparation of notices of deficiency and Hessler declined because he was concerned about the disclosure of "grand jury information".

Two questions are presented: (1) Should respondent's revenue agent who prepared the notices of deficiency be charged with the knowledge of the special agent; and (2) if so, was Hessler's source of information sufficiently reliable so as to require sending the notices to the Hillview address?

This Court has previously held that notification of a new address to agents within the same district office of respondent constitutes notification to the other agents within that office and not just to an individual agent. Pyo v. Commissioner, supra at 637; Frieling v. Commissioner [Dec. 40,284], 81 T.C. 42, 48-51 (1983); Shapiro v. Commissioner [Dec. 47,326(M)], T.C. Memo. 1991-197. We think this principle should be applied to the instant cases.

It is clear that Hessler had actual knowledge of petitioners' Canadian address and did not provide such information to the Examination Division when requested, even though he was aware that notices of deficiency would be issued to petitioners. This is not a situation where agents in one division were unaware of related activities of an agent in another division. With the TC 914 control in place, CID was requested to give its permission to the Examination Division in order to proceed with the civil case. Hessler, when asked, declined to give Winford petitioner's Canadian address.

We are aware that there is a line of cases which has held that information learned by agents in one division should not necessarily be imputed to agents in another division. However, we believe that such cases are distinguishable.

In United States v. Zolla [84-1 USTC ¶ 9175], 724 F.2d 808 (9th Cir. 1984), the Court of Appeals took the view that information regarding a more recent address than that on taxpayer's last filed income tax return, gained by an agent in the collection division of the same district office while attempting to collect an unrelated tax liability, should not necessarily be imputed to the audit agents who mailed the notices of deficiency. See also Kuebler v. Commissioner [Dec. 35,939(M)], T.C. Memo. 1979-95. The Court of Appeals decided that requiring agents who mailed notices of deficiencies to take into account address information acquired by agents in different divisions in the course of unrelated investigations would be an unreasonable burden. United States v. Zolla, supra.5

However, in the instant cases, Hessler had knowledge that the Examination Division was in the process of issuing notices of deficiency to petitioners, due to the communication between CID and the Examination Division as well as between Hessler, Felong, and Winford. Moreover, the TC 914 controls on petitioners' account required coordination between the civil and criminal investigations. In United States v. Zolla, supra, there was neither communication between the collection agent and the agent issuing the notice of deficiency nor was there any relationship between the two investigations. The collection agent was unaware that another agent in the district office had any need for the address.

We next consider whether in these circumstances Hessler's knowledge should be imputed to the revenue agents. Respondent contends that Marks v. Commissioner [Dec. 46,107(M)], T.C. Memo. 1989-575, affd. per curiam [91-2 USTC ¶ 50,521] 947 F.2d 983 (D.C. Cir. 1991),6 is controlling and that respondent had no duty to send the notices of deficiency to petitioners at the Hillview address in Canada. In Marks, the taxpayers were indicted on related tax crimes. They were released on a personal surety bond based on their agreement not to change their south Florida address without advising the District Court in writing. After their release, the taxpayers fled to Toronto, Canada. Not only did they fail to advise the District Court that they had changed their address and were in Canada, but their counsel also repeatedly represented to the District Court that they remained in Florida and that their trips to Canada were merely for business. Prior to the issuance of the notices of deficiency in the civil investigation, the IRS Miami office was advised that the taxpayers had been residing at an address in Toronto, but it was believed that they were no longer at that address. Two weeks after receiving such notification, the IRS issued four statutory notices of deficiency to the taxpayers at four different addresses located in southern Florida. All the notices of deficiency were returned as undeliverable.

This Court decided in Marks as an ultimate finding of fact that the Commissioner had knowledge of the taxpayers' Toronto address prior to issuing the notices of deficiency. Nevertheless, we held that the notices of deficiency were properly mailed to taxpayers' last known address in Florida. We stated:

The physical whereabouts of * * * [the taxpayer] at the time the statutory notice was issued was unknown. The Miami District Counsel, who was advising the Jacksonville District Director's office to send the statutory notice, knew (actually or constructively) of the Toronto address. He also knew that * * * [the taxpayers] were no longer at that address, that there was no indication they would return, and that there was no indication they wanted to be contacted in Toronto. It was entirely reasonable for respondent to believe * * * [the taxpayers] wanted to continue receiving mail in southern Florida. [Id.]

We further stated that the Commissioner has no duty to send duplicate notices to every address known to the IRS, especially when there was no reason to believe that such address was permanent. Marks v. Commissioner, supra. The Court of Appeals for the District of Columbia concluded in this factual situation that the due diligence standard was satisfied. Indeed, the Court of Appeals applied the "chutzpah" doctrine by considering the taxpayers' efforts at confounding the Internal Revenue Service as relevant. See Marks v. Commissioner [91-2 USTC ¶ 50,521], 947 F.2d at 986.

Here, by contrast, petitioners were not fugitives from justice. They left the United States prior to petitioner's indictment; petitioner was a citizen of Canada; and petitioners never represented that they were still residing in California. Moreover, Hessler and the revenue agents knew that petitioners were permanently living in Canada. They did not try to obscure their whereabouts. A C.M. Berg was listed in the Vancouver telephone directory at petitioners' Hillview address. The Marks case is different and not controlling.

More akin to the instant cases is Keeton v. Commissioner [Dec. 36,966], 74 T.C. 377 (1980), where the taxpayers had been tried and convicted, following the Commissioner's recommendation of Federal income tax evasion. Prior to the issuance of the notice of deficiency by the Commissioner on April 15, 1977, Mr. Keeton had exhausted his appeals and was serving a 3-year sentence in Leavenworth, Kansas. Mrs. Keeton, who had been placed on probation, was living nearby. The Commissioner mailed the notice of deficiency to a Missouri address, which was the address in the Commissioner's file and which was where the Keetons had previously resided. The notice of deficiency did not reach them in a timely manner and the taxpayers subsequently filed an untimely petition in this Court. We held that when a taxpayer is incarcerated or in the custody of probation authorities as a result of a conviction for violating Federal income tax laws, the Commissioner should be held to have knowledge of the physical whereabouts of such a taxpayer. Id.

Although the holding in Keeton is generally limited to the situation where the taxpayer is incarcerated or in the custody of probation authorities as a result of conviction for violating Federal income tax laws, the critical element in such situations is that the Commissioner could have easily been apprised of the taxpayer's address because of the Commissioner's involvement with the incarceration or custody of taxpayers. Here, from the time petitioner was indicted Hessler carefully monitored his whereabouts so that petitioner could be apprehended if he returned to the United States. Accordingly, as a result of the criminal indictment, Hessler was in close contact with the Canadian authorities and was aware of petitioners' Hillview address. This is a situation where respondent's exercise of reasonable care and due diligence in ascertaining petitioners' address should have resulted in mailing the notices of deficiency to the Hillview address.

We also think that respondent incorrectly relies on McCart v. Commissioner [Dec. 47,904(M)], T.C. Memo. 1992-3, affd. without published opinion 981 F.2d 1247 (3d Cir. 1992). In McCart, the taxpayer contended that an Internal Revenue Service document identified as an Information Return Master File Transcript, which listed information returns submitted to the service center with respect to the taxpayer, contained a Lindenwold, New Jersey, address, and that such address should have been used as his last known address. We held that third party information returns do not constitute clear and concise notification to respondent of an address change. However, this does not mean that information from third parties cannot be relied upon when the Commissioner knew or should have known that the taxpayers had moved. See, e.g., Armstrong v. Commissioner [Dec. 46,524(M)], T.C. Memo. 1990-191 (referring to respondent's own manual setting forth various possible third-party contact procedures and applying those procedures to the due diligence standard applicable to the Commissioner); Fernandez v. Commissioner [Dec. 44,315(M)], T.C. Memo. 1987-557 (agents should have made an inquiry at the hospital, the motor vehicle agency of the state of permanent residence, and the taxpayer's travel agency to determine the taxpayer's address). Moreover, we further stated in McCart v. Commissioner, supra, that there was no indication, prior to the mailing of the notices of deficiency, that the Commissioner was aware that the address on the most recently filed tax return was not the correct one. Accordingly, we conclude here that respondent failed to send the notices of deficiency to petitioners at their last known address.7

Alternatively, respondent contends that petitioners actually received the notices of deficiency in sufficient time to file petitions with this Court. A notice of deficiency actually received by a taxpayer is valid under section 6212(a) if it is received in sufficient time to permit the taxpayer, without prejudice, to file a petition in the Tax Court even though the notice is erroneously addressed. Mulvania v. Commissioner [85-2 USTC ¶ 9634], 769 F.2d 1376 (9th Cir. 1985), affg. [Dec. 41,026(M)] T.C. Memo. 1984-98; Clodfelter v. Commissioner [76-1 USTC ¶ 9166], 527 F.2d 754, 757 (9th Cir. 1975), affg. [Dec. 31,034] 57 T.C. 102 (1971).

Here we are unable to find that petitioners actually received the notices of deficiency in sufficient time to permit them to file timely petitions in this Court.

In sum, based on the specific facts and circumstances herein, we conclude that the notices of deficiency were not sent to petitioners' last known address and were therefore invalid. Consequently, we will dismiss these cases for lack of jurisdiction on the ground that the notices of deficiency were invalid.8

An order and order of dismissal for lack of jurisdiction will be entered in each docket number.


1. All section references are to the Internal Revenue Code. All Rule references are to the Tax Court Rules of Practice and Procedure.
2. The TC 914 control is used to alert respondent's Examination Division that interfunctional coordination is necessary. 6 Admin., Internal Revenue Manual (CCH), sec. 9324.31(2) at 28,081-28,082.
3. Whiterock, the location of the Hillview address, is in the Vancouver area.
4. Respondent conceded in the reply brief that Hessler's knowledge of petitioners' address did not constitute "grand jury matter," and, therefore, was not subject to the provisions of Rule 6(e) of the Federal Rules of Criminal Procedure.
5. See also Eger v. Commissioner [Dec. 41,300(M)], T.C. Memo. 1984-325; Bagwell v. Commissioner [Dec. 41,020(M)], T.C. Memo. 1984-93.
6. Appeal from the decision in these cases would be to the Court of Appeals for the District of Columbia. See sec. 7482(b)(1).
7. Our analysis has focused on petitioner-husband. This is consistent with the approach of the parties who have not suggested that the principles applicable in analyzing the validity of the notices of deficiency issued to petitioner-husband differ from those applicable to the validity of the notices of deficiency issued to petitioner-wife. Moreover, there is nothing in the record to suggest that petitioners were not living as husband and wife at the time the notices of deficiency were issued.
8. In view of the fact that petitioners filed no Federal income tax returns for 1980 and 1981, respondent is not precluded from sending new notices of deficiency to them for those years. Respondent can also send a new notice of deficiency for 1979 if fraud is determined.


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