Appellants Joshua Welch and Alejandra de Losada appeal from a judgment of the
Background
In 1993, appellant Joshua Welch, who was then employed as a financial analyst, filed an individual tax return for tax year 1992 and paid income taxes in the amount of $97,964. Welch and appellant Alejandra de Losada were married in the same year. Appellants filed a joint tax return in 1996 for tax year 1995 and reported ordinary losses in excess of $1.3 million. Appellants also requested a carryback of a portion of these losses to Welch’s 1992 tax year. The IRS granted the carryback, issuing a refund in the amount of $76,570 for his 1992 tax year. The IRS subsequently audited the appellants’ 1995 tax return. During the audit, appellants agreed to extend the statute of limitations with respect to any necessary assessment for the 1992 and 1995 tax years to December 31, 2000.
In connection with the audit, the IRS mailed a letter dated November 10, 1998, (“Letter 950”) jointly to Welch and de Losada informing them that it was denying the $1,329,070 ordinary loss claimed in their 1995 return. The IRS concluded that Welch could not support his claim that he was either a trader/dealer or professional gambler and therefore entitled to treat his trading losses as ordinary losses. This denial resulted in a tax deficiency of $223,500 for 1995. The IRS also proposed a twenty percent negligence penalty in the amount of $44,700 for that tax year. On the same day, the IRS mailed a letter to Welch individually (“Letter 569”) proposing a full disallowance of Welch’s refund of $76,570 for tax year 1992, which was based on a carryback of the ordinary loss claimed in tax year 1995.
Both Letters 569 and 950 were mailed to appellants’ Central Park West address. Although appellants have no recollection of receiving either letter, they do not dispute the mailing or receipt of these letters. At his deposition Welch testified that, upon receiving any correspondence from the IRS, it was his standard practice to forward such correspondence to their then-accountant, Eric Roseman. Mr. Roseman, in fact, represented Welch in an appeal— that was ultimately denied — to the IRS regarding the adjustment proposed in Letter 569 and represented both Welch and de Losada in connection with a similarly unsuccessful appeal relating to Letter 950. In an Appeals Case Memorandum (“ACM”) dated June 7, 2000, IRS personnel made a request to IRS counsel for approval to issue a notice of deficiency to Welch for tax year 1992 and to both appellants for tax year 1995. The ACM sets
A tax lien for the 1992 tax year was filed against Welch on December 14, 2001. In September 2007, the IRS issued a “Final Notice of Intent to Levy” for the 1992 and 1995 tax years. 1 Appellant, represented by the accounting firm Press Schonig, requested a Collection Due Process Hearing with the IRS to protest the filing of the Final Notice of Intent to Levy. The IRS denied the petition for relief. A tax lien for the 1995 tax year was filed against both appellants in June 2008.
On July 11, 2008, appellants filed a petition in the Tax Court seeking removal of the assessments and cessation of all collection activities. In order to complete an apartment sale while their petition was pending, appellants paid $142,277.55 with respect to the 1992 lien and $725,205.28 with respect to the 1995 lien, for a total of $867,482.83, in October 2008. On March 31, 2009, the Tax Court summarily dismissed the appellants’ petition as moot since payment on the assessment had been made.
On May 7, 2009, appellants filed two Form 1040X’s with the IRS, seeking a refund of the $867,482.83 in tax deficiencies paid for tax years 1992 and 1995. After more than six months elapsed from filing the Forms 1040X, on December 28, 2009, appellants filed suit in the Court of Federal Claims seeking a refund of the full $867,482.83, alleging overpayment under I.R.C. § 6401(a) on grounds that the deficiencies were both assessed after the expiration of the governing statute of limitations. The Court of Federal Claims had jurisdiction under 28 U.S.C. § 1346(a)(1) and § 1491(a)(1).
After the close of discovery, the parties filed cross-motions for summary judgment on whether the IRS properly mailed statutory notices of deficiency for the tax years 1992 and 1995 before December 31, 2000. The parties argued that this issue would be determinative of appellants’ claims because, if notices of deficiency were mailed before the running of the statute of limitations, those mailings would thereby extend the statute of limitations for assessing appellants’ income tax. The parties agreed that the assessments were timely even if the statutory notices were never received, as long as they were timely sent.
On May 3, 2011, the Court of Federal Claims granted summary judgment to the government and denied summary judgment to appellants, finding that “[the IRS] has demonstrated as a matter of law that it mailed the notices of deficiency for the 1992 and 1995 tax years.” Specifically, the Court of Federal Claims determined the IRS procedure in Manhattan to consist of the following: (1) an appeals officer decides to issue a statutory notice of deficiency and personally delivers the case to the Appeals Processing Section; (2) the appeals officer enters the preparation of the notice into his or her case activity record; (3) the tax examiner then issues the statutory notice of deficiency, date stamping the notice and noting the ninety-day default date by which the taxpayer must petition the Tax Court; (4) the notice is then sent to the address listed in taxpayer’s file.
On these grounds, the Court of Federal Claims found the statute of limitations tolled and collection of deficiencies for both tax years valid. Citing
United States v. Zolla,
Appellants timely appealed. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(3).
Discussion
We review the Court of Federal Claims’s grant of summary judgment
de novo,
with justifiable inferences drawn in favor of the party opposing the judgment.
Adams v. United States,
I.
Section 6203 of the I.R.C. provides that a tax assessment “shall be made by recording the liability of the taxpayer in the office of the Secretary in accordance with rules or regulations prescribed by the Secretary.” Under § 6501(a), the IRS is generally required to assess a tax within three years after a tax return is filed. This limitations period may be extended by mutual agreement of the taxpayer and IRS, as was done by the parties here to December 31, 2000. I.R.C. § 6501(c)(4)(A). The assessment limitations period is also tolled when the IRS mails a statutory notice of deficiency to the taxpayer under § 6212(a).
Id.
§ 6503(a). The assessment limitations period is tolled for ninety days once the notice has been sent to allow the taxpayer to petition the Tax Court, and then for an additional sixty days if the taxpayer has failed to make such a petition.
See id.
Section 6212(a) provides that the IRS may “send notice of such deficiency to the taxpayer by certified mail or registered mail.” To be effective, actual receipt of the notice of deficiency by the taxpayer is not required.
See, e.g., Keado v. United States,
Furthermore, while § 6212(a) mentions use of certified or registered mail for sending notice, courts have held that other methods, such as regular mail or hand delivery, may be used.
Munz v. Comm’r,
The government has the burden of proving that notice was sent to the taxpayer.
See, e.g., O’Rourke v. United States,
II.
On appeal, appellants contend that the IRS failed to present evidence that it timely mailed notices of deficiency for tax years 1992 and 1995, and that therefore, the IRS failed to establish that assessment of those deficiencies fell within the statute of limitations. In particular, appellants argue that the failure of the IRS to produce a PS Form 3877, or the information contained on PS Form 3877 in a different format, for either notice of deficiency is dispositive. The government does not contend that PS Form 3877 was properly
III.
While adherence to Manual procedures in mailing statutory notices is presumptive proof of mailing, strict compliance has not been legally required by other circuits.
See, e.g., Keado,
A review of other courts’ analyses of the sufficiency of the evidence presented to establish timely mailing of a notice of deficiency provides a helpful background to the standard we apply here. In
O’Rourke,
the government possessed an incomplete copy of the notice of deficiency, as well as an improperly filled-out PS Form 3877.
The Eighth Circuit in
Ahrens
conducted a similar analysis, also finding in favor of the government. In contrast to
O’Rourke,
all copies of the notice of deficiency in
Ahrens
had been lost.
Ahrens,
In
Keado,
the Fifth Circuit found proof of mailing of the notice based upon: (1) an undated copy of the actual notice; (2) an affidavit regarding IRS mailing procedures in Dallas; (8) a receipt for certified mail (PS Form 3800) indicating that a certified letter with the number P727358276 was sent to the taxpayers’ home address; (4) a deficient PS Form 3877-A also indicating that certified letter P727358276 was sent to the taxpayers’ home address; and (5) an affidavit explaining that PS Forms 3800 and 3877-A were used exclusively for mailing notices of deficiency.
In
Zoila,
the IRS destroyed all copies of the deficiency notices per established routine. The government did, however, offer a completed Form 3877 certifying that the notices of deficiency were mailed, as well as an IRS form certifying that taxes and penalties had been assessed. In light of the taxpayer’s failure to offer any contrary evidence, the Ninth Circuit held that Form 3877 and the certification of tax assessment were highly probative, and found proof of mailing.
Zolla,
The Tax Court has looked for similarly corroborating evidence to evince proof of mailing when a Form 3877 was either incomplete or missing. Thus, in
Coleman,
In
Pietanza,
the government produced only a PS Form 3877 and a sample draft of the deficiency notice.
Using these decisions for general guidance, we structure the following standard for determining whether the evidence submitted by the IRS is sufficient to demonstrate timely mailing of a notice of deficiency. First, we find that the government bears the burden of proving proper mailing of a notice of deficiency by competent and persuasive evidence.
Butti
Where the parties dispute the existence of the notice of deficiency itself, the government bears the burden of establishing both the existence of the notice itself, as well as timely mailing of that specific notice.
See, e.g., Zolla,
IV.
We now apply these principles to the 1992 assessment. Appellants contend that, “when the Service does not have both a copy of the statutory notice and Form 3877, the courts have almost always held that the Service has not met its burden of proof.” Appellants’ Brief at 16. Although a copy of the 1992 notice exists, because the government can only provide mail return-receipt cards and not a PS Form 3877, appellants argue the government’s proof is insufficient. According to the government, return-receipt cards signed for by Nath Gosh on September 14, 2000, 3 in conjunction with the testimony of Neshell Fowler-Moore, the Lead Tax Examiner for Appeals in the IRS’s Manhattan office, stating that notices of deficiency are sent by certified mail and that those cards would correspond to “the only certified mail sent to these taxpayers in 2000,” are sufficient to uphold the Court of Federal Claims’ ruling. The government also points to other corroborating evidence, including: the ACM; the declaration of Fowler-Moore regarding Manhattan IRS office mailing procedures; the computer-generated control card for appellants; a copy of the actual notice of deficiency for the 1992 tax year; and an associated transmittal letter to Roseman, explaining to him that the 1992 notice had been sent to his client.
Here, because the government possesses a copy of the 1992 notice of deficiency, to demonstrate timely mailing the government need only produce a completed Form 3877 or otherwise sufficient documentation of certified mailing. While the govern
As discussed above, the failure of the IRS to adhere to the procedure outlined in the IRS Manual does not automatically render a notice of deficiency ineffective.
See Keado,
The appellants’ reliance on
United States v. Wright,
V.
The parties’ arguments with respect to the 1995 notice mirror those asserted for the 1992 notice. Unlike the evidence presented for the 1992 tax year, however, no copy of a 1995 notice of deficiency was presented, nor is there any transmittal letter to the appellants’ representative informing him that one was sent to Welch and de Losada. As noted above, for the government to meet its burden of proof in the absence of a copy of the notice, it must offer sufficiently corroborative evidence in the form of testimony, correspondence, habit evidence, or otherwise, both of the existence of the notice of deficiency and of timely mailing.
See, e.g., Zolla,
No such corroborative evidence for the 1995 notice of deficiency was presented here. Instead, the government offers evidence in the form of: (1) testimonial evidence from Fowler-Moore regarding internal IRS procedure for notice preparation at the Manhattan office, (2) Ap
Thus, even assuming the evidence is sufficient to prove that a 1995 notice of deficiency was approved and that the IRS intended to create it, only the return-receipt cards are potential proof that such a notice actually existed and was mailed. As appellants correctly argue, the government offers no way to cross-reference the return-receipts with whatever letter or correspondence it accompanied. Fowler-Moore’s testimony can only establish that some form of certified mail was sent to appellants on September 11, 2000. In the absence of evidence establishing a connection between the return-receipt cards and a particular document, the parties can do no more than speculate as to the letters’ contents. One receipt is addressed only to Welch, the other only to de Losada. According to the government, because Welch filed singly for the 1992 tax year, a notice of deficiency would have been mailed only to him, and not his wife. Assuming, therefore, that the return-receipt addressed to Welch pertains to the 1992 notice, it follows, according to the government, that the postal receipt addressed to de Losada pertains to the 1995 notice.
But the government provides no explanation as to why the 1995 deficiency notice would be addressed only to de Losada, especially when Welch is the primary taxpayer listed on their 1995 tax return (de Losada was listed as “Spouse”). The government’s response at oral argument as to why the cards would be addressed to the secondary taxpayer only was, “Why not? If they are at the same address, it was a joint return, there is no reason why not just to list one of them rather than the two of them.” Oral Argument at 18:45. At the same time, however, the government concedes that multiple copies of the 1995 notice, addressed to both Welch and de Losada, would not have been included in a single mailing, thereby asking this court to believe the IRS notified
only
the second listed taxpayer of a deficiency.
Id.
at 19:00. The government’s explanations simply are insufficient to support the justifiable inference that the return receipt card addressed to de Losada contained a 1995 notice of deficiency which the government cannot locate and which the government cannot establish was sent to the taxpayers’ representative, as it should have been. An equally justifiable — indeed more justifiable — inference is that a copy of the 1992 notice of deficiency was mailed to both Welch and de Losada, separately,
Based on the evidence presented, the government has failed to demonstrate the existence of the 1995 notice of deficiency and the date of its mailing by competent and persuasive evidence. Both are required before we can find that assessment of the 1995 deficiency occurred within the governing statute of limitations period.
See, e.g., Butti,
Other cases explicitly preclude the use of the presumption of official regularity with respect to a mailing when neither the deficiency notice nor a PS 3877 is produced.
See O’Rourke,
Conclusion
Although the combination of a copy of the 1992 notice and postal return-receipts dated three days after that notice, in combination with a corresponding letter to Welch’s representative meet the government’s burden of proof of mailing for that tax year, the lack of a 1995 notice and the inability to cross-reference the return-receipts to any specific IRS correspondence simply do not. We therefore affirm the Court of Federal Claims’s decision with respect to the 1992 assessment, and re
Notes
. No explanation is given for the delay between the 2001 tax lien and the 2007 levy notice.
. The Court of Federal Claims found sufficient proof of mailing for the 1992 notice without this additional documentation. The return-receipt cards and computer-generated control card were relied upon by the Court of Federal Claims for the 1995 notice, but are also applicable to the 1992 notice.
. At oral argument, counsel for appellants represented that Mr. Gosh is a resident of appellants’ building.
. The appellants correctly point out that other evidence presented here, such as the Appeals Case Memorandums or Certificates of Assessments and Payments, offer limited probative value in this case as to whether a certified mail letter was actually prepared and sent to taxpayers.
. In contrast, as described above, the only justifiable inference from the existence of the 1992 notice of deficiency and the testimony of Fowler-Moore is that at least one of the return-receipt cards corresponds to the mailing of the 1992 notice of deficiency.