On October 17, 2014, the Procedure and Administration Division of the Office of Chief Counsel, IRS, sent PMTA-2014-19 (Program Management Technical Advice) to Denise Rosenberg a Senior Program Analyst in SB/SE Collection Policy. The advice addresses the question of “whether the Federal Correctional Institute address of an incarcerated taxpayer, presumably maintained in the Bureau of Prisons’ website and included on Form 13308, Criminal Investigation Closing Report, should be used as the last known address for purposes of mailing notices required under the Code to the taxpayer’s last known address.” The advice concludes that “unless the taxpayer provides a clear and concise notification that the place of incarceration should be used as the taxpayer’s last known address, the Service, generally, may use the address on the most recently filed return as the taxpayer’s last known address.” It does go on to issue the cautionary statement that “where the Service has specific knowledge of the taxpayer’s incarceration and there is a defect in the mailing to the last known address, the Service will be expected to use reasonable care and diligence in ascertaining the taxpayer’s correct address.”
I will talk below about some of the reasoning in the PMTA. The issue has administrative significance to the IRS because the last known address issue bears on the validity of a number of items the IRS mails to taxpayers. The issue has enough importance that in the book Effectively Representing Your Client before the IRS, we devote an entire chapter to the topic of last known address. The PMTA does not mention a TIGTA report that provided an in depth look at the issue of the addresses of prisoners and the access of the IRS to those address as well as the use by the IRS of those addresses because of the amount of refund fraud perpetrated by prisoners over the past decade. Despite the fact the IRS has the addresses of the prisoners and despite the fact that we know that 99.9% of individuals heading into prison do not include as part of their pre-incarceration to do list a filing with the IRS of Form 8822 the IRS takes the position in the PMTA that sending a notice to an incarcerated person is subject to a facts and circumstances test. The rule should change by statute if not administratively changed.read more...
A New Approach
In the United States .75% of the population is incarcerated at any given moment. The procedure set out in this PMTA virtually assures that most of the people in that segment of the population will have a notice sent to an address that no longer serves as their primary address. It unnecessarily calls into question the validity of the notice sent when it would be possible based on data in the possession of the IRS to send a duplicate notice to the location of incarceration in many of those cases. Adopting a different approach targeted at reaching the population of individuals in prison would not increase the cost to provide notice in a significant way, would afford these individuals due process of receiving notice of proposed action and appears possible given current information reporting to the IRS and its technology. Rather than relying on rules concerning notifying the IRS of a change of address that almost no one follows even when not facing incarceration, the IRS should use the information at its disposal to make a meaningful effort at notification of the incarcerated population.
Perhaps with study of the situation we would find that those in prison do not need to receive correspondence by certified mail because that impedes the receipt of mail. Perhaps we learn that those in prison need more time to take action and should receive 150 days to file a Tax Court petition instead of 90. Prisoners, who by and large fall within the low income population served by clinics under IRC 7526, deserve the opportunity to receive notices in time to take appropriate action just as we all deserve appropriate notice. Sending a letter to the address of their last return when it is known that they are incarcerated and where they are incarcerated seems an inappropriate and unnecessary response to the situation. While sending two notices adds to the cost, it does so in a way that affords meaningful opportunity for redress if the individual feels the need to take action and reduces later claims that no notice was provided.
The PMTA does not mention a TIGTA report issued approximately one month before the PMTA. The TIGRA report focuses on refund fraud by prisoners but contains interesting data about the information sharing agreement between the IRS and prison authorizes having a direct bearing on the provision of notice to prisoners. Aside from the notice of address issue, the report is interesting in itself to anyone wanting to know more about the incidence of refund fraud generated by prisoners and the efforts to combat that fraud. It is a piece of the problem I talked about in my Senate testimony urging Congress to flip the filing season to have the IRS wait to pay refunds until it has the matching data. If you wanted some support for that idea, the TIGTA report provides some.
In 2008 Congress passed The Inmate Tax Fraud Prevention Act. This gave the Secretary of Treasury temporary authority to disclose to the head of the Federal Bureau of Prisons tax return information for individuals who filed or may have filed fraudulent returns while incarcerated in Federal prisons. The act created a time limit of December 31, 2011 on this exception to the disclosure statute. The act required an annual report to Congress and the IRS filed the first report for calendar year 2009 The report is found in Appendix VI of the TIGTA report linked here. The Homebuyer Assistance and Improvement Act of 2010 expanded the authority to share prisoner tax return information to the State Departments of Correction since refund fraud does not solely occur among the federally incarcerated. The United States – Korea Free Trade Agreement Implementation Act requires the Federal Bureau of Prisons and State Departments of Corrections to “provide the IRS with an electronic list of all the prisoners incarcerated within their prison system for an part of the prior two calendar years or the current calendar year through August 31.” This report requires annual updates. So, the IRS gets a list of everyone in prison in the United States. The American Taxpayer Relief Act of 2012 expanded Treasury’s authority so share prisoner tax return information concerning false returns to federal and state prison authorizes and made the law permitting sharing permanent.
While the PMTA does not go into all of the information sharing Congress has created in the past decade, it is clear that the IRS now receives considerable information about individuals incarcerated in the United States. While this information comes to the IRS for the purpose of combating refund fraud, it seems inappropriate to ignore it when it comes time to provide notice to the prisoner.
Despite all of the information going back and forth between the federal and state prison systems and the IRS, the PMTA focuses only on the knowledge of the special agent regarding the specific individual. It concludes that “unless the taxpayer provides clear and concise notification that the place of incarceration should be used as the taxpayer’s last known address, the Service, generally, may use the address on the most recently filed return as the taxpayer’s last known address.” It then talks about a facts and circumstances test that might override this result “where the Service has specific knowledge of the taxpayer’s incarceration.” Yet, from the legislation recounted in the TIGTA report on refund fraud, it seems that the IRS has specific information about every taxpayer’s incarceration if the incarceration takes place in the United States.
The PMTA should discuss the relationship between the information that now comes to the IRS regarding prisoners and the obligation of the IRS to notify individuals whose addresses it has obtained because it sought them. The IRS is not merely a passive receiver of the addresses of prisoners but affirmatively sought them in order to combat refund fraud. It is great that the IRS and the prison authorities work together to combat this scourge on tax administration; however, the IRS needs to at least acknowledge it has this information and discuss why it does or does not provide a meaningful basis for notice to the taxpayer.
In our efforts to combat refund fraud that in the electronic filing era has run rampant among prisoners, Congress has passed a series of laws designed to provide the IRS with detailed information about prisoners. Despite the system of information now provided to the IRS, Chief Counsel’s fails to even discuss this influx of information on prisoners in its PMTA concerning last known address issues for prisoners. It should acknowledge that the IRS now operate in a new period of relations between the itself and prisoners and not overlook the data coming into the IRS allowing it to know who is incarcerated. Rather than continue to rely on antiquated provisions of notice developed prior to the close working relationship between the IRS and the prison authorities, the IRS should acknowledge that it now receives information about incarcerated individuals. Either the information about prisoners comes to the IRS in a usable format allowing the IRS to use that information to provide notice to prisoners when sending out documents such as the notice of deficiency or it should spell out how this information does not allow it to do so.
If the information coming from prison officials does not allow it to identify who is in prison and where they reside, perhaps the IRS needs to go back to the prison officials for more or better information. One can imagine after reading the PMTA and the TIGTA report that on the same day, the IRS will mail a notice to prison officials notifying those officials that John Doe incarcerated in the federal penitentiary in Lewisburg, PA, filed 12 fraudulent refund claims while on the same day it mails a notice of deficiency to the same John Doe in Richmond, VA, the place from which he mailed his last tax return five years ago prior to reporting to the penitentiary. If the IRS now receives adequate information to enable it to provide notice to them in prison, it should acknowledge it has this information and make use of it in sending notices to this segment of the population. If the information is insufficient to provide notice to incarcerated individuals, it should explain that in the PMTA and not ignore it.
While the issue here concerns prisoners and maybe we do not care what happens to prisoners, the IRS will get data dumps on other segments of the population. If it has the data for one purpose, it should use that data to provide meaningful notice to individuals and not rely on a change of address form that almost no one uses.