ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – HOW TO ATTACK INVALID EDD/IRS ASSESSMENTS

By Robert S. Schriebman

2024

Introduction

In order for both the IRS and the EDD to legally assess deficiencies after conducting an audit, both are required to issue a formal written assessment. Both the IRS and the EDD are required to give the taxpayer notice and an opportunity to be heard. That is the fundamental definition of due process of law in a nutshell.

The EDD, when assessing a deficiency issues a Notice of Assessment. The IRS is required to issue a Notice of Deficiency otherwise known as a 90-Day Letter.

The requirements for legally issuing deficiency notices demand that the assessment notice be sent to the taxpayer’s last known address. The California Unemployment Insurance Code, and specifically Section 1206, states that the assessment must be addressed to the employing unit or person at his or her address as it appears on the records of the Department. (CUIC § 1206(b))

The requirements for legally issuing an IRS assessment are much more complex and demanding as you will see in this article.

This article will discuss common problems with the legal issuance of both an EDD or an IRS assessment notice. An illegally issued assessment may allow the taxpayer to walk away from the assessment without having to pay anything at all.

Problems with EDD Assessments

The EDD does not do a thorough job when it comes to issuing the Notice of Assessment (NA). While the notice is required to be sent by certified mail, the EDD does not have an established procedure for determining the taxpayer’s last known address. If a certified letter is returned to the EDD and marked, “undeliverable as addressed,” the EDD will often put the return envelope in the taxpayer’s file and allow the assessment to become final and subject to collection. This requires the taxpayer to undergo a time-consuming and a potentially expensive hearing before an administrative law judge where the taxpayer bears the burden of proof that he/she informed the EDD of the taxpayer’s current address. In these hearings, I have found that the EDD, under these circumstances, does not make any effort to determine the taxpayer’s current mailing address.

Problems with IRS Assessments

The laws requiring the IRS to send a deficiency notice to the taxpayer’s last known address are set forth broadly in IRC § 6212. Prior to 2001, the IRS’ definition of last known address was the “address to which, in light of all the facts and circumstances, the IRS reasonably believed the taxpayer wished the notice to be sent. Pyo v. Commissioner, 83 TC 626(1984). Pyo is a landmark decision in the Tax Court that I was privileged to litigate and win.

In 2001, a new regulation was issued stating that the definition of last known address was the address appearing on the taxpayer’s most recently filed and processed federal tax return. The IRS is also required to update the taxpayer’s address to that accumulated and maintained in a database known as NCOA database. NCOA stands for Notice of Change of Address.

If a taxpayer files a notice of address change with the USPS, that change is inputted in the NCOA database. If the IRS fails to consult the database and merely sends the assessment to the old address appearing on the latest tax return, that assessment may be invalid and illegal. This could mean that the taxpayer may not have to pay the deficiency if the taxpayer did not receive the 90-Day Letter in a timely fashion or did not receive it at all.

The Case of Keith M. Phillip

Phillip v. Commissioner, U.S. Tax Court TC Memo 2024-44 April 16, 2024.

The case of Keith Phillip is complex and unique. The IRS sent a 90-Day letter to an address never occupied by Keith. In fact, at the time the notice was issued, Keith was incarcerated. Keith never filed a change of address form with the USPS because he had no need to do so. The case discusses the latest rules under IRC § 6212. What I found important for our discussion is the Courts’s statements that merely filing a change of address form with the USPS is not proof, in and of itself, that the taxpayer provided the IRS with ample notice of the change of address. Ample proof requires the taxpayer to have written evidence that he/she took all appropriate actions to provide a change of address. Merely stating to the judge, “I filed a change of address form with the post office,” will not prove anything. The taxpayer has to have a copy of the notice change to show the judge.

Conclusion

An IRS or an EDD assessment can be challenged by showing that the assessment was not sent to the taxpayer’s most current address. If the statute of limitations for assessment has expired, and it is too late for the IRS or the EDD to reissue the assessment, the taxpayer may walk away without having to pay the taxman one dime.

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Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD, and he is not employed by the EDD or any other agency of the State of California.

Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

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