St Joseph Lease v. Commissioner, IRS ( 2000 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
ST. JOSEPH LEASE CAPITAL 
CORPORATION,
Petitioner-Appellant,
v.  No. 99-2473
COMMISSIONER OF INTERNAL REVENUE,
Respondent-Appellee.

Appeal from the United States Tax Court.
(Tax Ct. No. 95-249)
Argued: September 28, 2000
Decided: December 20, 2000
Before NIEMEYER and MICHAEL, Circuit Judges, and
Frederick P. STAMP, Jr., Chief United States District Judge
for the Northern District of West Virginia, sitting by designation.
Affirmed by published opinion. Judge Niemeyer wrote the opinion,
in which Judge Michael and Chief Judge Stamp joined.
COUNSEL
COUNSEL: Henry G. Zapruder, BAKER & HOSTETLER, L.L.P.,
Washington, D.C., for Appellant. Gilbert Steven Rothenberg, Tax
Division, UNITED STATES DEPARTMENT OF JUSTICE, Wash-
ington, D.C., for Appellee. ON BRIEF: Paula M. Junghans, Acting
Assistant Attorney General, Ellen Page DelSole, Tax Division,
UNITED STATES DEPARTMENT OF JUSTICE, Washington,
D.C., for Appellee.
2 ST. JOSEPH LEASE CAPITAL v. CIR
OPINION
NIEMEYER, Circuit Judge:
We are presented with the question under the Tax Code of whether
the mailing by the Internal Revenue Service ("IRS") of a misad-
dressed notice of income tax deficiency suspended — under 26
U.S.C. § 6503(a) — the running of the three-year limitations period
within which the IRS must assess taxes due. For the reasons that fol-
low, we affirm the United States Tax Court’s decision that this period
of limitations was suspended by the mailing, when the taxpayer
received actual notice of the deficiency and still had sufficient time
within which to file a petition under 26 U.S.C. § 6213(a) for a Tax
Court redetermination of the deficiency.
I
St. Joseph Lease Capital Corporation ("the taxpayer") filed federal
income tax returns on October 15, 1991, for the tax years 1985-1990.
The period of limitations within which the IRS could assess a defi-
ciency for those returns was three years, and would thus expire on
October 15, 1994, absent tolling. See 26 U.S.C. § 6501(a).
Following an audit of these returns, the IRS mailed a deficiency
notice to the taxpayer on October 6, 1994, shortly before the expira-
tion of the three-year limitations period. Two copies of the notice of
deficiency were mailed to the taxpayer, addressed as follows:
St. Joseph Lease Capital Corporation
Post Office Box 19307
Alexandria, Virginia 22320
and
St. Joseph Lease Capital Corporation
6019 Tower Court
Alexandria, Virginia 22320
In addition, the IRS mailed a copy of the notice of deficiency to the
taxpayer’s attorney, Roger A. Pies, at his address in Washington, D.C.
ST. JOSEPH LEASE CAPITAL v. CIR 3
The taxpayer had earlier appointed Pies its attorney-in-fact for pur-
poses of income tax matters for the 1985-1990 tax years. The
addresses that the IRS used were those maintained in its computer and
were concededly accurate up until August 1994, although they
became inaccurate by the time of the October 6 mailing.
In late August 1994, the taxpayer hired a new attorney, Robert M.
Levin, to represent it in connection with tax matters, and on Septem-
ber 1, 1994, the taxpayer submitted to the IRS a new Form 2848,
which appointed Levin, in place of Pies, as taxpayer’s attorney-in-
fact. Around the same time, the taxpayer’s parent corporation sent the
IRS a Form 851 (affiliation schedule) that listed a new street address
for the taxpayer at 218 North Lee Street, Alexandria, Virginia 22314.
A few weeks later, on September 21, 1994, the taxpayer itself sent the
IRS a Form 8822 (change of address) by overnight courier, also list-
ing this address as the taxpayer’s new address.
Because the taxpayer’s change of attorney and new addresses had
not, as of October 6, 1994, been incorporated in the IRS’s computer
information base, all three copies of the notice of deficiency mailed
on October 6, 1994, were misaddressed, and all three were returned.
The first returned notice was stamped "Box Closed, No Forwarding
Order." The second was stamped "Return to Sender, Unclaimed." And
the third was returned unopened with a cover letter from Pies stating
that he no longer represented the taxpayer.
The IRS did nothing with the returned notices until specifically
requested to do so several weeks later. When the taxpayer’s new
attorney, Levin, discovered on November 2, 1994, that a deficiency
notice had been mailed to the taxpayer in early October, he requested
a copy of the notice. The IRS faxed him a copy on November 10,
1994. It was thus received by the taxpayer more than three years after
the taxpayer initially filed its returns.
On January 3, 1995, the taxpayer filed a petition with the United
States Tax Court for a redetermination of its tax deficiency. In that
proceeding, the parties filed cross-motions for summary judgment on
whether the IRS was barred from assessing a deficiency because it
misaddressed the notices of deficiency and the taxpayer received
actual notice more than three years after filing its returns. The Tax
4 ST. JOSEPH LEASE CAPITAL v. CIR
Court concluded that even assuming that the IRS did not mail the
notice of deficiency to the taxpayer at its last-known address* — a
condition that would have conclusively imputed notice to the taxpayer
under 26 U.S.C. § 6212(b) — its mailing of the October 6 notice
effectively tolled the statute of limitations because the taxpayer actu-
ally received a copy of the notice by fax on November 10, 1994, and
the taxpayer had ample time to file a timely petition with the Tax
Court.
Following the Tax Court’s ruling, the parties entered into a settle-
ment that resolved their dispute regarding the amount of taxes due,
but they expressly preserved the taxpayer’s right to appeal the Tax
Court’s determination of the statute of limitations issue. This appeal
was taken to review the single issue of whether any of the misad-
dressed October 6 notices suspended the running of the three-year
limitations period pursuant to 26 U.S.C. § 6503(a)(1), a question of
law that we review de novo. See Balkissoon v. Commissioner of Inter-
nal Revenue, 995 F.2d 525, 527 (4th Cir. 1992).
II
The Tax Code provides that the IRS must assess any deficiency in
the payment of income taxes within three years after a return is filed,
see 26 U.S.C. § 6501(a), and generally no assessment can be made
until a notice of deficiency has been mailed to the taxpayer, see id.§ 6213(a). When a notice of deficiency is mailed to the taxpayer, the
three-year period is extended 90 days from the mailing to permit the
taxpayer an opportunity to petition the Tax Court for a redetermina-
tion of the deficiency. See id. §§ 6213(a), 6503(a). If the taxpayer
files a petition for a redetermination of the deficiency, the three-year
period is extended yet further until 60 days following the date when
*The issue of whether, in fact, the IRS’s mailing to addresses that were
correct as of late August 1994 constituted a mailing to the "last-known
address" has not been decided. The IRS contends that the old addresses
remained the "last known address" until the end of the 45-day processing
period established by its internal procedures. See Rev. Proc. 90-18, 1990-
13 I.R.B. 19. For purposes of this appeal, however, the parties have
assumed that the IRS’s mailing was not to the taxpayer’s last-known
address.
ST. JOSEPH LEASE CAPITAL v. CIR 5
the decision of the Tax Court on the taxpayer’s petition becomes
final. See id. § 6503(a). Until the Tax Court’s decision becomes final,
the IRS may not take any steps to assess and collect the taxes claimed.
See id. § 6213(a). If the taxpayer fails to take advantage of the 90-day
window within which to petition the Tax Court for a redetermination,
the IRS may assess the deficiency and begin collecting the tax imme-
diately after the 90 days have run. The taxpayer, however, does not
lose the opportunity to challenge the assessment of deficiency merely
because it fails to petition the Tax Court. It may pay the taxes and
then sue the United States for a refund in federal district court. See
id. §§ 6212(a), 6213(a), 6511, 6532(a), 7422.
Thus, the IRS’s mailing of a notice of deficiency simultaneously
serves two functions. First, it tolls the three-year statute of limitations,
and second, it commences a process that enables the taxpayer to chal-
lenge the deficiency.
In this case, the parties agree that the IRS mailed a notice of defi-
ciency by certified mail within three years after the taxpayer filed its
returns. The taxpayer contends, however, that because the IRS misad-
dressed the notice, the mailing was "a nullity" and ineffective for all
purposes. Without a mailing, the statute of limitations under 26
U.S.C. § 6503(a) was never tolled, and therefore the IRS could not
assess any deficiency after October 15, 1994, as it purported to do.
The IRS contends to the contrary that its October 6 notice of defi-
ciency was valid and, having been mailed to taxpayer before the expi-
ration of three years from the taxpayer’s filing of its returns, tolled the
statute of limitations. It argues that the defect in mailing was of no
consequence "because taxpayer actually received [the notice] without
prejudicial delay and filed a timely petition."
To resolve this dispute, we begin with the statutory language, as we
must. Section 6503(a)(1) provides that the three-year period of limita-
tions for making an assessment is suspended "after the mailing of a
notice under § 6212(a)." Section 6212(a) requires that the notice of
deficiency to the taxpayer include notice "of the taxpayer’s right to
contact a local office of the taxpayer advocate and the location and
phone number of the appropriate office" and authorizes that the notice
be sent to the taxpayer by certified mail or registered mail. This sec-
tion imposes no other requirements for the mailing. Significantly, the
6 ST. JOSEPH LEASE CAPITAL v. CIR
mailing that suspends the running of the limitations period under
§ 6503(a)(1) is explicitly a § 6212(a) mailing; there is no requirement
that the deficiency notice be mailed as required by § 6212(b), which
conclusively imputes notice to the taxpayer if the notice is mailed to
the taxpayer’s "last-known address." Accordingly, we conclude that
§ 6503(a) means what it says — in order to suspend the running of
the limitations period under § 6503(a), a mailing must comport with
the requirements of § 6212(a), but need not comport in any way with
§ 6212(b).
The taxpayer contends that in reading § 6503(a), we should infer
that a mailing must be received by the taxpayer in order for it to sus-
pend the running of the three-year limitations period. To support this
argument, the taxpayer relies upon Mulvania v. Commissioner of
Internal Revenue, 769 F.2d 1376 (9th Cir. 1985), which held that a
misaddressed notice of deficiency was invalid because the taxpayer
never actually received a copy of the notice, and Reddock v. Commis-
sioner of Internal Revenue, 72 T.C. 21 (1979), which held that when
the IRS re-mailed an earlier misaddressed notice to the correct
address, it abandoned the first mailing which could not then be used
to toll the statute of limitations.
The taxpayer’s argument, however, finds support in neither the lan-
guage of the statute nor the commonly understood meaning of "mail-
ing." Section 6503(a) does not on its face require that a mailing
actually be received by the taxpayer. And in the absence of an explicit
requirement of receipt, we are left with a question of statutory inter-
pretation turning on the meaning of "mailing." As commonly under-
stood, "mailing" means the placement of a letter — "properly
addressed and stamped with the proper postage" — in the custody of
the Postal Service. Black’s Law Dictionary 952 (6th ed. 1990); cf. 26
U.S.C. § 7502(a). There is no dispute that the notices in this case con-
tained addresses proper for mailing (i.e., consistent with postal regula-
tions), were stamped, and were placed in the custody of the Postal
Service. A mailed letter does not later become "unmailed" if it is
never delivered or if it is returned. On the contrary, a letter that is
returned has both the attributes of having been "mailed" and of having
been "returned."
Our conclusion that the running of the limitations period under
§ 6503(a) is suspended simply by a mailing to the taxpayer and not
ST. JOSEPH LEASE CAPITAL v. CIR 7
by receipt is corroborated by the cases applying § 6503(a) to circum-
stances in which a notice is mailed before the expiration of three years
but is received after the expiration. These cases have held uniformly
that such a notice tolls the statute of limitations. See, e.g., Scheidt v.
Commissioner of Internal Revenue, 967 F.2d 1448, 1450-51 (10th
Cir. 1992); Borgman v. Commissioner of Internal Revenue, 888 F.2d
916, 917-18 (1st Cir. 1989); Pugsley v. Commissioner of Internal
Revenue, 749 F.2d 691, 692-93 (11th Cir. 1985); Clodfelter v. Com-
missioner of Internal Revenue, 527 F.2d 754, 757 (9th Cir. 1975);
Frieling v. Commissioner of Internal Revenue, 81 T.C. 42, 53-60
(1983). In none of these cases did the court find that the statute
includes an implied receipt requirement. In each, the court concluded
that the statute of limitations had been effectively tolled even though
the notice was received after the three years expired.
The taxpayer seeks to distinguish these precedents on the basis that
the mailing in each case was the mechanism that ultimately gave the
taxpayer notice, whereas in this case, the taxpayer received the notice
by fax, and not from the mailing. This argument, however, necessarily
returns to the argument that "mailing," as used in the statute, implies
a requirement of "receipt" — an argument that the holdings in these
cases implicitly rejected.
We find ourselves in agreement with the Tenth Circuit’s observa-
tion that "mailing" should not be interpreted in a manner that adds
more to the term’s meaning than it ordinarily encompasses: "Absent
any evidence of Congressional intent, we decline to graft an addi-
tional prerequisite to the tolling of the limitations period based on
whether a taxpayer receives the notice of deficiency in the due course
of the mails." Scheidt, 967 F.2d at 1451; see also Lifter v. Commis-
sioner of Internal Revenue, 59 T.C. 818, 823-24 (1973) (finding that
the limitations period was tolled when taxpayers actually received a
copy of a notice mailed to their attorney, although not the original
notice mailed to them, which had been returned to the IRS); cf.
Mulvania, 769 F.2d at 1380-81 (concluding that mailing did not toll
the statute of limitations when the taxpayer neither received notice
nor filed a petition with the Tax Court).
The taxpayer in this case relies most heavily on the Tax Court’s
decision in Reddock, which held a returned mailing abandoned when
8 ST. JOSEPH LEASE CAPITAL v. CIR
the IRS remailed the notice. The facts there are indeed analogous to
those before us. The only potentially relevant difference is that, in
Reddock, the IRS remailed the return notice after the three-year
period expired, thus abandoning the original mailing, see 72 T.C. at
25-27, whereas, in this case, the IRS faxed a copy of the original
notice after the three years expired. The IRS contends that this differ-
ence in the method of providing actual notice sufficiently distin-
guishes this case from Reddock. It asks us to agree with the Tax
Court’s finding in this case that the IRS did not abandon the original
mailing, but instead continued to hold the original "returned" mailing
and notified the taxpayer independently by fax.
We find this distinction unpersuasive. The subsequent service on
the taxpayer of a returned notice originally sent by certified or regis-
tered mail is the equivalent of the second mailing at issue in Reddock.
See Tenzer v. Commissioner of Internal Revenue, 285 F.2d 956, 958
(9th Cir. 1960). In addition, we have previously made clear that the
method by which the IRS provides notice is irrelevant — any
"method of delivery" is a valid mailing as long as the taxpayer
receives the notice of deficiency. Balkissoon, 995 F.2d at 528.
Accordingly, we conclude that faxing the notice of deficiency is the
functional equivalent of mailing it. If, therefore, the reasoning
employed by the Tax Court in Reddock were to control the outcome
here, the taxpayer would prevail.
We disagree, however, with the Reddock court’s conclusion that by
remailing the notice, the IRS abandons the original misaddressed
mailing, rendering it ineffective for purposes of tolling the statute of
limitations under § 6503(a). The statutory language itself plainly pro-
vides that a mailing suspends the running of the period of limitations
and that suspension occurs when the mailing is complete, i.e., upon
deposit of the letter with the Postal Service. It does not provide that
the "mailing" is effective only if there is no remailing. We reject this
argument for the same reason that we concluded that mailing does not
imply receipt. We find more persuasive the Tenzer court’s statement
that even though a second mailing may provide actual notice, the first
notice is not "wholly void" but is "good enough to arrest the statute
of limitations." 285 F.2d at 958.
As noted above, a "mailing" under § 6503(a) simultaneously serves
two purposes. The first is to suspend the running of the three-year
ST. JOSEPH LEASE CAPITAL v. CIR 9
limitations period, and the second is to commence a process by which
the taxpayer can challenge a deficiency. If the taxpayer does not
receive notice from the mailing, the consequence must relate to the
purpose of the mailing. By not including a receipt requirement in
§ 6503(a), Congress meant to provide an objective act within the con-
trol of the IRS by which the IRS could suspend the running of limita-
tions. This is accomplished by the simple act of mailing, as that term
is generally understood. Congress also meant to begin a process for
the assessment of a deficiency, expecting, but not requiring, that in
most cases the simple mailing would provide the taxpayer with the
notice of deficiency. If the taxpayer does not receive notice of the
process’ commencement through a mailing under § 6503(a), then the
consequence as relevant to this second purpose would be to give the
taxpayer the process lost through an ineffective mailing. If we were,
instead, to conclude that the consequence of an ineffective mailing
under § 6503(a) would be a waiver of tax liability, we would be con-
verting a mechanism designed only to give the taxpayer an opportu-
nity to challenge a proposed deficiency into a mechanism for avoiding
tax liability altogether.
The statutory scheme anticipates that the "vast majority of taxpay-
ers will be informed that a tax deficiency has been determined against
them." Balkissoon, 995 F.2d at 528 (quoting Jones v. United States,
889 F.2d 1448, 1450 (5th Cir. 1989)). But even when they are not so
informed, this scheme giving the taxpayer the opportunity to seek a
Tax Court redetermination of a deficiency should not be read to
undermine the Tax Code’s overarching purpose of collecting the
taxes.
Even if the taxpayer had never received a deficiency notice, it
would not have lost the opportunity to challenge the amount of tax
owed; it would have lost only the opportunity to challenge the amount
owed prior to paying the tax and suing for a refund. And in this case,
the taxpayer did not even lose that. It lost a few weeks to prepare its
Tax Court petition — a period that it does not assert prejudiced it.
Indeed, the time that the taxpayer lost in this case is no greater than
the time delays in other cases in which the statute of limitations was
found to have been tolled. See, e.g., Scheidt, 967 F.2d at 1449 (one-
month delay from mailing to receipt); Tenzer, 285 F.2d at 956 nn. 2,
10 ST. JOSEPH LEASE CAPITAL v. CIR
4 (same); Dolezilek v. Commissioner of Internal Revenue, 212 F.2d
458, 459 (D.C. Cir. 1954) (45-day delay from mailing to receipt).
But, to conclude that the taxpayer’s failure to receive notice from
the mailing under 26 U.S.C. § 6503(a) should deprive the IRS of all
opportunity to assess the taxpayer’s taxes, even though the taxpayer
received actual notice of the mailing within sufficient time to file a
petition with the Tax Court, would bring about a strangely unbalanced
result that would mindlessly focus on the success of a "mailing" and
not on the substance of the statutory provision involved, i.e., to sus-
pend the running of the limitations period and to commence a process.
Although it is true that the IRS’s conformity with 26 U.S.C. § 6212(b)
(mailing to the taxpayer’s last-known address) would provide it with
a safe harbor and relieve it of all risk of non-receipt, a mailing not
conforming with § 6212(b) is still presumptively valid. But the ques-
tion then becomes simply what the effect of a misaddressed mailing
should be. In the context of tolling the statute of limitations, a misad-
dressed mailing is of no consequence. The statute requires mailing
and that was accomplished. In the context of the taxpayer’s challenge
to the deficiency, we must ask if the taxpayer was prejudiced. We
note that when a mailing provides the taxpayer actual notice so that
the taxpayer has sufficient time to petition the Tax Court, the courts
have uniformly held that any technical flaw in the mailing is harm-
less. See, e.g., Balkissoon, 995 F.2d at 528-29 (citing cases). Simi-
larly, when a mailing itself does not provide the taxpayer with a copy
of the deficiency notice, but the taxpayer otherwise receives such
notice, we can only conclude that the same technical flaw in the mail-
ing is just as harmless.
In sum, while the Tax Code does not explicitly address the effect
of the IRS’s failure to comport with the method of mailing that would
provide it safe-harbor protection under § 6212(b), it does address
what suspends the running of the three-year limitations period for
making a tax assessment. It provides that such a suspension is
effected by a "mailing of a notice [of deficiency] under § 6212(a),"
without more. 26 U.S.C. § 6503(a). And if the mailing is technically
deficient but the taxpayer receives actual notice of the deficiency and
an opportunity to petition the Tax Court for a redetermination of the
deficiency, then the technical deficiency is harmless for all purposes
and should not undermine the strict language of § 6503(a). Under this
ST. JOSEPH LEASE CAPITAL v. CIR 11
interpretation, the precision of the Tax Code is preserved, its intent is
fulfilled, and justice is served by not allowing the taxpayer to receive
a windfall exemption from paying taxes because of a mailing defect
whose importance relates only to a challenge process in which the
taxpayer was not prejudiced.
For the foregoing reasons, the decision of the Tax Court is
AFFIRMED.