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December 28, 1961


The opinion of the court was delivered by: Henley, District Judge.

This suit to collect an income tax deficiency, brought by the Government against the defendant, Charles H. Lehigh, as authorized by 26 U.S.C.A. (1954) § 6502, and by 28 U.S.C.A. §§ 1340 and 1345, has been tried to the Court and submitted on the pleadings, a stipulation of facts, oral testimony, documentary evidence, and written briefs. This memorandum incorporates the Court's findings of fact and conclusions of law.

The litigation stems from the fact that in the course of an unusually fortunate day at the horse races in Caracas, Venezuela, defendant won the net sum of $293,813. At that time defendant was employed in Venezuela where he had been since January 1952. Relying on section 116(a) of the 1939 Internal Revenue Code, 26 U.S.C.A. (1939) § 116(a), defendant took the position that his winnings were not subject to the United States income tax, and when he filed his 1953 return in 1954, he did not show his winnings as taxable income, although by means of an attachment to the return he advised the Government of his good fortune.*fn1

In late March 1953 the Internal Revenue Service, in response to an inquiry made by defendant's father, advised the latter that his son's winnings were taxable income.*fn2 In 1955 an audit of defendant's 1953 return was made, and on August 15, 1955, the Commissioner made a jeopardy assessment of income tax deficiency, penalty, and interest totaling $304,225.76.*fn3 26 U.S.C.A. (1954) § 6861, 26 U.S.C.A. (1939) § 273. On August 16, 1955, there was mailed to defendant by ordinary mail addressed to 1415 West Main St., El Dorado, Arkansas, the address shown on the return, a "Statement of Income Tax Due," IRS Form 17.

Shortly after the original jeopardy assessment was made it was discovered that defendant was entitled to an abatement of $87 thereof, which was allowed him. On September 14, 1955, there was mailed by registered mail a formal notice of deficiency, IRS Form 1231, Rev., addressed to defendant at "Apartado 53, Correoseste, Distrito Federal, Venezuela."*fn4 That address was wrong since defendant's actual mailing address in Caracas was Apartado 5375, Correos Este, Distrito Federal, Venezuela. This second notice was never delivered to defendant but was returned to the Internal Revenue Service with an endorsement on the envelope to the effect that it had been addressed to the wrong box.*fn5

The Government took no further action in the matter until it commenced this suit in November 1960, more than six years after the return was filed and more than five years after the jeopardy assessment was made.

The sole defense tendered by defendant is that he was not given proper notice of the assessment upon which the Government's claim is based, that the failure to give such notice was fatal to the assessment, and that it is now too late for the Government to make any other assessment against him with respect to his 1953 income tax liability.

The Government contends that either one or both of the notices mailed to defendant constituted sufficient compliance with the statutory requirements of notice. It appears to be recognized by both sides that, unless there was compliance with the notice requirements of the statute, the Government is not entitled to prevail. See in this connection Merten's Law of Federal Income Taxation, Rev. § 49.131ff and § 49.146, and authorities there cited.

The statutory requirements of notice with which the Court is concerned may be found in sections 6212 and 6861 of the 1954 Internal Revenue Code and in sections 272 and 273 of the 1939 Code. As applicable to this case those sections provide in substance that when a jeopardy assessment is made notice thereof is to be mailed to the taxpayer within 60 days after the making of such assessment. Section 6212(a) authorizes the Secretary of the Treasury or his delegate to mail the notice to the taxpayer by means of registered or certified mail; and section 6212(b) provides, with an exception not here pertinent, that when the notice is mailed to the taxpayer's last known address, it is sufficient even though the taxpayer be dead or under legal disability. The notice serves the dual purpose of notifying the taxpayer of the Government's claim and of defining the period within which the taxpayer may apply to the Tax Court for relief. 26 U.S.C.A. § 6213(a).

It is settled that where the notice is sent by registered or certified mail to the taxpayer's last known address it is not necessary that the notice actually be received by the taxpayer. Nor is it necessary that the notice be sent to what is actually the taxpayer's "correct address." It is sufficient if it is sent to his "last known address." But a letter which is simply improperly addressed has no legal efficacy as a notice. Merten's op. cit. § 49.134.

In many instances the "last known address" of the taxpayer is the address shown on the return so that a mailing of a deficiency notice to that address will be sufficient. However, if, after the return is filed, the Government learns that the taxpayer has moved and has acquired a new address, the notice must be sent to that address. Maxfield v. Commissioner of Internal Revenue, 9 Cir., 153 F.2d 325; Commissioner of Internal Revenue v. Rosenheim, 3 Cir., 132 F.2d 677; Welch v. Schweitzer, 9 Cir., 106 F.2d 885; see also Annotation in 24 A.L.R.2d 800, 805ff.

When a notice of deficiency is to be given, the Commissioner is required to exercise ordinary care to ascertain the correct address of a taxpayer and to mail the notice to that address. Arlington Corporation v. Commissioner of Internal Revenue, 5 Cir., 183 F.2d 448, and other cases there cited.

Where the notice is sent by ordinary mail, as contrasted to registered or certified mail, and is not actually received by the taxpayer, it is plain that the notice is insufficient even though it may have been directed to the correct last known address of the taxpayer. Where the notice is so sent, however, and is in fact received by the taxpayer in time for him to seek a review of the Commissioner's determination by the Tax Court, the validity of the notice is not clear. Older cases, arising under the Revenue Act of 1924, generally held that actual receipt of an unregistered notice was insufficient. However, in later cases, arising under later statutes, including the 1939 and 1954 Codes, it has been held that the notice is sufficient when it is actually received by the taxpayer in time for him to take his case to the Tax Court. The problem is discussed in Boren v. Riddell, 9 Cir., 241 F.2d 670; see also Tenzer v. Commissioner of Internal Revenue, 9 Cir., 285 F.2d 965, and Merten's op. cit. § 49.133. The basis of the later holdings is that the older statute, section 274(a) of the Internal Revenue Act of 1924, 26 U.S.C.A. Int.Rev.Acts, provided that the taxpayer "shall be notified of [a] deficiency by registered mail," whereas under section 274(a) of the Internal Revenue Act of 1926 and under the 1939 and 1954 Codes the Secretary or his delegate is simply "authorized" to use registered (or certified) mail as a means of giving notice. It was thought in Boren that the change in statutory language was not without significance, and that "the heart of the taxpayer's right is to have actual notice, which enables him to petition his Government, if he so desires." (241 F.2d 672)*fn6

In many cases where the question of notice is involved the significance of that question lies in its limitation of a taxpayer's right to seek relief in the Tax Court. However, in the instant case the question of notice is of controlling importance because of the fact that if proper notice was not given, the assessment was invalid, and by virtue of section 6501(a) of the 1954 Code no new assessment could be made with respect to defendant's 1953 liability after a lapse of three years beyond the filing of the return in 1954 and after the lapse of such period no valid judicial proceeding could be instituted to collect the tax without assessment.

Taking up first the registered notice which was mailed to the wrong address in September 1955, it is the contention of the Government that although the "Apartado 53" address was in fact wrong, nevertheless it was the last address of defendant "known to the Government." As indicated, when defendant filed his return he authorized, suggested, or invited the Government to discuss his case with his father, and certain discussions in fact were held between the father and one or more agents of the Internal Revenue Service. It is claimed by the Government that in the course of a conversation between Internal Revenue Agent Wilson and Lehigh, Sr. the latter was requested by the former to supply him with defendant's Caracas address, and that Lehigh, Sr. gave him the "Apartado 53" address to which the registered notice was mailed. Based on this premise, the Government argues that it was justified in accepting the "Apartado 53" address and was, in fact, required to accept it, and that defendant in the circumstances was bound by the address furnished by his father, even if such address was incorrect. In other words the Government's contention as to the September notice is based on agency or estoppel.

In dealing with this contention the Court is willing to assume that in view of defendant's suggestion that the Internal Revenue Service discuss his tax problem with his father, he must have foreseen that an inquiry as to his Caracas address might be made of his father by a representative of the Government, and is willing to assume further that the Government had a right to accept as correct any address which Lehigh, Sr. might have supplied and to use that address in giving notice to defendant unless in the meantime it was put on notice that the address was incorrect.

The evidence is in conflict as to whether Lehigh, Sr. in fact gave Agent Wilson the "Apartado 53" address and is not satisfactory on either side. On direct examination Wilson stated positively that the address in question was supplied him by Lehigh, Sr. and that he had the address repeated to him several times so that he would make no mistake about it, that he wrote it down on a piece of paper,*fn6. In neither its trial brief nor in its post trial brief does the Government contend that it is entitled to prevail on the basis of any notice other than that purportedly given in the August and September, 1955, communications addressed to defendant. and that he incorporated it into his audit report which was introduced in evidence. On the other hand, he stated that he got the information while in Lehigh, Sr.'s accounting office examining returns of persons other than the taxpayer here involved; and that while the address given him by Lehigh, Sr. was incorporated in the audit report, that report was not prepared in Lehigh's office but in his own office in another building. Further, he testified that he obtained the address about the middle of June 1955, whereas the audit report was not prepared until August 9, 1955.

Lehigh, Sr.'s testimony was taken by deposition in September 1961, more than six years after he gave his son's address to Wilson, and it appears that Lehigh, Sr. had with the lapse of time forgotten defendant's correct address in Caracas. Asked what the address was, he stated first that it was "Apartado 5173;" he then corrected himself and said that it was "Apartado 5175." Both of those numbers were incorrect. He was positive, however, that whatever box number he gave Wilson contained four digits. He testified that he kept his son's address and the addresses of other members of his family written on a piece of paper or some other material which was pasted on the filing cabinet back of his desk; that Wilson did not look at the paper but called over to him from the desk where he was working on other returns; that when Wilson asked for the address Lehigh, Sr. "looked up there and found the address" and called back the address to Wilson; that he spelled out the Spanish words at Wilson's request; that he did not give Wilson the "Apartado 53" address; that it was not possible for him to have given only the first two figures of the box number; that he could not have made a mistake about it; that he had to look directly at the piece of paper on which the addresses were written.

There is no question in this case that the "Apartado 53" address was completely wrong. It was not defendant's address and never had been. On the other hand, there is no evidence whatever that Lehigh, Sr. deliberately gave Wilson an incorrect address, or that Wilson intentionally recorded a wrong address and thereafter used it in his audit report knowing, as an experienced agent, that it might be used in sending out a notice of deficiency.

Obviously, either Lehigh, Sr. by mistake gave Wilson the wrong address or by mistake Wilson recorded the wrong address. Understandably, neither Wilson nor Lehigh, Sr. is willing to concede that the mistake might have been his. The Court cannot say who made it. Lehigh, Sr. may have omitted to give the last two figures of the number 5375, or Wilson may have failed to hear the last two digits, or may have failed to write them down, or when he wrote his report he may have made a mistake in transcribing the figures which he had written originally.

Clearly, on this phase of the case at least, the burden is upon the Government to show that Lehigh, Sr. gave Wilson the incorrect "Apartado 53" address, and the Court cannot so find from a preponderance of the evidence. Hence, the Government cannot ...

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