# Petition — Haley v. United States

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition
- **Published:** January 1, 1979
- **Citation:** 440 U.S. 959

## Text

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In the
Supreme Court of the United States

OctToBER TERM, 1978

NO. 78

RICHARD K. HALEY, Petitioner

VS.

THE UNITED STATES OF AMERICA, Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE
SIXTH CIRCUIT

LEONARD W. YELSKY,

Attorney for Petitioner

P.O. ADDRESS:
340 Leader Building
Cleveland, Ohio 44114

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APPENDIX:

I.

II.

IIT.

Judgment and Opinion of United States Court of

Re ee re App.

Opinion of United States District Court for the

Southern District of Ohio, Eastern Division . . App.
Denial of Petition for Rehearing En Banc ... App.

. Denial for Stay of Mandate Pending Filing of Pe-

tition for Writ of Certiorari in United States Su-

ERR Se ey arate Se Be App.

. Application and Acceptance for Extension of
Time to File Petition for Writ of Certiorari ...App. ‘

. Amendment V—United States Constitution . .. App.
Title 26 U.S.C. Section 6212 (a)(b)(1) 22... App.
Title 26 U S.C. Section @213 ..... 2)... 0. App. :

TABLE OF AUTHORITIES

Cases:

Federal:

Arlington Corporation v. Commissioner, 183 F.2d 448
cs TE ROA Aa nn per ee rea eee ee 8

Clodpelter v. Commissioner, 527 F.2d 754 (9th Cir.
EE STOUT they SHON WE ech oe ole kee steer 7

Commissioner v. Stewart, 186 F.2d 239 (6th Cir. 1951... 7
Delman v. Commissioner, 384 F.2d 929 (3rd Cir. 1967).. 8

Expanding Envelope & Folder Corp. v. Shotz, 385 ¥.2d

ee CO IPE ieikice es ch path face sine SOS pie S03 8
Estate of Francis P. McKaig Jr., 51 T.C. 331 (1968) .... 8
Flora v. United States, 357 U.S. 63 (1958) ............ S)
Laing v. United States, 423 U.S. 161 (1976) ........... 7

Tenzer v. Commissioner, 285 F.2d 956 (9th Cir. 1960)... 8

Statutes:
Federal:
er) Mee IS er She das ie hy es 3
me Was. SUPOOPE) oo5caeS iv ccThea kee 3, 5,6, 7,8
Be Ss PE hn eS vais 0g o00 0s bers ebees ane ae

RUSE. FIGs... eee 2

In the
Supreme Court of the United States

OctToBerR TERM, 1978
NO. 78
RICHARD K. HALEY, Petitioner

VS.

THE UNITED STATES OF AMERICA, Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS FOR THE
SIXTH CIRCUIT

LEONARD W. YELSKY,
Attorney for Petitioner
P.O. ADDRESS:
340 Leader Building
Cleveland, Ohio 44114

OctoBer TERM, 1978

RICHARD K. HALEY, Petitioner,

VS.

THE UNITED STATES OF AMERICA, Respondent

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE
SIXTH CIRCUIT

Petitioner, Richard K. Haley, respectfully prays that a Writ
of Certiorari issue to review the judgment of the United States
Court of Appeals, Sixth Circuit, affirming the judgment of the
United States District Court for the Southern District of Ohio,
Eastern Division, which imposed an Internal Revenue Service
tax assessment contested by Petitioner as being invalid for fail-
ure to give the required statutory Notice of Deficiency.

2

OPINION BELOW

The opinion of the United States Court of Appeals, Sixth
Cirenit, was unreported at time of writ and appears in Appen-
dix (A) at page 1.

The opinion of the United States District Court: for the
Southern District of Ohio is reported in 76-2 U.S.T.C. 9683
(1976) and appears at 2.

JURISDICTION

The judgment of the United States Court of Appeals, Sixth
Cirenit, was entered July 6, 1978S (A-1). A) Petition for Re-
hearing en bane was denied August 15. L978 (A-1S). Motion
for Stay of Mandate Pending Filing of Petition for Writ of
Certiorari in United States Supreme Court was denied August
28, 19TS (A-19). The mandate of the United States Court of
Appeals, Sixth Circuit, was officially docketed September 6.
I9TS. Petitioner's request. to Certify. Entire Record to. the
United States Supreme Court was docketed ino the United
States Court of Appeals, Sixth Circuit, October 19, 1978.

Petitioners application to the United States Supreme Court
for an Extension of Time to File Petition for Writ of Certiorari
Was presented to Miro Justice Stewart on October 4, LOTS and
an Order was entered extending the time to and including De-
cember 5, LOTS ( A-20),

The jurisdiction of this Court is invoked under 28 U.S.C.
125401), Petitioner having received final judgment ina civil
case froma Courtof Appeals on an issue addressing the in-
lerpretation and application of federal law to the prejudice
Of Petitioner.

QUESTION PRESENTED

WHETHER THE INTERNAL, REVENUE SERVICE SAT-
ISEIES TES STATUTORY OBLIGATION TO GIVE NO-
TICK OF DEFICIENCY TO A TAXPAYER (26 U.S.C. §

3

6212(b)(1)), WHERE THE REVENUE AGENT IN
CHARGE OF AUDITING A TAXPAYER TAS ON FILE A
POWER OF ATTORNEY DIRECTING ALL CORRESPON-
DENCE BE SENT TO TIS ATTORNEY IN FACT AND
ACTUAL KNOWLEDGE OF TAXPAYER'S CURRENT AD-
DRESS. BUT SENDS NOTICE OF DEFICIENCY TOA
DEFUNCT MALLING ADDRESS AND PRIS RETURNED
UNDELIVERED?

CONSTITUTIONAL PROVISIONS
MIFTIL AMENDMENT. UNITED STATES CONSTETU-
TION (A-13),

STATUTES INVOLVED

TITLE 26 U.S.C. $ 6212 Gad and (bd 1) CA-2D). TELE
96. U.S.C), $ 6213 ( A-22).

STATEMENT OF THE CASE

The 1968 and 1969 Federal Income ‘Tax returns of Petitioner,
Richard K. Haley, D.O.. were simultaneously audited by rev-
enne agent. Kathryn Leggett. Petitioner retained Harold t.,
Libby. a certified public accountant and tay attorney, to rep-
resent hime in these matters. \ Power of Attorney was filed with
the Service. directing all correspondence addressed to. Peti-
tioner be sent to Miro Libby as his designated attorney-in-fact,
\ tay deficiency determined by agent Leggett for the vear 1969
was contested by Miro Libby by Appeal to the Internal Revenue
Service. A substantial settlement was reached on Petitioner's
purported 1969 tay liability. Htis the L9GS deficiency which is
the subject matter of this Petition.

Revenue agent Leggett informed Vio Libby that she would
contact him regarding her conclusions on the L968) audit.
Though agent Leggett did contact Vivo Libby with regard to
the 1969 audit. she did not do so reqarding any 1968 tax Ti-
ability. Nov did agent Leggett. or any member of the Internal

4

Revenue Service, give actual notice to Petitioner of a tax de-
ficiency for 1968.

Petitioner's personal residence was located at 5025 Warner
Road, Westerville, Ohio. This location is also known as 5858
Edlor Drive, Westerville, Ohio. In 1968 and 1969, Petitioner
had experienced vandalism problems with his mailbox at his
home residence. His postman suggested the use of his office
address. In 1969, Petitioner filed the appropriate form with the
Westerville Postmaster to have all of his mail delivered to his
office address at 1248 S. High Street, Columbus, Ohio. Revenue
agent Leggett was knowledgeable of this address. She knew
Petitioner conducted an active medical practice at the S$. High
Street office. Agent Leggett had physically conducted part of
her investigation at Petitioner's office address.

In the fall of 1972, Petitioner executed a waiver extending
the statute of limitations for the Internal Revenue Service to
contest his tax liability for the year 1968 until June 30, 1973.
Petitioner did not receive the waiver in the mail. His accoun-
tant, Mr. Libby, delivered it to his office on S. High Street.

On June 14, 1973, a statutory notice of deficiency for the
vear 1968 was mailed to Petitioner at 5858 Edlor Drive, West-
erville, Ohio, The notice was returned to the Internal Revenue
Service marked, “No Mail Receptacle, Order Expired 6-16-73.”
On June 20, 1973, the International Revenue Service official
charged with mailing such notices, Mir. Spaeth, called Revenue
Agent Leggett for a better address. Agent Leggett testified be-
fore the District Court that “normally we would give the busi-
ness address if we don't have a good residence address.” In the
case of Petitioner. she provided the Warner Road address only.
A second notice was sent to 5025 Warner Road. [t was un-
disputed that the Warner Road and Edlor Drive addresses are
in fact the same residence. Consequently, the second notice
was also returned to the Service marked, “No Mail Receptacle,
Order Expired.” The statute of limitations for initiating a tax

5

liability against Petitioner, addressing the vear 1968, termi-
nated on June 30, 1973.

It was stipulated by the parties that Petitioner never re-
ceived actual notice of deficiency within the time prescribed by
law. The Internal Revenue Service never sent a statutory No-
tice of Deficiency to Mr. Libby although a Power of Attorney
had been filed by him with the Service. The Internal Revenue
Service never sent a statutory Notice of Deficiency to Peti-
tioner’s business office on S. High Street, or made any attempt
to contact him at his office regarding the purported deficiency.

Petitioner did not know the government was deposing a
deficiency for 1968 until well after the time for petitioning
the United States Tax Court had expired. A formal assessment
was entered against Petitioner rendering him a tax debtor sub-
ject to collection process. The Internal Revenue Service used
Petitioner's business address for the assessment. The Internal
Revenue Service also used the S. High Street address to per-
fect service on the Complaint issued against Petitioner in the
herein matter.

The United States of America, Respondent, initiated civil
action in District Court to collect the assessed income tay li-
ability against Petitioner, The matter was tried on January 5,
1976. Petitioner argued that the assessment for additional tax
due for the calendar vear 1968 was not lawful; that he never
received the statutory Notice required to be sent to his “last
known address” under 26 U.S.C. § 6212(19) (1): that a proper
notice of deficiency would have enabled him to contest the al-
leged tax liability on the merits in the United States Tay Court
as he had successfully done with his alleged 1969 deficiency:
and that through no fault of his own, he was rendered a tay
debtor for the sums purportedly owed without benefit of pe-
tition to the Tax Court under 26 U.S.C. § 6213(a). Petitioner
also contended that the failure of the Internal Revenue Service
to give statutory notice of deficiency within the time allotted

6

by the statute of limitations rendered a deficiency suit for 1968
time-barred,

The District Court found that the Internal Revenue Service
complied with its minimum statutory duty under 26 U.S.C,
» 6212 b)( 1); that statutory notice of deficiency did not re-
quire notice to be sent to a taxpayer's best address, but only
to the address which, under the circumstances, the Internal
Revenue Service reasonably understood the taxpayer wished
the notice to be sent.

The Court of Appeals affirmed the District Court's determi-
nation. It is from these adverse decisions that Petitioner seeks
reliet,

REASONS FOR GRANTING WRIT

i), The Sixth Circuit has interpreted and applied the sta-
tutory obligation of the Internal Revenue Service to give No-
tice of Deficiency to a taxpayer (26 U.S.C. § 6212(b)(1)) in
a manner which conflicts with the policy of law construed by
other Circuit Courts; and,

ii). The interpretation and application of 26 U.S.C. $6212
(bi( 1) addresses an important question of federal law which
has not been, but should be, settled by this Court.

ARGUMENT

THE INTERNAL REVENUE SERVICE DOES NOT SAT-
ISEY TES STATUTORY OBLIGATION TO GIVE NOTICE
OF DEFICIENCY TO A TAXPAYER, UNDER 26 U.S.C. §
6212;b). 1), WHERE THE REVENUE AGENT IN CHARGE
Ok AUDITING A TAXPAYER HAS ON FILE A POWER
OF VEPORNEY DIRECTING ALL CORRESPONDENCE
Blo SENT TO HUIS ATTORNEY IN FACT AND ACTUAL
KNOWLEDGE OF TAXPAYER'S CURRENT ADDRESS,
BUT SENDS NOTICE OF DEFICIENCY TO A DEFUNCT

7

MAILING ADDRESS AND IT IS RETURNED UN-
DELIVERED.

The Sixth Circuit's interpretation and application of 26
U.S.C. § 6212(b)(1) held that the Internal Revenue Service
satisfied its statutory obligation to give a taxpayer Notice of
Deficiency where such notice was not sent to the taxpayer's
“best” address, known to the Service, but was sent to a de-
funct mailing address previously used by the taxpayer and re-
turned to the Service undelivered. The Sixth Circuit's con-
struction of 26 U.S.C. § 6212(b)(1) conflicts with the in-
terpretation and application found by other Circuit Courts and
is contrary to the policy of law suggested by the United States
Supreme Court regarding a taxpayer's opportunity to petition
the Tax Court for redetermination prior to assessment of a tax
liability,

The legislative plan for notifying a taxpayer of deficiency
has been found to contemplate that actual notice of the de-
ficiency should be given where such can reasonably be
achieved Clodpelter v. Commissioner, 527 F.2d 754 (9th Cir.
1975).

The purpose of the actual notice contemplated by the leg-
islative plan is to allow for application for redetermination
under 26 U.S.C, § 6213, and thereby give the taxpayer the
opportunity to have the Commissioner's ruling reviewed by the
Tax Court before it becomes effective, Commissioner v. Ste-
wart, 186 F.2d 239 (6th Cir, 1951). As the High Court noted in
Laing v. United States,

“Denial of an opportunity to litigate in the Tax Court is
out of keeping with the thrust of the code, which general-
lv allows income taxpavers access to that court.” 423
U.S. 161 (1976),

In keeping with the statutory purpose, it has been generally
held that the words “last Known address” in Subsection (b) (1)
of 26 U.S.C. § 6212, should not be construed as creating a

8

mandatory address to which Notices of Deficiency must be
sent. Delman v. Commissioner, 384 F.2d 929 (3rd Cir. 1967).
Where a taxpayer files with the Internal Revenue Service a
Power of Attorney directing all correspondence be sent to his
designated attorney-in-fact, it has been found that the tax-
payer gave his “last known address” for.purposes of 26 U.S.C.
§ 6212 (b)(1). Expanding Envelope & Folder Corp. v. Shotz,
385 F.2d 402 (3rd Cir. 1967).

“We think that when a taxpayer, through a duly executed
and filed power, gives instructions such as those here
given, he is in effect giving the Service a last known ad-
dress for Section 6212 purposes. It is an address where he
explicitly indicates he is likely to receive the notice,” Id
at 404,

Similarly, technical construction against the taxpayer has
been found to be inappropriate where the purposes of the
statutes have not been fulfilled through no fault of the tax-
payer. Tenzer v. Commissioner, 285 F.2d 956 (9th Cir. 1960).
A statutory duty has been imposed on the Commissioner to
exercise reasonable care and diligence in ascertaining and mail-
ing a deficiency notice to the correct address of the person or
persons to whom the statutory notice must be sent. Arlington
Corporation v. Commissioner, 183 F.2d 448 (5th Cir. 1950);
Estate of Francis P. McKaig Jr., 51 T.C. 331 (1968).

In the case at bar, the decision of the Sixth Circuit does not
comply with the policy of law mandated in other circuit courts,
or that suggested by the United States Supreme Court, re-
garding the statutory obligation of the Internal Revenue Serv-
ice effecting notice of deficiency to a taxpayer. Contrary to
the findings in other circuits, the Six Circuit held that 26 U.S.C.
§ 6212(b)(1) did not require notice of deficiency be sent
to the “best” known address of a taxpayer or to the taxpayer's
attorney-in-fact, even though the notice was returned to the
Service undelivered. The holding is clearly at odds with the
legislative plan of affording a taxpayer procedural due process

9

by way of petition to the Tax Court before a deficiency ruling
becomes an effective tax assessment.

In Flora v. United States, 357 U.S. 63 (1958), the High
Court noted the clear and distinct line between Tax Court
jurisdiction and District Court jurisdiction in a refund suit.
While the facts are not controlling in the herein matter, the
Court’s holding is instructive for purposes of construing the
legislative intent of affording a taxpayer procedural due pro-
cess in the Tax Court prior to effecting a tax assessment against
him. The Court’s narrow holding of law provided that full pay-
ment of a tax assessment may be compelled only where a de-
ficiency had been noticed, that is, only where the taxpayer
had access to the Tax Court for redetermination prior to pay-
ment.

CONCLUSION

Based on all of the foregoing arguments, Petitioner, Richard
K. Haley, respectfully requests that his Petition be granted.

Respectfully submitted,

LeonaARD W. YELSKY,
Attorney for Petitioner

340 Leader Building
Cleveland, Ohio 44114
(216) 781-2550

10

PROOF OF SERVICE

The undersigned certifies that a true and correct copy of
the within Petition for Writ of Certiorari has been served upon
William W. Milligan, United States Attorney, $5 > Marconi
Blvd. Columbus, Ohio 44315, the Solicitor General, United
States Dept. of Justice, Washington, D.C, 20530, and Scott
Crampton, United States Dept. of Justice, Washington, D.C.
20530, and Phillip [. Brennan, United States Dept. of Justice,
Washington, D.C, 20530, postage prepaid, on this --— day
of December, 1978.

Leonanp W. YELSKY
Counsel for Petitioner
340 Leader Building
Cleveland, Ohio 44114
(216) 781-2550

APPENDIX
76-2679

UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT

UNITED STATES OF AMERICA,
Plaintiff-Appellee

Vs.

RICHARD K. HALEY,
Defendant-Appellant

Before; EDWARDS, LIVELY and ENGEL, Circuit Judges

Richard K. Haley, an osteopathic physician, appeals from a
judgment entered against him and in favor of the United States
in the district court for income tax deficiencies for the years
1968 and 1969, and interest and penalties accruing thereon, In
his appeal Haley asserts that the assessment for additional tax
due for the calendar year 1968 was not lawful since he failed
to receive the statutory notice which was required to be sent
to him at his last known address. 26 U.S.C. 86212(b)(1). He
claimed that a proper notice would have enabled him to have
pursued relief in the United States Tax Court without first pay-
ing the sums claimed due, instead of being required to pursue
the allegedly impossible task of paying the monies due to the
Internal Revenue Service as a condition precedent to his right
to an action in the district court for refund. See generally 26
U.S.C. §§ 6213, 7422.

In his opinion accompanying the final judgment, the district
court found that the defendant's residence was at all relevant
times 5025 Warner Road, Westerville, Ohio, which was also
described from time to time as 5858 Edlor Drive. The defen-
dant consistently employed these addresses in his correspon-
dence with the government regarding the 1968 tax vear, in-
cluding the waiver forms which extended the limitations on
any government deficiency action to fine 30, 1973.

It appeared from the proots, as found by the district court,

App. 2

that a statutory notice of deficiency for 1968 was mailed on
June 14, 1973 to Haley at the 5858 Edlor Drive address and
pon its return by the post office, was readdressed and remailed
to him in timely fashion on June 20, 1973 at the 5025 Warner
Road address. Neither attempt was successful in giving actual
notice to the taxpayer, who argues that the suit for deficiency
for 1968 is time-barred. The district judge, while holding that
each case must necessarily rest pon its own facts, found gui-
dance in this court's decision in Williams v, United States, 264
F, 2d 227 (6th Cir.), cert. denied, 361 U.S, 862 (1959), and
correctly held that there was a sufficient compliance with the
mailing procedures authorized by the Internal Revenue Code.

Appellant claims that the Service improperly disallowed cer-
tain deductions for the calendar years 1971 and 1972 and their
carry-back to 1968 and 1969. The deductions represented al-
leged net operating losses incurred in the operation of a farm
and a private flying service. Upon review it is apparent that
these claims are entirely without merit. Accordingly,

IT IS ORDERED that the judgment of the district court is
affirmed,
ENTERED BY ORDER OF THE COURT

John P. Helman
Clerk

App. 3

In The

UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF
OHIO, EASTERN DIVISION

NO, C-2-74-488
UNITED STATES OF AMERICA, Plaintiff
VS.

RICHARD Kk. HALEY, Defendant

[* 9683] United States of America, Plaintiff v. Richard K.
Haley, Defendant. U.S. District Court, So. Dist. Ohio, East.
Div., C-2-74-488, 9 14/76.

(Code Secs. 172, 6213 and 7401)

Suits by U. S. Prima facie correctness of assessment: Notice
of deficiency: Last known address; Net operating loss: In-
active business.—In mailing deficiency notices to both addresses
provided (without clear indication that another address was
preferred) by the taxpayer with respect to the year in question,
the IRS complied with its statutory duties, and the deficiency
assessment for the tax year 1968 was effective. The statute does
not require that notice be sent to taxpayer's best address, but
only to that which, under the circumstances, the IRS reason-
ably understood that the taxpayer wished the notice to be sent.
The Court held further that taxpayer was not entitled to a net
operating loss for his farming or aviation activities since
neither activity constituted a trade or business, and may not
serve to reduce taxpayer's tax liability for the tax years 1968
and 1970, Therefore, the Court concluded that the taxpayer
had failed to establish by a preponderance of the evidence that
the deficiency, assessment for the taxable vear levied against
him was factually incorrect. Back references; § 1921,5043,
59322.5218 and 5752.53.

App. 4

OPINION AND ORDER

Kinneary, District Judge: This is a civil action brought by
plaintiff, the United States of America, pursuant to Title 26.
United States Code, Section 7401, to reduce to judgment the
assessed income tax liability of the defendant, Richard K.
Haley, for the tax years 1968 and 1969. The matter was tried
to the Court on January 5, 1976 and, in accordance with Rule
52 of the Federal Rules of Civil Procedure, the Court makes
the following findings of fact and conclusions of law.

FINDINGS OF FACT
The defendant, Richard K. Haley, is a practitioner of osteo-
pathic medicine with a specialization in endocrinology. Many
of Dr. Haley's patients suffer from obesity, for which Dr.
Haley offers treatment.

The plaintiff claims that the defendant is indebted to it in
the amount of $126,724.39, plus interest and penalties for un-
paid federal income taxes by virtue of admitted liabilities on
his 1968 and 1969 income tax returns, and by virtue of a de-
ficiency for the year 1968. A delegate of the Secretary of the
Treasury made assessments against the defendant for unpaid
federal income taxes, for a deficiency with respect to income
taxes for the year 1968 and for penalties and interest. Notice
of assessment and demand for payment were made upon the
defendant, but the amount remains unpaid.

The defendant's residence address was, during all relevant
times, 5025 Warner Road, Westerville, Ohio. This location is
also known as 5858 Edlor Drive, Westerville, Ohio. The de-
fendant testified, however, that his mailing address was at all
relevant times 1248 South High Street, Columbus, Ohio—the
location of his office.

The defendant explained that his mailing address differed
from his residence address because it was more convenient to
receive mail at his office and because vandals had destroyed
his residence mailbox twice. After once replacing the mailbox

7

App. 5

at his residence address, the defendant decided to change his
mailing address. He filed a change of address form with the
Westerville post office in 1969 and he testified that, to the best
of his knowledge, it was current in June of 1973.

The defendant testified that he received mail at his office
address and that, to his knowledge, he never received any mail
at his residence address after filing the change of address form.
Further, he testified that he received other mail from the In-
ternal Revenue Service at his office address.

The government introduced into evidence a waiver form
extending the statute of limitations for the year 1968 to De-
cember 31, 1972, signed by the defendant, and dated March,
1972. The address indicated on this waiver form was 5858 Ed-
lor Drive, Westerville, Ohio. Also introduced into evidence
was another waiver form extending the statute of limitations to
June 30, 1973 executed by the defendant in the fall of 1972.
The address indicated on that form was 5025 Warner Road,
Westerville, Ohio. The defendant testified that he did not re-
ceive the second waiver form in the mail but that his accoun-
tant, Mr. Harold Libby, delivered it personally to defendant's
office and that the defendant then signed it.

On June 14, 1973 a statutory notice of deficiency for the tax
vear 1968 was mailed to the defendant at 5858 Edlor Drive,
Westerville. Ohio. That notice was returned to the Internal
Revenue Service in Cincinnati marked “No Mail Receptacle.
Order Expired 6-16-73,”

On June 20, 1973 a second statutory notice of deficiency for
the year 1968 was sent to the defendant at 5025 Warner Road,
Westerville, Ohio. This notice was returned marked “No Mail
Receptacle, Order Expired.”

Revenue Agent Kathryn Leggett testified that when the
first notice was returned a member of the technical review staft
of the Internal Revenue Service in Cincinnati contacted her
for a better address, Not realizing that the Warner Road ad-

App. 6

dress was the same as the Edlor Drive address, Ms. Leggett
suggested the Warner Road address and the second statutory
notice of deficiency was [were] sent. After the second notice
of deficiency was returned, Ms. Leggett apparently did not sug-
gest the defendant's business address, although she testified
that it is her normal practice to provide a business address if a
yood residence address is not available.

The defendant testified that he never received a statutory
notice of deficiency for the tax year 1968.

The defendant introduced into evidence copies of his income
tax returns for the years 1971 and 1972, the first listing his ad-
dress as South High Street, Columbus, Ohio and the second
indicating the Warner Road address. Also introduced into evi-
dence by the defendant is the notice sent to the defendant by
the Internal Revenue Service indicating the inceme tax audit
changes for the tax year 1968, That notice, dated April 6, 1972,
lists the defendant's address as 5858 Edlor Drive, Westerville,
Ohio.

At trial, the defendant also introduced into evidence several
hundred cancelled checks claimed by him to reflect deductible
expenses incurred in connection with his medical practice dur-
ing the vear 1968. The defendant failed to produce invoices
evidencing the usderlying obligations for which each check
was issued, claiming that most of his records were subsequently
destroyed through no fault of his own, More importantly, how-
ever, the defendant failed to testify with respect to the purpose,
payee or circumstances surrounding the overwhelming ma-
jority of claimed deductions.

On cross-examination, it became clear that not every check
repreyented legitimate business deductions and that at least
certain purchases expensed in the vear 1968 would more prop-
erly be characterized as capital items subject to depreciation
over the useful life of the items,

In 1965 the defendant purchased a one hundred acre tract

App. 7

of land located in Delaware County, Ohio. From the date of
purchase until 1968, the defendant cut weeds on the property
in order to keep the land presentable. He testified that although
he purchased the property for the purpose of engaging in the
business of farming, he did not have the farm equipment
needed to properly farm the land.

In 1968, the defendant purchased a three hundred acre tract
of land also located in Delaware County, Ohio, During that
same vear, he also purchased large farm equipment.

During his spare time in 1969, the defendant and his eight
vear old son planted sovbeans on two hundred and ten acres
of the three hundred acre tract of land. The defendant har-
vested the crop which vielded over 5,000 bushels of soybeans,
The crop was stored in a metal bin on the property and was
sold the following summer to a mill in Delaware County for
approximately $7,200.00,

In 1970 the defendant again planted the same acreage with
soybeans, He testified that he hired a man to harvest the crop
and had given the man orders to store the soybeans in. the
metal bin for storage. The defendant testified that he did not
know the vield of the crop that vear and that the hired man
stole the entire crop. The defendant has been unable to recover
either the crop or its proceeds,

The defendant testified that only two hundred and ten acres
of the one farm were tilled because, with his medical practice,
he did not have enough time to farm more acreage, Te also
testified that he visited the farm only once every couple of
months, He testified that he kept records of purchases and
sales but that he was unable to produce them at trial,

The defendant testified that he was born and raised ona
farm, and that before purchasing the acreage he consulted
several sources as to the profitability of the farms, Tle insisted
that his intent in purchasing the farms was to operate them: as

App. 8

a business and to make a profit. The defendant testified that
although the one farm produced a cash income, neither farm
produced a profit during the period that he owned them, He
further testified that, had he been able to continue to operate
the farms, he expected to make a profit,

The one hundred acre tract of land was foreclosed upon in
1971. No crops had ever been planted on the property by the
defendant.

The three hundred acre tract of land was foreclosed upon
by the mortgagee in 1972, It was defendant's recollection that
only one payment had been made on the loan,

In 1966 the defendant purchased and financed a one pro-
peller aircraft capable of seating six persons, The aircraft was
modified by the addition of certain navigational instruments
in order to make the aircraft serviceable for charter,

The defendant made arrangements with local pilots to char-
ter the plane in exchange for an hourly rate of pay, This charter
service was not incorporated but was a sole proprietorship, The
defendant apparently took no active part in the operations of
the charter service and no attempts were ever made to attract
business beyond those made by the various pilots, The charter
‘ate was $.25 per mile, which amount was paid to the pilot by
the person chartering the aircraft, Sometime after the initial
purchase of the original aircraft, according to the defendant,
he instituted a flying school comprised of a number of aireratt
kept in rental space in the terminal at Port Columbus, Tnstrac:
tors were made available to teach students,

The defendant was unable to recall at trial how many char
tered flights were made during the time that he carried on this
activity, although he did state that some chartered fights were
made, He stated that he did keep records of the charter ac
tivities, but he was unable to reeall even generally either the
income generated by the wetivity or the expenses incurred,

App. 9

The defendant testified that, at the time of the purchase of
the aircraft, he was not a qualified pilot, Sometime after the
purchase, however, he obtained his pilot's license, The de-
fendant stated that there were occasions on which he used the
aircraft for personal reasons, However, on such occasions, ac:
cording to the defendant, he paid rent (presumably to himself)
for the use of the aircraft,

In 1971 the finance company foreclosed upon the aircraft.
The defendant testified that had he continued to operate the
airplane charter service, he believed that he could have made
a profit,

DISCUSSION

A, The Deficiency Notice for the Tax Year 1968. The parties
to this action have stipulated that two notices of deficiency for
the tax year 1968 were mailed to the defendant, Both were re-
turned undelivered and the defendant now argues that neither
notice constituted an effective statutory notice of deficiency,

Title 26, United States Code, Section 6212 does not require
that notice of deficiency actually be received by the taxpayer
Hut, rather, merely requires that the notice be sent to the tax:
paver’s last known address by certified ov registered mail, Lul-
ring v. Glotsbach [62-2 usc '9548), 304 F, 2d (Ath Cir,
1962), 5 Rabkin & Johnson, Federal Income, Gift and Estate
Taxation 97105 (1976), Although the term “list known ad-
dress” is not statutorily defined, many courts have attempted
to give the term: substantive meaning, The court in Berger ev.
Commissioner (69-1 este ©9103] 404 FB, 2d BBS (3d Cir, 1968),
for example, defined the term as “an address to which the
Commissioner in all cireumstinees may reasonably believe the
taxpayer wishes the notice sent.” Accord, Kennedy ev, United
States [76-1 usve £9229) 408 FP) Supp. 619 CW. D. Mich,
1975),

The determination of a taxpayer's last known address must

App. 10

necessarily depend upon the facts of each case. Butler v. Dis-
trict Director of Internal Revenue [74-1 ustc 9113], 369 F.
Supp. 1281, 1283 (S. D. Tex. 1973). Ordinarily, a notice of de-
ficiency is sent to the address of the taxpayer as shown on his
return for the year in question, Luhring v. Glotzbach, supra,
304 F, 2d at 558, “However, if after the return is filed, the Gov-
ernment learns that the taxpayer has moved and has acquired
a new address the notice must be sent to that address,” Butler
tv, District Director of Internal Revenue, supra, 369 F. Supp.
at 1283,

In his tax return for the year 1968—the tax year in question
=the defendant used 5858 Edlor Drive as his address, Ordi-
narily, this address would be the proper address to which the
statutory notice of deficiency is sent. Indeed, the first notice
of deficiency was sent to this address, Subsequent to the filing
of that return, however, the defendant used other addresses in
his dealings with the Internal Revenue Service, For example,
defendant's tax return for the year L971 listed South High
Street in Columbus as his address, but both of the waiver forms
relating to the tax year 1968 and signed by the defendant indi-
cated a Westerville address,

The defendant argues that, when the Internal Revenue Serv:
ice learned that neither of its prior mailings of the deficieney
notice reached him, it should have sent vet a third notice of
deficieney to defendant at his business address,

It is undisputed that the Warner Road and Edlor Drive ad-
dresses are the same and that the defendant not only did reside
at those addresses at the time the notices were mailed, but that
he still resides there, Tt appears that none of the government
personnel were aware, at the time of the mailing of the notices,
that the two addresses were for the same residence, Delivers
was attempted at the defendant's home, but because the de-
lendant had earlier voluntarily removed the mail receptacle
from his residence, delivery could not be completed, Further,
the defendant's use of three different addresses in his dealings

App. ll

with the Internal Revenue Service served to obscure his de-
sired mailing address rather than to clarify it, While knowing
that mail would not be delivered to his residence address, the
defendant continued to use it in his dealings with (he govern-
ment without informing its agents of the situation, In all of
his correspondence with the Internal Revenue Service with re-
spect to the tax year 1968, it appears that the defendant con-
sistently used either the Warner Road or the Edlor Drive
addresses,

The parties have not directed this Court's attention to a
single authority in which this precise factual situation is pre:
sented and the Court, in its own research, has found none, Al-
though the determination of the issue of a taxpayer's “last
known address” must necessarily turn upon the facts presented
in each case, this Court finds some guidance in Williams e,
United States [59-1 usre £9282), 264 F. 2d 227 (6th Cir,
1959), In that case, the Commissioner had sent the notice of
deficiency to the taxpayer in care of and at the address of the
attorney in fact as required and directed in the power of at-
torney on file with the Service, The attorney returned the notice
to the District Director, advising him that the attorney's
power had been revoked by the death of the taxpayer, The
Court of Appeals held the notice to be effective despite the fact
that the District Director had in his files a residence address
and a business address of the taxpayer, 264 F, 2d at 228,

While we must agree with appellants that here the Di-
rector did not exert himself to see that the notice of de-
ficiency reached proper hands, still we cannot say there
was not minimum compliance with the mailing procedure
authorized by 9621200), Cb) C1) of the Toternal Revenue
Code,

264 F. 2d at 229,

This Court is of the opinion that the government met the
statutory requirements in mailing the notices of deficiency, The
statute does not require that notice be sent to taxpaver's Dest

App. 12

address, but only to that which, under all the circumstances, the
Internal Revenue Service reasonably understood that the tax-
payer wished the notice to be sent. In mailing the notice of de-
ficiency to both of the addresses provided (without clear in-
dication that another address was preferred) by the taxpayer
with respect to the tax year in question, the Internal Revenue
Service complied with its statutory duties, and the deficiency
assessment for the tax year 1968 is therefore effective.

B. The Deficiency Assessment for the Tax Year 1968. The
deficiency assessment levied against the defendant for the tax
vear 1968 is presumptively correct and certification of the as-
sessment to the Court establishes a prima facie case of the li-
ability reflected therein. Gromacki v. Commissioner [66-1 ustc
“9414], 361 F. 2d 727 (7th Cir. 1966). The burden is placed
upon the taxpayer to establish, by a preponderance of the evi-
dence, that the assessment is erroneous. Bar L Ramch, Inc. t.
Phinney [70-1 ustc 9399], 426 F. 2d 995 (5th Cir. 1979);
Rogers v. Commissioner [40-1 ustc 19459], 111 F. 2d 987 (6th
Cir. 1940); J. Mertens, The Law of Federal Income Taxation
§ 49.218; 5 Rabkin & Johnson, supra §73.03.

The defendant introduced into evidence over five hundred
checks reflecting expenditures by him in excess of $110,000.00
(most, but not all of which related to 1968). The defendant
testified that each check relates expenses incurred in the course
of his medical practice during the tax year 1968, and he argues
that the deficiency assessment is erroneous. The defendant
further contends that, since the government did not introduce
any contradictory evidence at trial, the facts supported by the
defendant's evidence must be regarded as established,

As the defendant correctly argues, unchallenged evidence
presented by the taxpayer is sufficient to overcome the pre-
sumption of correctness enjoyed by the government's deficiency
assessinent, Llowever, merely because the government does not
affirmatively refute each item claimed by the taxpayer as a

App. 13

deduction, this Court is not compelled to accept the taxpayer's

claims.
We have repeatedly held that the taxpayer has made out
his case when he has put in proofs, “clearly and distinctly
tending to show” a determinating fact. . .. The presump-
tion that the Commissioner is right is procedural and can-
not survive such proofs unless they are challenged by con-
trary proofs, or destructive analysis and we have gone so
far as to say that the taxpayer’s affirmative evidence may
itself contain the necessary challenge and furnish the ma-
terial for such analysis.

Lunsford v. Commissioner [3 usre © 1037], 62 F. 2d 740, (6th

Cir. 1933).

While the plaintiff did not accomplish, or even attempt, the
virtually impossible task of presenting affirmative evidence
tending to directly contradict each of the defendant's multi-
tudinous claimed deductions, cross-examination of the de-
fendant revealed that not every item claimed by the defendant
on direct examination represented a legitimate business de-
duction. For example, the defendant admitted that checks
made payable to the Westerville Jaycees and to Playboy Mag-
azine were for personal use, although they are included in the
group of checks claimed by him on direct examination to rep-
resent payment of dues and subscriptions incident to his medi-
cal practice. Likewise admitted to be a personal expense is a
check made in payment for defendant's eyeglasses but included
in the group of checks claimed by the defendant on direct ex-
amination to represent expenses for the purchase of drugs and
professional service. Thus the cross-examination of the de-
fendant cast a severe doubt upon the accuracy and reliability
of defendant's claims. Further, the character, demeanor and
answers of the defendant while on the witness stand lead this
Court to find that the defendant's testimony is entitled to little
credibility. Finally, the testimony of Revenue Agent Leggett,
both on direct and cross-examination, failed to undermine the

App. 14

procedures followed by her in her determination of the de-
fendant’s tax liability for the year 1968. Other than the can-
celled checks and stubs, the defendant failed to produce any
records whatsoever in support of his claims, and his recollec-
tion of the circumstances surrounding the issuance of each
check was minimal, at best.

In short, it is the view of this Court that the defendant has
tailed to establish by a preponderance of the evidence that
the deficiency assessment is incorrect.

C. Carryback Losses for the Tax Years 1968 and 1969. The
defendant argues that he experienced net operating losses for
the tax years 1971 and 1972, due primarily to the losses arising
from the forced dispositions of his two farms and airplane, and
that such losses must be carried back to the tax years 1968 and
1969, respectively, and thus serve to reduce his tax liability for
those two years.

Title 26, United States Code, Section 172(a) allows as a de-
duction for the taxable year:

an amount equal to the aggregate of (1) the net operating
loss carryovers to such year, plus (2) the net operating
loss carrybacks to such year.

Section 172(b) provides in relevant part that “a net operating
loss... shall be a net operating loss carryback to each of the 3
taxable vears preceding the taxable year of such loss.” It is
clear, however, that before the defendant's argument can pre-
vail, it must be established that his losses arose from the dis-
position of property or realty used in a trade or business con-
ducted by him. Section 172(c), (d).

The defendant's returns for the tax vears 1971 and 1972
reflect net operating losses which evidently were not disallowed
by the Internal Revenue Service. However, the Service's fail-
ure to disallow such losses in 1971 and 1972 does not operate
to preclude either the plaintiff or this Court from redetermin-

App. 15

ing the nature of those losses for purposes of the establishing
of defendant's tax liability for the years 1968 and 1969. Iloward
v. United States [74-1 ustc £9455], 497 F. 2d 1270 (7th Cir,
1974).

In Penton v. United States [58-2 ustc £ 9852], 259 F. 2d
536 (6th Cir. 1958), the Court of Appeals for this Circuit found
important to the determination of whether the loss sought to
be carried back occurred in the operation of the taxpayer's
trade or business:

(1) the continuity of the business, (2) the amount of
time and energy devoted thereto by the taxpayer, and (3)
whether the taxpayer is engaged in the business for the
purpose of earning a livelihood or merely as an avoca-
tion.
259 F. 2d at 539. Se also Title 26, Code of Federal Regulations
Section 1.183-2; 5 J. Mertens, The Law of Federal Income Tax-
ation, supra § 28,75.

The overwhelming burden of the evidence adduced at trial
is that the defendant devoted extraordinarily little time to his
extra-professional farming and aviation activities. While a por-
tion of one farm was cultivated two of the five years that de-
fendant owned it, the other farm was cultivated not at all. It is
further evident that the defendant paid little personal attention
to these activities. He admitted that he visited the farms only
once every couple of months, explaining that his very busy
medical practice did not leave him much spare time, Despite
his inability to devote what would ordinarily be considered
sufficient time to operate a farm in business-like manner, the
defendant did not resort to qualified assistance in this opera-
tion, relying instead upon the additional efforts of his cight-
vear-old son and a man who was apparently not to be trusted
without the close supervision that the defendant was unable
to provide.

Although the evidence relating to defendant's aviation ac-
tivities is quite sketchy, it appears that the defendant devoted

App. 16

no more personal attention or time to this activity than he did
to his farms. He evidenced at trial a surprising unfamiliarity
with the operation of the “charter service” and “aviation
school”, ignorant even of the income produced and expenses
incurred, Although the defendant claims to have lost the rec-
ords kept in the course of these activities, this Court has no
means of evaluating the defendant's method of conducting
these “businesses”,

This Court recognizes that there exist on the record facts
tending to support the defendant's claim in this regard, yet.
on balance and considering all the circumstances surrounding
these activities, this Court concludes that neither the farming
nor the aviation activities of the defendant constituted a trade
or business.

This Court therefore concludes that the losses suffered by
the defendant in 1971 and 1972 did not arise from the dispo-
sition of property used in a trade or business conducted by
him and are therefore not subject to the net operating loss car-
rvback provision of the Internal Revenue Code.

CONCLUSIONS OF LAW

This Court has jurisdiction over the subject matter of the ac-
tion pursuant to Title 28, United States Code, Sections 1340,
1345, and Title 26, United States Code, Section 7402.

This Court has jurisdiction over the parties to this action.

This Court concludes that the deficicney assessment for the
tax year 1968 levied against the defendant by the government
was timely and legally made.

This Court concludes that the defendant has failed to es-
tablish by a preponderance of the evidence that the deficiency
assessment for the 1968 taxable year levied against him is
factually incorrect,

oe

App. 17

This Court concludes that neither the defendant's farming
nor his aviation activities constituted a trade or business within
the meaning of Title 26, United States Code, Section 172, and
the losses arising out of such activities in L97TL and 1972 are
therefore not subject to the net operating loss carryback pro-
visions of that section and may not serve to reduce defendant's
tax liability for the tax vears 1968 and 1969.

The defendant remains indebted to the United States for
the tax years 1968 and 1969 in the amount of $126,724.39, plus
additional interest and penalties according to law.

WHEREUPON, the Court determines that judgment shall
be entered in favor of the plaintiff, the United States of Amer-
ica, in the amount of One Hundred Twenty-Six Thousand
Seven Hundred Twenty-Four Dollars and Thirty-Nine Cents
($126,724.39), plus interest and penalties according to law,
as well as costs,

The Clerk shall enter judgment accordingly,

JUDGMENT

This action came on for consideration before the Court, Hon-
orable Joseph P. Kinneary, United States District Judge, pre:
siding, and the issues having been duly considered and a de
cision having been duly rendered,

It is Ordered and Adjudged that judgment is in favor of the
plaintiff, the United States of America, in the amount of One
Hundred Twenty-Six Thousand Seven Hundred Twenty-Four
Dollars and Thirty-Nine Cents ($126,724.39), plus interest aud
penalties according to law, and costs.

App. 18

UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT

76-2679

UNITED STATES OF AMERICA,
Plaintiff-Appellee
VS.
RICHARD K. HALEY,
Defendant-Appellant

Before: EDWARDS, LIVELY and ENGEL, Circuit Judges

No judge in regular active service of the court having re-
quested a vote on the suggestion for a rehearing en banc, the
petition for rehearing filed herein by the defendant-appellant
has been referred to the panel which heard the original ap-
peal. Upon consideration, and noting that the petition con-
tains no issue which was not fully addressed in its earlier order,
the court concludes that it is without merit. Accordingly,

IT IS ORDERED that the petition for rehearing is hereby
denied,

ENTERED BY ORDER OF THE COURT
John P. Hehman, Clerk
By Grace Keller
Grace Keller, Chief Deputy

App. 19
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
76-2679

UNITED STATES OF AMERICA,
Plaintiff-Appellec

VS.
RICHARD K. HALEY,
Defendant-Appellant

This cause is now before the court on motion of the appel-
lant to stay the mandate of this court.

Upon due consideration,

IT IS ORDERED that the motion of appellant to stay the

mandate be and it is hereby denied,

ENTERED BY ORDER OF THE COURT

John P. Hehmian

Clerk

——

App. 20

SUPREME COURT OF THE UNITED STATES
OFFICE OF THE CLERK
WASHINGTON, D.C, 20543 |

October 6, 1978

Ronald A. Marks, Esquire
Phillips & Marks

1421 East Market Street
Warren, Ohio 44483

Re. RICHARD K. HALEY ws. UNITED STATES
A-302

Dear Mr. Marks:

Your application for an extension of time in which to file a
petition for a writ of certiorari in the above-entitled case has
heen presented to Mr. Justice Stewart who, on October 4, 1978.
signed an order extending vour time to and including De-
cember 5, 1978. |

A copy of the Justice’s order is enclosed.

Very truly yours,
MICHAEL RODAK, JR., Clerk

By

Patricia A. Dean

Assistant Clerk
th
Ene,

cc, Hon, Wade H. MeCree, Jr.
Solicitor General of the United States

Clerk, U.S. Court of Appeals for the
Sixth Cirenit (Your No, 76-2679 )

App. 21

CONSTITUTION
of the
UNITED STATES OF AMERICA

AMENDMENT 5

No person shall be held to answer for a capital, or otherwise in-
famous crime, unless on a presentment or indictment of a
Grand Jury, except in cases arising in the land or naval forces,
or in the Militia, when in actual service in time of War or pub-
lic danger; nor shall any person be subject for the same offense
to he twice put in jeopardy of life or limb; nor shall be com-
pelled in any criminal case to be a witness against himself, nor
he deprived of life, liberty, or property, without due process
of law; nor shall private property be taken for pubhe use, with-
out just compensation.

26 United States Code §§6212(a) and (hb),

6212. Notice of Deficiency. (Sec. 1906(h)(13)(A) of
P. L. 94-455, 90 Stat. 1834, amended this section by deleting
“or his delegate” each place it appears therein. J

(a) In general.—

If the Secretary determines that there is a deficiency in re-
spect of any tax imposed by subtitle A or Boor chapter 41, 42.
43, or 44, he is authorized to send notice of such deficiency to
the taxpaver by certified mail or registered mail,

(b) Address for notice of deficiency

(1) Income and gift taxes and taxes imposed by chapter 41,
[sie] chapter 42. In the absence of notice to the Secretary
under section 6903 of the existence of a fiduciary relationship,
notice of a deficiency in respect of a tax imposed by subtitle A,
chapter 12, chapter 41, chapter 42. chapter 43. or chapter 44,
if mailed to the taxpayer at his last known address, shall be
sufficient for purposes of subtitle A, chapter 12, chapter 41,
chapter 42, chapter 43, chapter #4. and this chapter even if

App. 22

such taxpayer is deceased, or is under a legal disability, or, in
the case of a corporation, has terminated its existence.
26 United States Code §§6213(a),

6213. Restrictions Applicable to Deficiencies—Petition
to Tax Court. [Sec. 1906(b) (13) (A) of P. L, 94-455, 90 Stat.
1834, amended this section by deleting “or his delegate” each
place it appears therein.]

(a) Time for filing petition and restriction on assess-
ment.—Within 90 days, or 150 days if the notice is addressed
to a person outside the United States, after the notice of de-
ficiency authorized in section 6212 is mailed (not counting
Saturday, Sunday, or a legal holiday in the District of Columbia
as the last day), the taxpayer may file a petition with the Tax
Court for a redetermination of the deficiency. Except as other-
wise provided in section 6851 or section 6861 no assessment of
a deficiency in respect of any tax imposed by subtitle A or B,
chapter 41, 42, 43, or 44 and no levy or proceeding in court for
its collection shall be made, begun, or prosecuted until such
notice has been mailed to the taxpayer, nor until the expiration
of such 90-day or 150-day period, as the case may be, nor, if a
petition has been filed with the Tax Court, until the decision
of the Tax Court has become final. Notwithstanding the pro-
visions of section 7421(a), the making of such assessment or
the beginning of such proceeding or levy during the time such
prohibition is in force may be enjoined by a proceeding in the
proper court.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385005_2301%3A1. Public record. Not legal advice.