Timely Mailing Rule in Code Section 7502 Trumps Common-Law Mailbox Rule

(Parker Tax Publishing May 2019)

The Ninth Circuit reversed a district court and dismissed a couple's refund action, holding that the district court erred in applying the common-law mailbox rule to find that the couple's amended tax return on which they claimed the refund had been timely filed even though it was not timely received by the IRS and was postmarked after the filing deadline. The Ninth Circuit found that, under Code Sec. 7502, a tax filing is treated as timely filed only if it is (1) actually delivered to the IRS, and (2) postmarked on or before the deadline, and that, under Reg. Sec. 301.7502-1(e)(2), Code Sec. 7502 provides the exclusive means to prove delivery, rendering the common law mailbox rule unavailable. Baldwin v. U.S., 2019 PTC 142 (9th Cir. 2019).

Background

Howard and Karen Baldwin filed a joint income tax return for 2007 reporting a net operating loss of approximately $2.5 million from their movie production business. They wanted to carry back the loss to the 2005 tax year in order to offset their 2005 tax liability, so they prepared an amended 2005 tax return claiming a refund of approximately $167,000.

To obtain a refund, the Baldwins had to file their amended 2005 tax return by October 15, 2011three years from the extended due date for their 2007 tax return. The Baldwins asserted that they sent their amended 2005 return to the IRS by U.S. mail in June 2011, well before the October 15th deadline. But the IRS never received that return, or any other return postmarked by the October 15, 2011, deadline. The IRS did eventually receive an amended 2005 return from the Baldwins in July 2013, but it was postmarked after the statutory deadline had passed. The IRS accordingly denied the Baldwins' refund claim as untimely.

The Baldwins sued for the refund in a district court. They did not dispute that the amended 2005 return they claimed to have mailed in June 2011 was never received by the IRS. Instead, they relied on the common law mailbox rule to establish that the document was presumptively delivered to the IRS in June 2011, shortly after they mailed it. The common law mailbox rule provides that proof of proper mailingincluding by testimonial or circumstantial evidencegives rise to a rebuttable presumption that the document was physically delivered to the addressee in the time such a mailing would ordinarily take to arrive. Two of the Baldwins' employees testified that they deposited the amended 2005 return in the mail on June 21, 2011. The district court credited their testimony and determined that a rebuttable presumption arose that the amended return was delivered to the IRS well before the October 15, 2011, deadline. The district court rejected the government's argument that application of the mailbox rule was barred by Reg. Sec. 301.7502-1(e)(2). The government appealed to the Ninth Circuit.

Analysis

Before 1954, tax documents were treated as timely filed only if they were physically delivered to the IRS by the applicable deadline. To mitigate the harshness of the physical-delivery rule, some courts responded by applying the common law mailbox rule. In 1954, Congress enacted Code Sec. 7502 to address some of the problems that arose with the physical-delivery rule. Under Code Sec. 7502(a)(1), a document is considered timely filed if it is (1) actually delivered to the IRS, even if after the deadline, and (2) postmarked on or before the deadline. If the document is never delivered at all, Code Sec. 7502 does not apply unless the document is sent by registered mail, in which case the proof of registration is considered prima facie evidence of delivery under Code Sec. 7502(c)(1).

After the enactment of Code Sec. 7502, a split arose in the courts of appeals as to its effect. Some courts held that Code Sec. 7502 supplies the exclusive exceptions to the physical-delivery rule, thereby displacing the common mailbox rule altogether. Other courts read Code Sec. 7502 as providing a safe harbor that merely supplemented the common law rule. In 2011, the IRS responded by issuing Reg. Sec. 301.7502-1(e), which interprets Code Sec. 7502 as creating the exclusive exceptions to the physical-delivery rule. Under the regulation, unless a taxpayer has direct proof that a document was actually delivered to the IRS, Code Sec. 7502 provides the exclusive means to prove delivery, and the common law mailbox rule is no longer available.

The Baldwins argued that the IRS's interpretation of Code Sec. 7502 as repealing the common-law rule was not clearly and explicitly authorized by the statute. They also contended that Reg. Sec. 301.7502-1(e) did not apply to them because they did not seek to prove that a late-received document was mailed in time, but instead that a document that the IRS apparently never received was in fact delivered, and because the regulation was issued in August 2011, two months after they allegedly mailed their amended 2005 return.

The Ninth Circuit reversed the district court and remanded with instructions to dismiss the case. The court upheld the validity of Reg. Sec. 301.75020-1(e)(2). Applying Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), the court found that (1) Code Sec. 7502 does not address whether a taxpayer who sends a document by regular mail can rely on the common-law mailbox rule to establish a presumption of delivery when the IRS claims not to have received the document, and (2) Reg. Sec. 301.7502-1(e)(2) is a permissible construction of the statute. The court reasoned that that an agency's interpretation of a rule can be reasonable even if another, equally permissible construction of the statute could also be upheld.

The court also rejected the Baldwins' argument that the regulation did not apply to them. The court noted that Code Sec. 7502(c)(1)(A) addresses situations in which the IRS claims not to have received a tax document at all by providing that use of registered mail is treated as prima facie evidence that the document was delivered. Thus, the court reasoned that the Baldwins were wrong in contending that Code Sec. 7502 and Reg. Sec. 301.7502-1(e)(2), which interprets the statute to prohibit recourse to the common-law mailbox rule, do not apply to situations like theirs. The court also found that although the regulation was issued two months after the Baldwins allegedly mailed their return, the regulation expressly provides that it applies to all documents mailed after September 21, 2004.

For a discussion of the mailbox rule, see Parker Tax ¶250,120.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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