Is Registered Mail the Way to Go?
Prior to 1954, the law treated tax documents as timely filed provided the document was physically delivered to the Internal Revenue Service (“IRS”) by the applicable deadline. This rule left taxpayers with no recourse should timely mailing have occurred but through no fault of the taxpayers (e.g. postal service misplacing or losing the document) delivery was not made or not timely made.
To address the harshness caused by the physical delivery rule, some courts adopted the common-law mailbox rule. Under such rule, proof of mailing, including by means of testimonial or circumstantial evidence, gives rise to a rebuttable presumption that the document was physically delivered to the addressee in the time a mailing would ordinarily take to arrive even if the document was lost or not delivered.
In 1954, Congress, attempting to deal with some of the problems caused by the physical-delivery rule, enacted I.R.C. § 7502(a)(1). This statute provides that a document will be deemed timely filed so long as two things are true: (i) actual delivery is made to the IRS, even if late delivery, and (ii) the document is postmarked on or before the filing deadline. If the document is never delivered, the safe harbor exception provided by Section 7502(a)(1) would not apply.
Following enactment of Section 7502, courts of appeals reached conflicting decisions as to what effect, if any, the statute had on the applicability of the common-law mailbox rule. Some appeals court decisions concluded Section 7502 provided the exclusive exceptions to the physical-delivery rule and the common-law mailbox rule was no longer viable. Other appeals court decisions concluded, while Section 7502 provided a safe harbor exception to the physical-delivery rule, it did not eliminate a taxpayer’s ability to resort to the common-law mailbox rule as an additional defense to the physical-delivery rule.
To address the confusion created by the split in appeals court decisions (i.e. similarly situated taxpayers treated differently depending on where they lived), the IRS in August 2011, promulgated Treasury Regulation (“Treas. Reg.”) § 301.7502-1(e). The Regulation interprets § 7502 as creating the exclusive exceptions to the physical-delivery rule by stating:
Other than direct proof of actual delivery, proof of proper use of registered or certified mail, and proof of proper use of a duly designated [private delivery service], are the exclusive means to establish prima facie evidence of delivery of a document to the agency, officer, or office with which the document is required to be filed. No other evidence of a postmark or of mailing will be prima facie evidence of delivery or raise a presumption that the document was delivered.
In the recent case of Baldwin et ux. v. United States, No. 17-55115, No. 17-55354 (9th Cir. 2019), decided April 16, 2019, Mr. and Mrs. Baldwin were attempting to secure a refund of approximately $167,000.00. To obtain the refund, the Baldwins were required to file their amended 2005 tax return on or before October 15, 2011 (the refund was created by a 2007 net operating loss of $2.5 million). The Baldwins claimed they mailed the amended 2005 tax return in June 2011. The amended return was never received by the IRS.
The Baldwins filed suit in federal district court seeking their refund. In the court proceeding the Baldwins did not dispute the IRS never received their 2005 amended return. However, in reliance on the common-law mailbox rule, the Baldwins presented testimony of two of their employees. The employees testified they deposited the amended 2005 return in the U.S. Mail at the post office in Hartford, Connecticut on June 21, 2011. The district court found the testimony of the employees as credible and found, on the basis of the common-law mailbox rule, the Baldwins were entitled to their refund.
On appeal, the Honorable Paul J. Watford of the U.S. Appeals Court for the Ninth Circuit overruled and reversed the district court’s decision. Simply stated, Judge Watford concluded that Treas. Reg. § 301.7502-1(e) was clear and unambiguous and, as such, was the only way to overcome the physical-delivery rule. That being the case, Judge Watford determined the common-law mailbox rule no longer applies.
Judge Watford’s decision contained several conclusions concerning questions of statutory interpretation and the authority of an agency (in this case the Treasury Department) to issue regulations based on its interpretation of a statute. The decision raises potential constitutional issues which could impact not only regulations issued by the IRS, but other agencies as well. The Baldwins’ attorney has indicated the decision will be appealed to the Supreme Court. Whether the Supreme Court will accept the case remains to be seen.
For tax practitioners, the lesson to be learned from Baldwin is to make certain when filing a tax sensitive document with the IRS, rather than relying on regular mail the document should be sent by registered mail. I.R.C. § 7502(c)(1) provides that when a document is sent by registered mail, the registration will serve as prima facie evidence the document was delivered, and the date of registration will be treated as the postmark date.