Tilden v. Comm’r: Seventh Circuit Reverses Tax Court’s Untimely Mailing Ruling

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Frequent guest blogger Carl Smith provides a detailed analysis of Friday’s 7th Circuit opinion in the Tilden case.  The opinion discusses two issues: 1) whether the time to file a petition in Tax Court in a deficiency case is jurisdictional and 2) the proper application of the timely mailing regulations.  Carl analyzes both issues in the case.  Keith

I have blogged on this case four times before here, here, here and here.  In my last post, I said I was grabbing a bowl of popcorn to watch how the Seventh Circuit ruled in the appeal of Tilden v. Commissioner, T.C. Memo. 2015-188. In an opinion issued on January 13, the Seventh Circuit again changed course – abandoning the argument two judges on the panel had raised sua sponte at oral argument – that the time period to file a Tax Court deficiency petition might no longer be jurisdictional under current non-tax Supreme Court case law on jurisdiction.  Instead, the court (following decades of Tax Court and Circuit court precedent) continued to hold that the time period to file a deficiency petition is a jurisdictional requirement.

However, the Seventh Circuit reversed the Tax Court’s holding that the envelope containing the petition was not entitled to the benefit of the timely-mailing-is-timely-filing rules of the regulations under section 7502.  In the case, the Tax Court had held that USPS tracking data showed the envelope placed in the mail beyond the last date to file.  The Seventh Circuit criticized the usage of tracking data as evidence of the date of mailing.  Rather, the Circuit court held that the petition had been timely filed under the private postmark provision of the regulations, not a different provision of the regulations on which the Tax Court had relied.

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Tilden Facts

Tilden is a deficiency case.  The envelope containing the petition bore a private postage label from stamps.com, dated the 90th day.  Apparently, the envelope was placed in the mail by an employee of counsel for the taxpayer, and that employee also affixed to the envelope a Form 3800 certified mail receipt (the white form), on which the employee also handwrote the date that was the 90th day.  The Form 3800 did not bear a stamp from a USPS employee.  Nor did the USPS ever affix a postmark to the envelope.

The envelope arrived at the Tax Court from the USPS.  The USPS had handled the envelope as certified mail.  That meant that the USPS internally tracked the envelope under its “Tracking” service.  Plugging the 20-digit number from the Form 3800 into the USPS website yielded Tracking data showing that the envelope was first recorded in the USPS system on the 92nd day.  The envelope arrived at the Tax Court on the 98th day.

In Tilden, the IRS moved to dismiss the case based on the ground that the USPS Tracking data showed the petition was mailed on the 92nd day.

In his objection, the taxpayer disagreed, arguing that this was a situation covered by Reg. 301.7502-1(c)(1)(iii)(B)(1).  That regulation states:

(B) Postmark made by other than U.S. Postal Service.–(1) In general.–If the postmark on the envelope is made other than by the U.S. Postal Service–

(i) The postmark so made must bear a legible date on or before the last date, or the last day of the period, prescribed for filing the document or making the payment; and

(ii) The document or payment must be received by the agency, officer, or office with which it is required to be filed not later than the time when a document or payment contained in an envelope that is properly addressed, mailed, and sent by the same class of mail would ordinarily be received if it were postmarked at the same point of origin by the U.S. Postal Service on the last date, or the last day of the period, prescribed for filing the document or mailing the payment.

The taxpayer argued that the stamps.com mailing label, combined with the Form 3800, was a “postmark” not made by the USPS that legibly showed a date that was the 90th day and that the 8-day period between the 90th day and receipt by the Tax Court was when mail of such class would “ordinarily be received”.  Thus, under the regulation, the petition was timely filed.

In responding to the objection, the IRS changed position and now argued that the taxpayer had the wrong portion of the regulation, and that the relevant portion of the regulation was actually Reg. 301.7502-1(c)(1)(iii)(B)(2), which provides:

(2) Document or payment received late.–If a document or payment described in paragraph (c)(1)(iii)(B)(1) is received after the time when a document or payment so mailed and so postmarked by the U.S. Postal Service would ordinarily be received, the document or payment is treated as having been received at the time when a document or payment so mailed and so postmarked would ordinarily be received if the person who is required to file the document or make the payment establishes–

(i) That it was actually deposited in the U.S. mail before the last collection of mail from the place of deposit that was postmarked (except for the metered mail) by the U.S. Postal Service on or before the last date, or the last day of the period, prescribed for filing the document or making the payment;

(ii) That the delay in receiving the document or payment was due to a delay in the transmission of the U.S. mail; and

(iii) The cause of the delay.

The IRS argued that the petition had arrived beyond the time it would “ordinarily be received”, triggering the taxpayer’s obligation to prove the three conditions of the relevant portion of the regulation – none of which had been proved.

Tilden Tax Court Ruling 

In his opinion, Judge Armen held that both parties had relied on the wrong portions of the regulation.  He believed the relevant portions of the regulation were found at:

(1) Reg. 301.7502-1(c)(1)(iii)(B)(2), which provides:

(3) U.S. and non-U.S. postmarks.–If the envelope has a postmark made by the U.S. Postal Service in addition to a postmark not so made, the postmark that was not made by the U.S. Postal Service is disregarded, and whether the envelope was mailed in accordance with this paragraph (c)(1)(iii)(B) will be determined solely by applying the rule of paragraph (c)(1)(iii)(A) of this section; and

(2) Reg. 301.7502-1(c)(1)(iii)(A), which provides:

If the postmark does not bear a date on or before the last date, or the last day of the period, prescribed for filing the document or making the payment, the document or payment is considered not to be timely filed or paid, regardless of when the document or payment is deposited in the mail.

Judge Armen admitted that no postmark from the USPS actually appeared on the envelope, but he cited his opinion in Boultbee v. Commissioner, T.C. Memo. 2011-11.  In Boultbee, a deficiency petition was mailed from Canada, but bore no timely postmark from the USPS (only a timely postmark from the Canadian mail service).  Still, the USPS Tracking information showed that the envelope entered the USPS mail stream before the end of the filing period.  The judge held that such tracking information could serve as a postmark of the USPS, making the petition timely mailed.

Relying on Boultbee, he held in Tilden that the envelope was deemed to bear a USPS postmark as of the tracking information date.  Then, relying on the portion of the regulation dealing with a situation where there is both a USPS postmark and a private postmark, he said the USPS postmark (the tracking information date) governed, so the petition was untimely.

Tilden Motion for Reconsideration 

In a motion for reconsideration filed by the taxpayer, the taxpayer, among other things, argued for applying the common law mailbox rule.  The taxpayer reported that the IRS told him that the IRS objected to the granting of the motion for reconsideration.

But, when the IRS actually filed a response to the motion, the IRS changed position again and now did not object to the granting of the motion.  The IRS noted that section 7502 has been held to supersede the common law mailbox rule in most Circuits (with one exception not relevant to this case).  And, in any case, the common law mailbox rule couldn’t apply here where there was actual delivery – and delivery was on a date after the due date.  You still needed section 7502 to make the late envelope timely.

But, the IRS now took the position that the envelope had been received at the limit of, but still within, the time in which the envelope would be expected to “ordinarily be received” if mailed on the 90th day from Utah, where the taxpayer’s attorney’s office was.  In part, the IRS concession was based on the delay to be expected because (as many people forget), since the 2001 anthrax in the mail scare, all mail to the Tax Court gets irradiated.  Thus, the IRS conceded that the taxpayer’s petition was timely under the portion of the regulation on which the taxpayer relied, Reg. 301.7502-1(c)(1)(iii)(B)(1).  The IRS, without mentioning Boultbee, simply told the court that the court had relied on the wrong provisions of the regulation, since there was no actual USPS postmark in this case, just tracking data.

Somewhat incensed that neither party responded to Boultbee — the lynchpin of his prior ruling in Tilden —  Judge Armen denied the motion for reconsideration, telling the parties the truism that the court’s jurisdiction may not be conferred by mere concession by the parties.

Seventh Circuit Oral Argument

At the oral argument in the Seventh Circuit, two judges on the panel, sua sponte, raised a different issue:  Whether the time period in section 6213(a) to file a deficiency petition is still a jurisdictional requirement in light of non-tax Supreme Court case law since 2004 that generally excludes compliance with filing periods from jurisdictional status, unless (1) there is a “clear statement” that Congress wants the particular time period to be jurisdictional or (2) for decades, the Supreme Court in prior rulings has held the particular time period jurisdictional (stare decisis).  Anyone listening to the oral argument (posted on the Seventh Circuit’s website) would tell you that the court was leaning toward holding the time period not jurisdictional and that the IRS had now waived any complaint in the case that the time period (now a mere statute of limitations) had been violated.

But, unbidden, after the oral argument, the parties filed supplemental briefs on this question, with the parties taking opposite views on whether the deficiency filing period is jurisdictional.

Seventh Circuit Holding

Apparently, the panel had second thoughts about what it raised sua sponte.  Instead, it held that the time period in section 6213(a)’s first sentence was a jurisdictional requirement.  After acknowledging that case law cited to it from prior Circuit opinions, including itself, had not discussed the applicability of the current Supreme Court case law on jurisdiction to the Tax Court deficiency filing period, the Seventh Circuit, found three reasons to support its holding:

First, the court implicitly looked to the “clear statement” exception, finding a “magic word” (Slip op. at 5):  There was a reference to “jurisdiction” in a later sentence in section 6213(a) limiting the Tax Court’s power to issue injunctions against premature assessment or collection of the deficiency to when “a timely petition . . . has been filed”.  The Seventh Circuit wrote:  “Tilden does not want either an injunction or a refund; he has yet to pay the assessed deficiencies. But it would be very hard to read §6213(a) as a whole to distinguish these remedies from others, such as ordering the Commissioner to redetermine the deficiency (sic).” Id.  (Comment:  What does the injunctive provision have to do with the first sentence?  Where is the “clear statement” that the first sentence filing period is jurisdictional?  Moreover, “timely” in the injunctive jurisdiction sentence obviously includes filings deemed timely by other Code provisions such as section 7502, 7508 (combat zone extensions), and 7508A (disaster area extensions), so “timely” doesn’t show Congress wanting the 90-day period in the first sentence of section 6213(a) to be rigidly applied.)

Second, the court noted the pre-2004 longstanding holdings of the Tax Court and many Circuits that the time period was jurisdictional (i.e., stare decisis).  “We think that it would be imprudent to reject that body of precedent, which (given John R. Sand & Gravel) places the Tax Court and the Court of Federal Claims, two Article I tribunals, on an equal footing.”  (Slip op. at 6)  In John R. Sand & Gravel Co. v. United States, 552 U.S. 130 (2008), the Supreme Court had held that, purely on a stare decisis basis, it would not follow its current rules on what is jurisdictional because for over 100 years (in multiple opinions), the Court had held the 6-year time period to file a Court of Federal Claims petition under the Tucker Act (28 U.S.C. section 2501) is jurisdictional.  (Comment:  But, in Henderson v. Shinseki, 562 U.S. 428 (2011), the Supreme Court held that the filing period in the Article I Court of Appeals for Veterans Claims is not jurisdictional.  And, for tax cases, the relevant comparable time period to file a refund suit in the Court of Federal Claims is not 28 U.S.C. section 2501, but I.R.C. section 6532(a); Detroit Trust Co. v. United States, 131 Ct. Cl. 223 (1955); on which the Supreme Court has never made a jurisdictional ruling.  Moreover, the stare decisis exception to the current Supreme Court case law is to a long line of Supreme Court precedents on the particular time period, not to precedents of lower courts, on which the Seventh Circuit was relying.)

Third, the Seventh Circuit accepted the conclusion of the Tax Court that the section 6213(a) time period was jurisdictional in the Tax Court’s recent opinion in Guralnik v. Commissioner, 146 T.C. No. 15 (June 2, 2016), which held that the CDP petition filing period under section 6330(d)(1) is jurisdictional in part because of the Tax Court’s reliance on its precedents that all filing periods in the Tax Court are jurisdictional.  (Comment:  This is pretty circular.  Is this even a separate reason, or just a restatement of the previous stare decisis ground?)

As to the section 7502 issues, the Seventh Circuit said the Tax Court had relied on the wrong provisions of the regulation.  The right provision was the one relied on by the taxpayer and, eventually, the IRS – the rules for private postmarks where there is no USPS postmark.  The Seventh Circuit did not consider tracking data to be a USPS postmark, writing, as well:

“For what it may be worth, we also doubt the Tax Court’s belief that the date an envelope enters the Postal Service’s tracking system is a sure indicator of the date the envelope was placed in the mail. The Postal Service does not say that it enters an item into its tracking system as soon as that item is received . . . .” (Slip op. at 7)

The Seventh Circuit acknowledged that parties are not allowed to collude to give a court jurisdiction that it doesn’t otherwise have, but the appellate court held that there was no apparent collusion in this case, and the Tax Court was bound to accept the IRS’ factual concession (after the motion for reconsideration) that the envelope had been placed timely in the mails (a factual concession that had no evidentiary support, by the way).  (Comment:  This holding is going to shock a lot of Tax Court judges.)

Finally, the Seventh Circuit excoriated the lawyers who failed to put a proper postmark on the envelope:  “Stoel Rives was taking an unnecessary risk with Tilden’s money (and its own, in the malpractice claim sure to follow if we had agreed with the Tax Court) by waiting until the last day and then not getting an official postmark or using a delivery service.”  (Slip op. at 8)

Additional Observations             

The Seventh Circuit’s ruling in Tilden certainly doesn’t help the argument that Keith and I are pursuing in the Circuit courts that the time periods in which to file CDP and innocent spouse petitions in the Tax Court are not jurisdictional.  However, a stare decisis argument is harder as to those two filing periods:  There is only one published opinion of a Circuit court holding that the CDP filing period is jurisdictional (and it did not mention the recent Supreme Court case law on jurisdiction) and there are no opinions of any Circuit courts on whether the innocent spouse filing period is jurisdictional.  Keith and I are not giving up.

Without citing Boultbee, the Seventh Circuit casts doubt on Boutlbee’s reliance on USPS tracking data – at least for purposes of finding the Tax Court lacked jurisdiction.  This alone is a major event.

As pointed out in my prior posts, there are a number of cases in the Tax Court where the proceedings have been stayed pending the Seventh Circuit’s ruling in Tilden.  We can expect some of them to generate opinions soon, including possibly a Tax Court court conference opinion discussing whether or not the Tax Court now agrees with the Seventh Circuit as to which regulation provisions govern and how relevant USPS tracking information is.  Ironically, one of the cases awaiting this ruling is factually identical to Tilden and apparently involves the same law firm making the same postmark mistake (though that case would be appealable to the Eighth Circuit).

Finally, a National Office attorney informed me last month that there is a “reverse Tilden case” pending in the Tax Court – i.e., one where the postmark is untimely (not sure if it is USPS or not), but the tracking data shows the envelope in the USPS mail stream before the end of the filing period.  There’s always something . . . .

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