Credit Carry Forward as Timely Refund Claim

In Libitzky v. United States, No. 3:18-cv-00792 (N. D. Cal. 2021) the district court dismisses cross motions for summary judgment in a refund suit and pushes the case forward for a determination by a jury.  The parties agree that the Libitzkys overpaid their 2011 liability by almost $700,000.  They disagree on the issue of whether the Libitzkys timely filed a claim for refund seeking return of their money.  The court finds the filing of a timely refund claim jurisdictional, a determination at odds with at least one other court.  The court also finds that the possibility exists that the forms filed by the Libitzkys requesting a carryover of their 2011 refund could meet the requirements of an informal claim.  A jury will decide the issue.  The case raises interesting issues regarding both jurisdiction and informal claims.

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The Libitzkys were investors in real estate and did well.  They regularly had income tax liability in the half million dollar range.  Because of the way their investment income fluctuated, making a precise determination of the amount of estimated payments they should pay difficult, they elected each year to roll over their tax refunds to apply the refunds against the estimated tax payments for the subsequent year.  This practice regularly created large refunds for them which they left with the IRS.

Something happened with respect to their 2011 return.  They unquestionably seem to have prepared the return on time in their usual manner.  They requested an extension, sending it by certified mail on April 17, 2012.  The extension estimated a tax liability of about $1.5 million, stated they had made payments of about $1.2 million and included a check for about $300,000.  The taxpayers believe they timely filed their 2011 return before the extended due date but acknowledged that they had no mail receipt showing that they did so.  The return, which may or may not have been filed, showed an overpayment of $692,690 with a request that this amount be applied to their 2012 taxes as per their usual practice.

In 2013, they requested an extension of time to file their 2012 return, estimated a liability of about $500,000 and stated they had made payments already of about $1.15 million.  They did not get around to filing the 2012 return until February 6, 2015.  The filed return reflected almost the same liability and payment amounts as they stated when requesting the extension.  The payment amounts included $692,690 from their 2011 overpayment.  The 2012 return reported an overpayment of $645,119 which they elected to apply to their 2013 estimated taxes.

They filed their 2013 return in December 2014, showing tax owed of about $1 million and payments of $1.12 million which included the $645,119 credit forwarded from the 2012 overpayment.  On December 15, 2014, the IRS sent the taxpayers a notice stating that they owed $577,924.18 based on changes to their 2013 form.  This started a back and forth which led to the discovery that the 2011 return had never been filed. 

On January 20, 2016, a Revenue Officer (RO) showed up at their property (the opinion skips over that the IRS must have sent a series of collection notices including a Collection Due Process (CDP) notice that the Libitskys did not pursue).  On that date, they gave the RO a signed copy of the 2011 return.  The court states that the “Libitzkys’ 2011 return was deemed filed on January 20, 2016”, showing the tax and payments resulting in an overpayment of $692,690.  (Note that handing a signed return to an RO or a revenue agent does not always result in the IRS treating the return as filed.  This is at issue in a case currently before the 9th Circuit – Seaview Trading, LLC, AGK Inve v. CIR, No: 20-72416.)

On April 20, 2016, the IRS issued a letter to the Libitzkys informing them that their claim for the $692,690 could not be allowed because “[y]ou filed your original tax return more than 3 years after the due date. Your tax return showed an overpayment; however, we can’t allow your claim for credit or refund of this overpayment because you filed your return late.” Dkt. No. 1-1, Ex. B. The letter continued, “We can only credit or refund an overpayment on a return you file within 3 years from its due date. We consider tax you withheld and estimated tax as paid on the due date (i.e., April 15) for filing your tax return.” Id.

By letter dated August 3, 2016, plaintiffs’ counsel appealed the denial of the Libitzkys’ $692,690 claim for the 2011 tax year to the IRS. Dkt. No. 1-1, Ex. C. On November 29, 2017, the IRS again determined that there was “no basis to allow any part of your claim” for the $692,690. Dkt. No. 1-1, Ex. D. The letter advised plaintiffs that they could further pursue the matter by filing suit with the district court within two years of the April 20, 2016 claim denial letter. Id.

The 9th Circuit points out that the three year look back rule of IRC 6511(b) presents a problem here since the 2011 return was not deemed filed until January 20, 2016, but the payment giving rise to the overpayment would have been deemed paid on April 17, 2012, more than three years prior to the filing of the claim.

For that reason, the Libitzkys argue that “[w]hether through the 2012 Form 4868, or through the 2012 Form 1040, or the combination thereof, or other documents and communications, [they] made a formal or informal claim (either of which is legally sufficient), timely.” Dkt. No. 51 at 35. Ordinarily the Court would have been inclined to find that what is recoverable is a merits inquiry, while the Section 6511(a) timely claim requirement is satisfied by the 2011 tax return at a minimum, thus establishing the Court’s jurisdiction over this dispute. The circuit has stated, however, that “§ 6511(b)(2)(A) is jurisdictional.” Zeier v. United States Internal Revenue Service, 80 F.3d 1360, 1364 (9th Cir. 1996). As another court has observed, this essentially collapses the jurisdictional and merits inquiries in cases like these. See Stevens v. United States, No. 05-03967 SC, 2006 WL 1766794, at *3 n.3 (N.D. Cal. June 26, 2006) (“accepting that Section 6511(b)(2)(A) creates a jurisdictional bar to Plaintiff’s case, Plaintiff may clear that bar with proof that the estate submitted an adequate informal claim, the same thing it will need to prevail on the merits.”).

The court finds that in order to determine if the overpayment is recoverable questions of fact exist on which a jury will need to decide.  By taking the position that the timeliness of the claim creates a jurisdictional issue, the court makes the inquiry slightly more difficult and places it at odds with at least one other jurisdiction.

The court says it has recognized the informal claim doctrine and that could provide a path forward for the taxpayers.  The IRS counters that neither the 2012 extension request nor the 2012 return could meet the test for an informal claim because neither provides the IRS with the information necessary to determine if the claim is correct.  If the court finds that the subsequent year return can serve as a formal or informal claim for refund for the year in which the taxpayer seeks a credit carryforward on an unfiled return, the decision would expand the informal claim doctrine and would offer a large benefit to taxpayers who fail to timely file their returns. 

The equities are interesting here.  You could say the IRS led the taxpayers on by accepting the 2012 return with the somewhat phantom 2011 overpayment.  The IRS did not start questioning the overpayment until the taxpayers filed their 2013 return, lulling the taxpayers into a false sense of security.  On the other hand, the taxpayers not only failed to file the 2011 return for unknown reasons, but also failed to react quickly when the IRS brought them the problem.

Disallowing the credit would be a harsh result here, particularly if the taxpayers have a history of filing and apparently only missed the 2011 year filing due to inadvertence of some type. For those interested in credit carryover issues, a CDP case involving these issues just had an order entered which you can read here.

The Effect of the Missing Postmark

Today’s case highlights the difference in treatment of envelopes with no postmark between the Court of Federal Claims (CFC) and the Tax Court.  It turns out that on this issue, petitioners receive better treatment at the Tax Court.  Of course, it is better not to find out what a court thinks about a missing postmark.  For those filing Tax Court petitions, the ability to electronically file offers an easy way around the postmark/private delivery service/postal delay issue.  Credit to Carl Smith for spotting this case and providing much of the text of this post. 

I have heard that only 15% of Tax Court petitioners have taken advantage of the post-DAWSON ability to electronically file petitions.  The Tax Court is no doubt disappointed at this uptake of a provision that could save it time in processing petitions and in having to decide these types of cases.  For a relatively long time, individuals have been able to file electronically in the Court of Federal Claims, district courts, bankruptcy courts and other federal courts.  Yet, service from the post office continues its siren song for many petitioners.  With the low uptake on the Tax Court’s electronic filing system for petitions, a decent number of practitioners must continue to prefer USPS or a private delivery service, but in many instances the people using the non-electronic filing options are pro se and low income.

The taxpayers in the case at issue did not have an electronic filing option because the document they were filing that causes the problem was not a petition but a refund claim.  As of yet, the IRS does not have a way to electronically file refund claims (amended returns) that go back more than two years, apart from original tax returns.  Even where you cannot electronically file documents with the IRS, faxing documents to the IRS provides a fast way to transmit them and immediately receive a receipt.  But the IRS instructs filers of Form 843 refund claims to mail in the form.  The mailing of documents continues to fill the pages of case books with situations where things do not work out.

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In an opinion issued by the CFC in a refund case, McCaffery v. United States, No. 1:19-cv-01112 (Ct. Fed. Cl. 2021), the issue was whether the taxpayer could introduce extrinsic evidence of the mailing of a refund claim where the claim arrived at the IRS just after the filing deadline, but the envelope in which the claim came had no postmark.  Under regulations, extrinsic evidence is allowed where the postmark is illegible, and the Tax Court has extended the reg.’s reasoning to situations where there is no postmark at all.  The CFC disagrees with the Tax Court’s interpretation and would not accept parol evidence in the absence of a postmark.  The CFC dismisses the case for lack of jurisdiction, without discussing whether a dismissal for failure to state a claim might be more appropriate (i.e., there is no discussion of the Walby Fed. Cir. opinion which we discuss here in a post by Carl). 

Here’s what the CFC wrote about the Tax Court’s position:

Plaintiffs argue that extrinsic evidence may be used to prove the date of mailing for purposes of the deemed delivery rule even when the postmark is absent. They cite a line of cases from the Tax Court holding that extrinsic evidence as to timely mailing must be considered when an envelope contains no postmark at all. Pls.’ Opp. at 5 (citing to Sylvan v. Comm’r, 65 T.C. 548 (1975); Seely v. Comm’r, 119 T.C.M. (CCH) 1031, 2020 WL 201751 (2020); Williams v. Comm’r, 117 T.C.M. (CCH) 1328, 2019 WL 2373552 (2019); Blake v. Comm’r, 94 T.C.M. (CCH) 51, 2007 WL 2011294 (2007); Menard, Inc. v. Comm’r, 41 T.C.M. (CCH) 1279, 1981 WL 10531 (1981); Monasmith v. Comm’r, 38 T.C.M. (CCH) 60, 1979 WL 3117 (1979); Ruegsegger v. Comm’r, 68 T.C. 463 (1977)). That line of cases, however, originates in conceptual errors by the Tax Court in Sylvan.

In that case, much like this one, the Tax Court confronted an envelope with no postmark that was delivered after a deadline. The court found a gap in the statute: “There is nothing at all in the statute or legislative history indicating what Congress intended where the postmark is illegible; where there is no postmark because the petition was inserted in a new postal cover when the original cover was damaged; or where no postmark is affixed due to oversight or malfunction of a machine.” Sylvan, 65 T.C. at 552. “[I]n these circumstances,” the court reasoned, its “task . . . is to ask what Congress would have intended on a point not presented to its mind, if the point had been present.” Id. (quotes omitted). The court concluded, over a dissent, that extrinsic evidence should be admitted to prove the date of mailing for purposes of the deemed delivery rule not only when a postmark is illegible, but where it is absent.

That was erroneous for several reasons. To begin with, the Tax Court was mistaken that the Internal Revenue Code contains “nothing at all . . . indicating what Congress intended” in cases of absent postmarks. Id. Section 6511(a) contains a deadline, and section 7502 contains a deemed-delivery exception that is textually inapplicable when a postmark is missing. There is thus no gap to be filled; a late-received envelope lacking a postmark is simply untimely, whatever the extrinsic evidence might be. When a court treats circumstances covered by a general rule as falling into a gap, the court is not really “ask[ing] what Congress would have intended,” Sylvan, 65 T.C. at 552, but presuming that the statute should say something different.8 See also Antonin Scalia & Bryan Garner, Reading Law: The Interpretation of Legal Texts 94 (2012) (“As Justice Louis Brandeis put the point: ‘A casus omissus does not justify judicial legislation.’ And Brandeis again: ‘To supply omissions transcends the judicial function.’”) (citing Ebert v. Poston, 266 U.S. 548, 554 (1925), and Iselin v. United States, 270 U.S. 245, 251 (1926)).

Besides, when Sylvan was decided, the Treasury had already promulgated the regulation providing for extrinsic evidence of the contents of illegible postmarks, but not absent ones. See Republication, 32 Fed. Reg. 15241, 15355 (Nov. 3, 1967); see also Sylvan, 65 T.C. at 560 (Drennen, J., dissenting) (noting that the regulations then in effect “provide[ ] that if the postmark on the envelope is not legible, the petitioner has the burden of proving the time when the postmark was made”). By sanctioning proof by extrinsic evidence in other circumstances, the Tax Court merely created a new exception that neither Congress nor the administering agency authorized.9 That, too, is inappropriate: A judge should not “elaborate unprovided-for exceptions to a text, as Justice Blackmun noted while a circuit judge: ‘If the Congress had intended to provide additional exceptions, it would have done so in clear language.’” Scalia & Garner, supra, at 93 (citing Petteys v. Butler, 367 F.2d 528, 538 (8th Cir. 1966) (Blackmun, J., dissenting)). Nor should a court assume that because a legislature provided relief from a general rule in one circumstance, similar relief should be applied in other circumstances. See Easterbrook, supra, at 541 (“Legislators seeking only to further the public interest may conclude that the provision of public rules should reach so far and no farther[.]”).

Limiting judicial discretion to elaborate on enacted texts is especially important when it comes to this Court’s jurisdiction. This Court’s authority to hear cases brought against the United States rests on waivers of sovereign immunity which must be interpreted strictly. See Block v. N. Dakota ex rel. Bd. of Univ. & Sch. Lands, 461 U.S. 273, 287 (1983) (“[W]hen Congress attaches conditions to legislation waiving the sovereign immunity of the United States, those conditions must be strictly observed, and exceptions thereto are not to be lightly implied.”); see also, e.g., Sumner v. United States, 71 Fed. Cl. 627, 629 (2006). That makes it inappropriate to find jurisdiction by implying additional exceptions to Plaintiffs’ deadlines, or otherwise enlarging the deemed delivery rule.

In short — contrary to Sylvan — cases like this one are controlled by the plain text of the relevant statutes and regulations. See, e.g., Myore v. Nicholson, 489 F.3d 1207, 1211 (Fed. Cir. 2007) (“If the statutory language is clear and unambiguous, the inquiry ends with the plain meaning.”) (citing Roberto v. Dep’t of the Navy, 440 F.3d 1341, 1350 (Fed. Cir. 2006)).

The result in this case is harsh. Mr. McCaffery has declared — without contradiction, and with some circumstantial corroboration — that he mailed the amended return on a day when it would have been deemed timely, if it only had been postmarked.

In Sylvan, the date of receipt left the court with “no doubt whatsoever” that the envelope was mailed on a day when a contemporaneously applied postmark would have satisfied the deemed delivery rule. 65 T.C. at 550-51. Plaintiffs cite other cases where it seems unfair not to consider evidence of mailing. E.g., Pls.’ Opp. at 8 (citing to Glenn v. Comm’r, 105 T.C.M. (CCH) 1228, 2013 WL 424879 (2013) (noting that the Postal Service’s employee made an error, and but for that error, the envelope in question would have contained a timely postmarked date)). One can even imagine two filings with the same deadline mailed on the same day, one with a missing postmark and one with an illegible postmark, where extrinsic evidence on deemed delivery can only be admitted as to the latter. Like many bright-line rules, the deemed delivery rule might be simple and predictable to administer, but its results are not always satisfying in close cases.

Yet the text controls.

Timely Requesting a CDP Hearing

Today we celebrate the 7th anniversary of procedurally taxing.  As we have mentioned before, the idea of the blog was the brainchild of Les Book.  Les, Steve and I were, and are, working on the treatise “IRS Practice and Procedure” that Les edits.  From the work we did keeping that treatise updated we decided to put up occasional posts on the new blog site.  From rather modest expectations the blog has grown well beyond our vision of the blog in 2013.  Thank you for joining us in talking, writing and thinking about tax procedure and trying to improve the way we navigate the tax system.  The blog is approaching 3000 subscribers.  Because of tax procedure issues raised by the pandemic, the blog has had many more visits in 2020 than any previous year.

In SBSE-05-0720-0049 the IRS announces changes to IRM 5.1.9.3.2 regarding the receipt of a request for a CDP hearing.  The changes result from Chief Counsel technical advice memorandum PMTA-2020-02, dated December 12, 2019.  The changes in the IRM take a narrow view of the timeliness of request for a CDP hearing and leave out broader issues of jurisdiction as well as of best practices.

We have discussed this issue previously here, here, here and here.  I wrote an article about this issue in Tax Notes in November of 2018 available here

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At one point the IRS took the position that in order to timely request a CDP hearing, the taxpayer had to mail the request to the proper address for requesting a CDP hearing as listed in the CDP notice.  One of the problems with this position stemmed from the CDP notice, which generally contained two or more addresses.  Because the CDP notice serves as much or more as a collection notice demanding payment as it does as a notice of legal rights to a hearing, the notice featured an address where the recipient could mail their payment.  Taxpayers regularly mailed their CDP request to the office listed for mailing payment instead of the office listed for sending the request as discussed here.  Although IRS employees were instructed to quickly resend the request to the appropriate office, this did not always happen.  When the notice reached the correct office after the 30-day period, the IRS argued that the taxpayer should receive only an equivalent hearing.

The PMTA and the changes to the IRM reflect a relaxation of the rule regarding receipt and allow as a timely request the mailing to any address on the CDP notice with a postmark by the 30th day after the notice.  This IRM provision, however, adheres to the narrowest interpretation of the PMTA.  It’s a good first step, but many taxpayers will send their requests to some other address or send it after the 30 days while having a good excuse.  The IRM also allows as timely CDP requests those requests that taxpayers timely fax to a fax number when the CDP request form provides such a number.

Taxpayers should make every effort to mail or fax their CDP request to the proper address or fax number on the CDP notice; however, if the CDP request did not get sent to an address or fax number on the CDP notice by the 30th day, the taxpayer should still consider arguing a timely mailed or faxed notice to the IRS should trigger a CDP hearing rather than an equivalent hearing.  Because the timely CDP request provides one step in the path to jurisdiction of the Tax Court in a CDP petition, the taxpayer should consider making equitable tolling arguments in appropriate circumstances.

The new IRM provisions will allow taxpayers who timely mail their CDP request to an address on the CDP notice; however, we know that many additional permutations exist that could cause late receipt of a CDP request by the IRS.  Because the making of a late CDP request to the IRS should not create a jurisdictional basis for barring a CDP hearing, taxpayers with a good excuse for lateness should seek to preserve their right to a CDP hearing by explaining to the IRS the reason for the late submission of the CDP request.  If the IRS persists in denying a CDP hearing and issues a decision letter rather than a determination letter, the taxpayer should file a petition with the Tax Court within 30 days of the decision letter seeking a determination from the Tax Court regarding the timeliness of the CDP request.  Assuming that the Tax Court agrees with the basis for the late CDP request, the Tax Court can determine that the taxpayer has met the criteria for making a CDP request and remand the case to Appeals for a CDP hearing.

The recent change to the IRS offers a good first step toward improvement of the process of obtaining a CDP hearing.  Taxpayers should continue pushing to make the process even better.

Whistleblower Week – Designated Orders, March 2 – 6, 2020

This week was apparently Whistleblower Week at the Tax Court, featuring three separate whistleblower orders from Judges Copeland, Jones, and Kerrigan. We’ll also discuss a short order on limited entries of appearance (which has less importance after the Court’s recent administrative order regarding limited entries of appearance in the time of COVID-19), as well as an order to dismiss a deficiency case for lack of jurisdiction.

Other orders included:

  • An excellent refresher from Judge Urda on motions to vacate under Tax Court Rule 162 and Federal Rule of Civil Procedure 60(b).
  • An order from Judge Toro granting a motion to dismiss from Petitioner in a standalone innocent spouse case.
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The Whistleblower Orders

There were three orders granting summary judgment to Respondent in whistleblower cases. (There were technically four, but the orders in the unconsolidated Keane cases are essentially identical).

  • Docket No. 10662-19W, Horsey v. C.I.R. (Order Here)
  • Docket Nos. 22897-18W, 23240-18W, Keane v. C.I.R. (Orders Here & Here)
  • Docket No. 22395-18W, Lambert v. C.I.R. (Order Here)

These cases follow the Tax Court’s decision from last fall in Lacey v. Commissioner, 153 T.C. No. 8 (2019), which held that the Court has jurisdiction under I.R.C. § 7623(b)(4) to review decisions of the Whistleblower Office to reject a claim for failing to meet threshold requirements in the regulations applicable to whistleblower claims. See Reg § 301.7623-1(c)(1), (4). The Court has long held that it has no jurisdiction to force the IRS to audit or collect proceeds from target taxpayers and that if the IRS fails to audit and collects no proceeds from the target, the Court likewise has no jurisdiction to review the decision not to audit or collect proceeds. Cohen v. Commissioner, 139 T.C. 299, 302 (2012).

In Lacey, it was undisputed that the IRS did not audit the taxpayer and collected no proceeds. However, the Court determined that an initial rejection of the whistleblower complaint without a referral to the IRS operating division could be reviewed for abuse of discretion. The Court noted that permissible reasons for rejection at this level included those threshold regulatory requirements: that the whistleblower’s complaint provides specific and credible information that the whistleblower believes will lead to collected tax proceeds; reports a failure to comply with the internal revenue laws; identifies the persons believed to have failed to comply; provides substantive information, including all available documents; and does not provide speculative information. Under the regulations, the Whistleblower Office should first determine whether the claim is deficient in this regard, and if not, forward the case to an IRS operating division (e.g., LB&I for large business taxpayers, etc.).

At that point, a “classifier” in the operating division takes over, and determines whether to proceed with an audit. However, they too could determine that the claim was deficient for any of the reasons the initial classifier could. In Lacey, the Court denied summary judgment to Respondent because the administrative record was not sufficiently clear to discern whether the Whistleblower Office considered the whistleblower’s claim at all; thus it was likewise impossible to determine why the claim was rejected.

In these three cases, however, the Court has no trouble of the kind that tripped up the IRS in Lacey. In all of the cases, the IRS neither audited nor collected proceeds from the target taxpayers. And the Whistleblower Office, in each case, did refer the case to a “classifier” in the relevant operating division. That employee, in turn, determined that the initial claim was speculative and recommended that the IRS not proceed with further investigation of the target taxpayers. Unlike Lacey, all of this information was apparently included in the administrative record, and so the Court could grant summary judgment more easily.

In Keane, Judge Jones noted that the IRS may continue to run into problems where it rejects claims using “and/or” language in the determination letter. Here, the classifier rejected the claim because “the information provided was speculative and/or did not provide specific or credible information regarding tax underpayment or violations of internal revenue laws.” This is important, because under the Chenery doctrine, the Court may only review the IRS determination for the reasons that the IRS actually relied on in making its determination. See Lacey, 153 T.C. at *14 (citing Kasper v. Commissioner, 150 T.C. 8, 23-24 (2018)). Using “and/or” language makes the grounds for the IRS determination unclear. While Judge Jones notes that the record support both reasons here, other cases might be closer.

Judge Jones cites a memorandum opinion from Judge Gustafson, who raised a similar concern earlier this year. See Alber v. Commissioner, T.C. Memo. 2020-20. This aligns with his analogous view of the IRS’s practice in issuing Notices of Determination in CDP cases, where the IRS typically writes that “There was a balance due when the Notice of Intent to Levy was issued or when the NFTL filing was requested.” In a previous order (covered here), Judge Gustafson wondered whether someone at Appeals actually did verify that a balance due existed, given the lack of clarity in the notice.

What to distill from Lacey and these orders? First, the Tax Court can review an initial rejection from the Whistleblower Office—even if no proceeds are collected. Second, if an employee of the IRS operating division decides not to pursue collection after referral from the Whistleblower Office, that will generally be sufficient to resolve the case in favor of the IRS—though one might reasonably suspect a different result could lie if that classifier failed to meaningfully review the case, as potentially occurred in Lacey with the Whistleblower Office. Finally, if the administrative record provides multiple reasons for rejecting the claim in an “and/or” formulation, this could prove problematic for the IRS under Chenery if at least one reason isn’t supported in the administrative record.

Docket No. 722-19L, Jenkins v. C.I.R. (Order Here)

This short order from Judge Gale deals with a defective limited entry of appearance. Counsel attempted to file a motion to dismiss for Petitioners based on an electronically filed “limited” entry of appearance. However, the Tax Court’s previous administrative order authorizing limited entries of appearance only allowed her to do so on paper, and then only at the trial session itself. So, the Court struck the motion. Counsel found an easy remedy here, however, and simply entered an appearance normally, filed the motion to dismiss; the Court granted it days later.  

On May 29, the Court issued a new administrative order that authorizes the filing of a limited entry of appearance electronically, at any time during the pendency of a Tax Court case. It offers much more flexibility for practitioners to limit their representation to a prescribed proceeding. This includes the trial session itself, as did the previous order, but can also include motion hearings, pre-trial conferences, and other matters at anytime between the issuance of the Notice Setting Case for Trial until the adjournment of the trial session. Because the end of representation isn’t necessarily as clear-cut under this new order, the attorney must file a Notice of Completion at the end of the limited appearance; the Court is not required to approve the end of the representation.

Docket No. 18705-18S, Patten v. C.I.R. (Order Here)

This is the order that keeps a tax attorney up at night. It explains, in minute detail, the process by which an attorney missed the 90-day jurisdictional deadline to file a Tax Court petition in a deficiency case.

The Notice of Deficiency was dated June 22, 2018; the Petition was filed with the Tax Court on September 21, 2018: the 91st day after June 22. Apparently, Respondent’s counsel didn’t notice this in filing the Answer, but Judge Leyden’s chambers did. She issued an order to show cause, directing Respondent to provide the “postmarked U.S. Postal Service Form 3877 or other proof of mailing” regarding the notice of deficiency. After all, it’s not the date listed on the Notice of Deficiency that controls under the statute; it’s the date of mailing of the Notice of Deficiency. See I.R.C. § 6213(a).

Chief Counsel responded to the order and attached Form 3877 showing that the Notice was indeed mailed to Petitioner’s last known address by certified mail (along with two other addresses). The Notice sent to the last known address was returned, as was one of the other notices. But it looks like one notice was successfully delivered. (Of course, that’s irrelevant to the validity of the Notice itself, as Respondent established that the Notice was sent to the taxpayer’s last known address by certified mail. See I.R.C. § 6212.)

Respondent also showed that Petitioner, through his attorney, mailed the petition to the Court on September 19, 2018. As we know, the Court received it on September 21, 2018—one day late. Ordinarily, documents are “filed” when they are received—either by the IRS or the Tax Court.

So, can’t the mailbox rule under I.R.C. § 7502 save the taxpayer’s petition? Not here. Petitioner’s attorney, in his response to the order, acknowledged that the petition was mistakenly sent via FedEx Express, rather than FedEx Overnight due to an “office slipup”. While section 7502(f) allows taxpayers to use private delivery services, such as FedEx, UPS, or DHL, instead of the USPS, practitioners and petitioners alike must ensure that they are using a “designated delivery service.”

What’s a designated delivery service? Section 7502(f)(2) defines the type of services that the Secretary may designate, and Reg. § 301.7502-1(e)(2)(ii) describes the process of designating the service (i.e., publishing it in the Internal Revenue Bulletin). And in practice, the Secretary does so periodically—most recently in Notice 2016-30. The list also appears more accessibly on the IRS website.

So, does FedEx Express appear on this list of designated delivery services? No. Therefore, it can’t trigger the mailbox rule under section 7502. The petition is filed late, and the Tax Court has no jurisdiction to decide the case. Judge Leyden therefore dismisses the case—which involves liabilities for four separate tax years—for lack of jurisdiction.

The lesson for practitioners? Mail the petition so the Court receives it before the deadline. Otherwise, mail the petition via USPS certified mail. Train your office staff to only mail petitions to the Tax Court via USPS certified mail. Is there a good reason to ever use a private delivery service when mailing a Tax Court petition? I don’t see one, given the very real risks involved that bear out here. 

Exercise Caution When Using Extended Tax Court Due Date

In an earlier post I provided proposed time frames for filing Tax Court petitions based on different due dates.  Circling back to that issue, I wanted to point out the downside of the extension created by the decision in Guralnik v. Commissioner, 146 T.C. 230 (2016)(en banc).  At this point we do not know if the time to file a petition for those with a due date between March 19 and July 15, 2020, will be governed by a combination of Guralnik and Notice 2020-23, just Notice 2020-23 or just Guralnik.  The answer to that question depends, in part, on when the Tax Court clerk’s office reopens.  The previous post presumed that the Tax Court clerk’s office would reopen on June 30 but if it reopens after July 15, 2020, and if the time period for filing a Tax Court petition in Notice 2020-23 is not further extended, then Guralnik will both pre-date and post-date the extension in Notice 2020-23, making the extension in the Notice irrelevant for purposes of Tax Court filing.

Guralnik created a logical rule for a snow storm that is a limited time event but does not work as well with an extended closure, such as the one caused by COVID-19 or the government shutdown of 2018-2019.  The problem with a long shut-down and its impact on the time to timely file a Tax Court petition results from Guralnik’s requirement that the petition be filed when the Tax Court reopens.  Some petitioners will not know the precise date the Tax Court will reopen.  Based on what happened during the 2018-2019 government shutdown, petitioners using private delivery services seemed to have the petitions returned after some failed attempts.  What happens when a private delivery service returns the petition after a failure and the petitioner fails to mail the document to the Court before the reopening date?  The Tax Court has issued conflicting rulings which exacerbates the already difficult situation.

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In the case of McClain v. Commissioner, Dk. No. 2699-19S, a deficiency case involving a pro se petitioner, the Tax Court issued an order that dismissed a petitioner who filed a petition late because of the government shut down in 2018-2019.  Mr. McClain’s petition was filed by the Tax Court on February 4, 2019.  The IRS sent the notice of deficiency on October 9, 2018.  The time for filing a petition would ordinarily have run on Monday, January 7, 2019.  Between December 28, 2018 and January 28, 2019, the Tax Court closed including closure of the clerk’s office triggering the application of Guralnik.

The Tax Court closure triggered the extended time to file in Guralnik but the extended time did not help Mr. McClain.  The cautionary tale here stems from the way Mr. McClain was treated by the Tax Court even though he made an effort to file during the shut-down.  The decision here could have implications for taxpayers have a petition come due during the time the Tax Court is closed due to the pandemic.

Although the petition was filed almost a month after the statutory due date, the due date fell at a time when the court was closed.  Attached to the petition were two FedEx envelopes one of which was shipped on January 8, 2019 and the other on January 15, 2019.  The Tax Court determined that it lacked jurisdiction over Mr. McClain’s case, despite the fact that the taxpayer attempted to mail the petition to the court twice during the period extended by the Guralnik case.  The Tax Court found that despite the two attempts to file while it was closed, the taxpayer was obliged to send a petition to it on January 28, 2019, the date it reopened.  Because the postmark on his petition was February 1, 2019, the Tax Court determined that it lacked jurisdiction. Bryan Camp also recently analyzed this case over on TaxProf Blog, which you can find here.

In McNamee v. Commissioner, T.C. Memo 2020-37, a CDP case in which the petitioner was represented, the Court cited to an announcement on its website that was not mentioned in the order entered in the McClain case.  The Court wrote in the facts:

On December 28, 2018 [a few days before the last date to file], petitioner sent a petition to this Court seeking review of the notice of determination. The petition was sent to the Court via FedEx Priority Overnight service. Because of a lapse in Government funding the Court was closed from December 28, 2018, to January 25, 2019. As a result, the envelope containing the petition was returned to petitioner as undeliverable. The Court’s website at the time instructed taxpayers that, “[i]f a document mailed or sent * * * to the Court has been returned, the party that mailed or sent the document should remail or resend it to the Court with a copy of the envelope or container in which it was first mailed or sent.” Following those instructions, petitioner on January 31, 2019, redelivered to the Court–again by FedEx Priority Overnight service–the petition and the envelope in which it had originally been delivered. The petition was received by the Court and filed on February 1, 2019.

In the discussion section of the opinion, the Court found the petition timely filed, writing:

Petitioner first mailed his petition to the Court via FedEx Priority Overnight service on December 28, 2018, three days before the deadline for filing his petition. Because his petition was timely mailed, it is deemed timely filed, and we thus have jurisdiction over this case.

Both McClain and McNamee sent their petitions to the Tax Court by an approved private delivery service while the court’s Clerk’s Office was closed.  Their petitions were returned.  They resent the petitions a few days after the Clerk’s Office reopened.  About the only difference between the two cases is that McClain first sent his petition one day after the 90-days had expired (not considering Guranik) while McNamee first sent his petition within the 30-day period for filing a CDP petition.  But, still, McClain first sent the petition while the Clerk’s Office was closed, so arguably that should be enough under Guranik and the website instructions.

I find it impossible to reconcile the results of the two cases in which the order and the opinion came out within days of each other.  I believe that the McNamee opinion interprets Guralnik in the manner most consistent with that opinion; however, McClain raises real concerns for anyone trying to provide advice on how to interpret Guralnik.  The Court advises prospective petitioners to watch its site to learn when the Court will reopen.  The Court should give petitioners plenty of warning before it reopens and should clarify its instructions.  While the instructions cited in the McNamee case say to retain a copy of petitions sent during the closure and to provide the returned mail with the petition filed after the Tax Court reopens, the instructions should alert prospective petitioners when mailing a petition during closure will not work.  Mr. McClain at least deserves an explanation why following what appeared to be the Court’s instructions and the intent of the Guralnik case still resulted in dismissal.  His dismissal was especially unfortunate because he was pro se and may not have had the tools to adequately argue his case in the way that Mr. McNamee did. 

How the Death of a President Impacts Tax Court Jurisdiction

The ever alert commenter-in-chief and occasional guest blogger, Bob Kamman, brought to my attention a Tax Court order issued on February 21, 2019, as a result of the death of President George H. W. Bush in 2018.  It seems that the petitioner in the case, Ms. Makowski, went to the post office on December 5, 2018, the 90th day to mail her petition to the Tax Court.  When she arrived at the post office, it was closed because President Trump had ordered December 5, 2018 to be a day of national mourning for President Bush.  So, Ms. Makowski had to come back to the post office the next day to mail her petition.  When her petition arrived at the Tax Court, the IRS noticed that it was mailed one day late and filed a motion to dismiss for lack of jurisdiction.

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Ms. Makowski responded to the motion by sending the court a letter explaining the problem she had in trying to mail the letter on the 90th day.  The court then issued the following order:

On February 21, 2019, respondent filed in the above-docketed case a Motion To Dismiss for Lack of Jurisdiction, on the ground that the petition herein was not filed within the time prescribed by section 6213(a) or 7502 of the Internal Revenue Code. Respondent attached to the motion copies of a notice of deficiency and corresponding certified mail list, as evidence of the fact that such notice for the taxable years 2015 and 2016 was sent to petitioner by certified mail on September 6, 2018. On March 26, 2019, the Court received from petitioner a document, initially filed as a letter, that is in the nature of an objection to the motion to dismiss. Therein, petitioner explained, and attached documentation supporting, that she had been unable to mail the petition on the December 5, 2018, due date because of the closure of post offices concomitant with the declaration by President Donald Trump of a National Day of Mourning in honor of former President George H.W. Bush. 

Upon due consideration, it is ORDERED that petitioner’s submission filed March 26, 2018, [sic] as a letter shall be recharacterized as an objection to the pending motion to dismiss. 

It is further ORDERED that, on or before April 18, 2019, respondent shall file a response to petitioner’s just-referenced objection, addressing the impact of the National Day of Mourning declaration for purposes of filing deadlines. 

The IRS withdrew its motion because of the Tax Court’s decision in Guralnik.  The case moved forward to decision where the IRS conceded that she had no deficiency for the two years at issue.  Happy ending.

The case demonstrates another way that the shutdown of the overall federal government (think budget impasse as discussed here) or the Tax Court (think snow as discussed here) can impact a taxpayer’s ability to obtain Tax Court jurisdiction or at least to have a petition deemed timely filed, so that the petitioner need not get into the arguments about whether timely filing creates a jurisdictional issue.

It’s a fairly simple lesson at this point, but the issue of government shutdown resulting from the death of a President reminded me of a problem caused by the death of President Nixon in April of 1994.  This remembrance has absolutely nothing to do with tax procedure so stop reading if you are looking for any meaning here.

At the time of President Nixon’s death, I was the District Counsel for the IRS in Richmond, Virginia which meant I was in charge of the group of attorneys representing the IRS in Virginia.  One of the attorneys in the office was going to a training program in Boulder, Colorado.  As I remember, the program ran from Tuesday morning through Thursday afternoon with Monday and Friday as travel days.  The attorney liked to ski and decided to go to Colorado early in order to get in some skiing over the weekend.  The flight cost to the government was the same, and he picked up his expenses for the time before the training program began. 

After he left Richmond and before the training program began, the government announced that Wednesday of the week of the training program would be a day of national mourning for President Nixon.  That caused the office to cancel the training program since it could not be held on Wednesday and that created a big hole in the programming.  By the time of the decision, the attorney was already on the slopes.  This was an era before cell phones and other forms of instant communication, so I called the ski resort and asked it to leave a message on its message board for the attorney to call me.  That failed.  I called the hotel in Boulder where he was going to stay and did connect with him once he arrived there.  He returned to Richmond after receiving the message at the hotel, and we began the process of putting in a travel voucher for a trip to a training program that was cancelled.

Many memos and phone calls later, the government did cover the cost of his airfare and one night’s lodging, but the exercise forever burned in my memory the fact that the government shuts down when a President dies, even though the consequences of the shutdown can be unexpected.  As bad as it seemed when I was writing and calling on behalf of the employee to obtain his reimbursement, I remember that my counterpart in Chicago had an employee who had a fear of flying and took the train from Chicago to Colorado to attend the training.  So, I was not the only one with this headache. 

Shutting down the government creates many ripples.  If you have a Tax Court matter with a due date on the shutdown, keep Guralnik in mind.  This is yet another situation where it can come in handy.

District Court Reverses Its Section 6511(b)(2)(A) Ruling and Excoriates IRS and DOJ for Not Citing Relevant Authority

People ask me what I do in my retirement to keep my mind active.  In addition to a lot of pleasure reading, I keep up with the tax law, blog here, and engage in impact litigation with the Harvard tax clinic, usually in the appellate courts.  Getting an appellate court to overturn a lower court ruling is almost a mug’s game.  Gil Rothenberg of the DOJ reported last fall that of taxpayer appeals in the fiscal year ended September 30, 2019, the DOJ won 94% of the time.  I usually get involved in hard cases, seeking to overturn settled law.  But, my winning percentage is far better than 6% – though still well below 50%, as any appellant would expect.  I tell people that I am a sort of Don Quixote, often falling off my Rosinante or mistaking a barber’s basin for the Golden Helmet of Mambrino.  But, sometimes, I do save a damsel in distress.  I just did.

Indeed, I just got a district court reversal even without entering an appearance in the case, even as an amicus.  And I got a scathing opinion from the judge against the government, to boot.  (I was not looking for the scathing tone, but the judge is right.)

You may recall my recent post involving a case named Harrison v. United States, W.D. Wisconsin Docket No. 19-cv-194.  In the case, the taxpayers mailed a late 2012 original return containing a refund claim for withheld taxes just before the end of a period of 3 years after the return’s due date plus the length of an extension they had obtained to file the return (but had not used).  The return arrived at the IRS a few days after the period expired.  The court correctly ruled that the claim was timely filed under section 6511(a) because it was filed within 3 years after the return was filed – indeed, both were filed the same day.  But, the court then misapplied the lookback rule of section 6511(b)(2)(A) to hold that the claim was limited to taxes deemed paid in a period looking back 3 years plus the extension period from the date the IRS received the claim.  No tax was deemed paid in that period, so the over-$7,000 refund was limited to $0, said the court.  The taxpayers had correctly argued that section 7502’s timely mailing rules apply such that the lookback period should begin from the date the return was mailed (not received), so the entire refund should be allowed.  Apparently, the IRS’ only objection to paying the refund was the amount limitation. 

Unfortunately, neither party cited to the district court the most relevant case law, Weisbart v. United States, 222 F.3d 93 (2d Cir. 2000), or pertinent regulations that had been adopted in 2001 to embody the holding of Weisbart.  And you would not expect a district court judge to be an expert on tax procedure.

I contacted the taxpayers’ attorney on January 13 to point out the correct authority and suggested that he move for reconsideration.  He did so here on January 15.  On January 24, the DOJ filed a notice that it did not object to the motion for reconsideration because the DOJ had the law wrong.  In part, the DOJ Tax Division blamed the IRS lawyers for not telling the DOJ the correct law.  On January 29, the district court entered a revised order, granting the motion for reconsideration and also amended the judgment to find the government owes the taxpayers the tax refund they sought, plus interest from April 15, 2013.

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The district court ruled for the taxpayers not just relying on Weisbart and the 2001 regulations that I discussed in my post, but the earlier, less clear regulations that Weisbart interpreted as providing for this result. This could have been a two-page order.  But, it wasn’t.  The judge was boiling mad at the government.  He ordered that his revised opinion be sent to every IRS and DOJ Tax Division attorney for reading for ethical training.  Because you don’t see this too often, I quote here what the judge wrote about the government lawyers (omitting footnotes; emphasis added):

Regrettably, not only did plaintiff fail to bring this case and the regulations to the court’s attention in their previous briefing on defendant’s motion to dismiss or for summary judgment, but the IRS and the U.S. Department of Justice, whose respective jobs include promulgating and enforcing the applicable regulation, also did not. Still, presented with the regulations, defendant concedes it has no basis to oppose the motion for reconsideration, and the IRS has confirmed that it is prepared to issue a refund in the amount sought in plaintiffs complaint, plus statutory interest. (Def.’s Resp. (dkt. #25) ¶ 18.) While there is no question that this is the appropriate response and course of action, the court remains troubled by defendant’s failure to alert the court to the Weisbart case and even more the regulations. In its submission, defendant represents that the IRS did not identify the Weisbart case, the Chief Counsel’s Notice or the regulations, but acknowledges that counsel for defendant did identify the Weisbart case in their own research, and chose not to disclose it in their briefing because it is not “controlling” in the Seventh Circuit. (Id. ¶¶ 13-14.) This might be a viable defense if: (1) the failure to cite Weisbart were the only failure and; (2) the U.S. Department of Justice’s and IRS’s aspirations only were not to fall below the bare minimum ethical threshold. See Am. Bar Assoc. Rule 3.3 (“A lawyer should not knowingly . . . fail to disclose to the tribunal legal authority in the controlling jurisdiction known to the lawyer to be directly adverse to the position of the client and not disclosed by opposing counsel.”). 

More critically, however, the Weisbart court relied on a Treasury Regulation, which is controlling authority on both the IRS and this court. Defendant explains that the Chief Counsel’s Notice announcing a change in its litigation position and the amendment to 26 C.F.R. § 301.7502-1(f) occurred after the Weisbart opinion, but the language in 26 C.F.R. § 301.6402-3(a)(5), on which the Second Circuit in part relied, remains in place today, and defendant failed to alert the court of this regulation. Thus, the conduct of defendant’s counsel here falls below even a bare minimum ethical standard, something counsel would have discovered by reading Weisbart and the current versions of the regulations cited in that case closely, rather than dismissing it as an inconvenient contrary authority that they were not ethically required to cite to the court. Even if this were not so, defendant cited a number of cases from other circuits that were also not controlling in this court in support of its erroneous argument that the administrative complaint was filed on the date it was received by the IRS.

These egregious missteps in defendant’s response were enough to prompt this court to consider whether an award of attorney’s fees incurred in responding to the motion for summary judgment and in bringing their motion for reconsideration would be appropriate under 28 U.S.C. § 1927. However, this would require a finding of actual bad faith to shift fees to plaintiff. See Boyer v. BNSF Ry. Co., 824 F.3d 694, 708 (7th Cir.), opinion modified on reh’g, 832 F.3d 699 (7th Cir. 2016) (“If a lawyer pursues a path that a reasonably careful attorney would have known, after appropriate inquiry, to be unsound, the conduct is objectively unreasonable and vexatious. To put this a little differently, a lawyer engages in bad faith by acting recklessly or with indifference to the law, as well as by acting in the teeth of what he knows to be the law[.]” (internal citation omitted). Instead, defendant’s counsel’s representations show negligence, which is not sufficient to invoke fees under § 1927. Id. Plus, counsel at least confessed error when plaintiff finally discovered the controlling regulation and brought it to defendant’s and the court’s attention. 

Nevertheless the court will require defendant to circulate this opinion and order, along with the Chief Counsel’s Notice and 26 C.F.R. §§ 301.7502-1(f) and § 301.6402- 3(a)(5) to all attorneys in the IRS Office of Chief Counsel and to the Tax Division of the U.S. Department of Justice in hopes that these actions will prevent future opposition to meritorious claims for refunds, as well as any instinct to ignore the duty of candor to the court by burying precedent no matter how well reasoned, helpful or directly on point it may be simply because one is not ethically bound to disclose it. In their prayer for relief in their complaint, plaintiffs requested attorney’s fees, but cited no support for this request. (Compl. (dkt. #1) 3.) In their motion for reconsideration, plaintiffs simply request $7,386.48 and statutory interest. (Pls.’ Mot. (dkt. #24) 4.)

Observation

I am glad the court corrected this injustice.  However, I would point out that district courts still need guidance on issues like interest.  It is usually the case that overpayment interest is payable to a taxpayer from the date the tax was overpaid.  But, in 1982, Congress specifically added new paragraph (3) to section 6611(b) providing that in the case of late returns, interest is payable from the date the return is filed.  Thus, the amended judgment has the wrong interest accrual date.  I refuse to do the research necessary to figure out if the interest accrual date (i.e., the date the return is “filed”) is the date the return was mailed or the date the IRS received the return.  Basta!

Mail At Your Peril: Taxpayer Dodges A Bullet (For Now)

We have discussed many times the issues that practitioners and taxpayers face when trying to prove they have filed a tax return or other document with the IRS or Tax Court.  A recent case in Tax Court, Seely v Commissioner, involves a taxpayer’s attorney who mailed a petition to Tax Court via old fashioned first class postage and not via certified mail, registered mail or an authorized private delivery service. In Seely, the Tax Court received the petition, but not until 111 days after the date of the 90-day letter. Seely claimed that his lawyer mailed the petition four days before the 90-day period ended to file a petition timely and properly and fully secure the Tax Court’s jurisdiction to hear the case. Unfortunately for Seely (or so it seemed) the envelope containing the petition had no discernible postmark. The IRS argued that the taxpayer failed to petition the Tax Court within the 90-day period and moved to dismiss the petition for lack of jurisdiction.

Our faithful readers know where this may be heading. Section 7502 provides, in general, that if a document is delivered to the IRS by the United States mail after the due date, then the date of the United States postmark on the envelope is deemed to be the date of delivery (i.e., filing). The statute also provides that for registered mail, the registration is prima facie evidence that the document was delivered, and that the date of registration is deemed to be the postmark date. For good measure, the statute says that Treasury can issue rules to flesh out how the statutory rules for registered mail filing can apply to mailing via certified mail or through an authorized private delivery service. IRS has issued regulations and other guidance that fills out the details on certified mail and the use of private carriers.

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Back to Seely. The regulations under Section 7502 do not directly address envelopes with no postmarks (they do addresses postmarks that are “not legible” and provide that the taxpayer has the burden of proving the postmark date when the postmark is not legible). As his lawyer did not send the petition by certified mail, registered mail or through an authorized private delivery service, and as there was no postmark at all, the rules generally default to the filing date equaling the date that the document was received (in this case by the Tax Court). Yet the opinion in Seely notes that there is precedent in Tax Court to allow taxpayers to prove the mailing date through extrinsic evidence, like testimony, the amount of time the document allegedly took to arrive as compared to the time that the document should take to arrive, and whether the document or envelope has the markings that indicate that they may have been misplaced or lost along the way. When relying on extrinsic evidence, the standard the taxpayer has to satisfy to prove the mailing date is proof by convincing evidence.

Seely opposed the motion to dismiss, and Seely had as part of the record a sworn statement by the attorney claiming that they deposited the petition in the US mail four days before the last date for filing the petition. The IRS submitted proof that it normally takes 8 – 15 business days for documents to be delivered to a government agency or office in DC (while this seems like an excessive amount of time, the opinion drops a footnote discussing how mail to Tax Court goes through an irradiation process adding an extra 5 to 10 days).  The government helpfully noted that Seely’s petition allegedly arrived 16 business days after his attorney claimed that he mailed it from Washington State. 

In light of the amount of time the document took to arrive, the IRS asked the court to consider the lawyer’s statement to fail to meet the standard that the taxpayer had convincing evidence that the petition was timely filed.

The Tax Court, in an opinion by Judge Vasquez, disagreed:

First, we note that the petition arrived at the Court only one business day late. We also note that the Fourth of July holiday. In prior cases holiday conditions at the post office (e.g., holiday closures, unusually large volumes of mail, or inefficiencies attributable to temporary staff) have been found to be a possible explanation for short delays in delivery. We are thus unpersuaded by respondent’s argument that Mr. Boyce’s declaration is not reliable because the petition’s alleged mailing date does not square with its actual delivery date. (citations and footnote omitted).

When one crunches the numbers, to get to the 21 actual days he allowed after the due date and to mesh with the lawyer’s sworn statement that he mailed the petition three days before the due date, Judge Vasquez effectively allows 24 days for the mailing, which includes eight weekend days and a holiday on top of the 15 business days to get to the needed 24 days.

At the end of the day, the sworn statement by the attorney, the 4th of July holiday and actual delivery close in time to the far end of estimated number of business days it takes for mail to get to DC were enough, and the Tax Court denied the government’s motion to dismiss.

Seely lives to fight the proposed deficiency on the merits.

Observations

This is the place where it makes sense to remind practitioners to fork over the extra few bucks to mail documents via registered mail, certified mail or through an authorized private delivery service. 

Readers may also recall US v Baldwin, a  9th circuit case that Carl Smith has written about (the circuit that would likely have venue in an appeal of Seely). In that case, the 9th Circuit held that 

  • regulations [the excerpt I quote below] that the IRS finalized in 2011 essentially supplanted the common law mailbox rule, 
  • the regulations were valid under the familiar two-step Chevron test, and 
  • under the Brand X doctrine the regulations essentially trumped prior 9th Circuit precedent that held that Section 7502 did not supplant the common law mailbox rule because the prior case law did not reflect the 9th circuit’s conclusion that the outcome it chose was based on an unambiguous reading of the statute .  

Those regulations provide as follows:

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.

I had read the regulations as applying in cases where the document was never delivered (as in Baldwin, involving a refund claim), as well as in cases where the document eventually made its way to the IRS or in Tax Court (as in Seely, where the Tax Court eventually did receive the petition). Yet Seely notes and distinguishes Baldwin because in Seely the document was actually delivered. That opened the door for the Tax Court, consistent with its approach in other cases, to consider the extrinsic evidence to prove when the petition was placed in the mail.

What about the reach of and validity of the 2011 regulations? As readers may be aware, the taxpayers have filed a cert petition in Baldwin (last month the government filed its opposition, here and the taxpayer filed their reply). The case is an interesting vehicle for possibly overruling the Brand X doctrine, which holds that a “prior judicial construction of a statute trumps an agency construction otherwise entitled to Chevron deference only if the prior court decision holds that its construction follows from the unambiguous terms of the statute and thus leaves no room for agency discretion.” There is significant hostility to Brand X among some (see the numerous amici) and the doctrine raises interesting questions as to which branch should be responsible for the final say on a statute that on its face at least allows for competing reasonable interpretations.

While I am not sure that the Supreme Court will take the bait on Baldwin to consider overturning Brand X, I do expect that there will be plenty of additional litigation concerning the reach and validity of the 7502 regulations. After all, despite the relative low cost of avoiding these kinds of disputes by mailing in a way that guarantees evidence of mailing, and the increasing use of electronic filing (which has its own 7502 issues), there are enough taxpayers and practitioners who seem willing to roll the dice and courts (and practitioners) have been struggling with 7502 for decades.