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.

District Court Gets Timely Mailing Is Timely Filing Rule of Section 7502 Wrong as Applied to Refund Claim Lookback Period of Section 6511(b)(2)(A)

I remember when I was a young associate at Roberts & Holland LLP in 1983 and marveled at how Sidney Roberts could remember developments in the tax law from as much as 40 years earlier.  Well, now I am approaching 40 years of doing tax procedure, and I marvel at long-ago fights that I still remember.  One of those fights just came up in a district court case in the Western District of Wisconsin, Harrison v. United States, No. 19-cv-00194 (W.D. Wis. Jan. 9, 2020), and, sadly, the court got the upshot wrong.  The exact issue in the case was definitively resolved the other way in regulations adopted in 2001 that followed a once-controversial Second Circuit opinion.  Neither the DOJ nor the district court in Harrison seems to be aware of the Second Circuit opinion or the relevant regulation.  Sad.

The issue is how the refund claim limitations at section 6511(a) and (b) and the timely mailing is timely filing rules of section 7502(a) interact when a late original return was filed seeking a refund, and the return was mailed out only a few days before the expiration of the period that is 3 years plus the amount of any extension to file after the return’s original due date, where the return/claim is received by the IRS and filed after that period.  The DOJ and the district court correctly recognized that the refund claim is timely under section 6511(a) because it was filed on the same date the return was filed – i.e., that a late return is still a return for purposes of section 6511(a).  See Rev. Rul. 76-511, 1976-2 C.B. 428 (itself trying to resolve a Circuit split on this issue that still continued for almost 30 years after its issuance).  But, then the DOJ argued (and the district court agreed) that the 3 year plus extension lookback period of section 6511(b)(2)(A) looks back from the date of IRS receipt, and since the taxes were deemed paid on the original due date of the return, the refund claim is limited to $0 because no taxes were paid or deemed paid in that lookback period.  It is this second holding that is manifestly incorrect.

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Harrison Facts

The Harrison facts are quite simple and typical:  All of the 2012 taxes at issue were withheld from wages or other income.  Thus, section 6513(b)(1) deems them paid as of April 15, 2013.  The taxpayers obtained a 6-month extension to file their return, but then did not mail an original return under that extension.  Rather, they filed a very late return in 2016.  It showed an overpayment of $7,386.48, which they asked to be refunded.  The return was sent by certified mail on October 11, 2016, and was received by the IRS on October 17, 2016.

The taxpayers argued that, under the timely mailing is timely filing rules of section 7502(a), the 3 years plus 6 month lookback period for taxes paid begins from the October 11, 2016 date of mailing (making the refund amount limit $7,386.48), while the DOJ argued that the 3 years plus 6 month lookback period for taxes paid begins from October 17, 2016 because section 7502(a) has no application in this case (making the refund amount $0).  The DOJ moved (1) to dismiss the case for failure to state a claim on which relief could be granted (i.e., under FRCP 12(b)(6)) – a merits dismissal – or (2), in the alternative, for summary judgment that the claim was limited to $0 (also a merits ruling).

Harrison Ruling

The district court correctly noted that there is no Seventh Circuit authority directly answering the question of the date from which the lookback is determined on these facts.  The district court then reasoned that October 15 or 17, 2016, was not the due date for the return – October 15, 2013 was (taking into account the 6-month extension).  The court concluded that section 7502(a) had no application here.  That statute only provides that if a return or claim is delivered to the IRS after the due date, then the date of the United States postmark is deemed the date of delivery.  However, this rule only applies if the postmark falls on or before the due date of the return or claim.  (For certified mail, used herein, the date on the certified mail receipt, not the postmark, is used.  Section 7502(c).)

What does the district court cite in support of its holding under section 6511(b)(2)(A)?  It cites (1) Pitre v. IRS, 938 F. Supp. 95 (D.N.H. 1996), an on point opinion decided before the Second Circuit’s opinion in Weisbart v. United States Dept. of Treasury, 222 F.3d 93 (2d Cir. 2000) (discussed below) and (2) two opinions reaching the right result (i.e., no refund) – Washington v. United States, 123 AFTR 2d 2019-1585 (S.D.N.Y. 2019), and Doyle v. United States, 88 Fed. Cl. 314 (2009) – but where the mailing date was after the 3 years plus any extension period, so the courts’ statements therein that the even-later received date governed under section 6511(b)(2)(A) were correct because section 7502(a)’s extension does not apply if the mailing is after such date. 

Weisbart and the Regulation

The district court in Harrison neither discussed the Weisbart opinion nor the regulations under section 7502.  Had the district court done so, I expect that it would have reached a different result. 

Weisbart is on all fours with Harrison as to its facts.  In Weisbart, to quote the court:

Emanuel Weisbart’s 1991 income tax return was due on April 15, 1992, but he obtained an automatic extension until August 17, 1992. Despite the extension, Weisbart did not file his return by the August 1992 deadline. Tarrying three years, he mailed his 1991 return to the IRS on August 17, 1995. The tax return was submitted on the customary Form 1040 and included a refund claim for $4,867 from the $12,477 in taxes that had been previously withheld from Weisbart’s 1991 wages. The IRS received the return on August 21, 1995.

222 F.3d at 94.

The Weisbart court, relying on regulations that have since been clarified and expanded, reasoned that the rules of section 7502 apply in this case to make the amount paid on the due date within the period provided by section 6511(b)(2)(A) – i.e. that the lookback date is the date of mailing, not the date the IRS received the refund claim.  The court wrote:

The Service argues, and the district court held, that the “prescribed” period applicable to Weisbart’s tax return should also apply to the refund claim. Applying this construction, Weisbart’s refund claim would not enjoy the benefit of the mailbox rule, and would therefore be barred. . . .

Taken together, these two Treasury Regulations provide that the applicability of the mailbox rule to the refund claim should be analyzed independently of the timeliness of the tax return itself, regardless of whether they are in the same document. As such, even though Weisbart’s tax return was untimely filed, his refund claim enjoys the benefit of the mailbox rule, and is deemed filed on August 17, 1995. Because that date is within 3 years of the date when Weisbart is deemed to have paid his withheld employment taxes, he may recover any overpayment included in those taxes under the look back provisions of section 6511(b)(2)(A).

222 F.3d at 97 (citation omitted).

The Treasury decided to accept the Weisbart holding, and so, in 2001, promulgated T.D. 8932, 66 FR 2257.  The Treasury decision stated:

[T]he IRS and the Treasury Department have determined that, in certain situations, a claim for credit or refund made on a late filed original income tax return should be treated under section 7502 as timely filed on the postmark date for purposes of section 6511(b)(2)(A). This is consistent with the opinion of the United States Court of Appeals for the Second Circuit in Weisbart v. United States Department of Treasury and Internal Revenue Service, 222 F.3d 93 (2d Cir. 2000), rev’g 99-1 USTC (CCH) P50,549 (E.D.N.Y. 1999), AOD-CC-2000-09 (Nov. 13, 2000).

66 FR at 2258.  The Treasury Decision added a new subsection (f) to Reg. section 301.7502-1.  I won’t quote the technical language of the regulation, but I will quote the one on point example at subsection (f)(3). It reads:

(i) Taxpayer A, an individual, mailed his 2001 Form 1040, “U.S. Individual Income Tax Return,” on April 15, 2005, claiming a refund of amounts paid through withholding during 2001. The date of the postmark on the envelope containing the return and claim for refund is April 15, 2005. The return and claim for refund are received by the Internal Revenue Service (IRS) on April 18, 2005. Amounts withheld in 2001 exceeded A’s tax liability for 2001 and are treated as paid on April 15, 2002, pursuant to section 6513.


(ii) Even though the date of the postmark on the envelope is after the due date of the return, the claim for refund and the late filed return are treated as filed on the postmark date for purposes of this paragraph (f). Accordingly, the return will be treated as filed on April 15, 2005. In addition, the claim for refund will be treated as timely filed on April 15, 2005. Further, the entire amount of the refund attributable to withholding is allowable as a refund under section 6511(b)(2)(A).

Emphasis added.

Observations

Before berating the district judge, who is no doubt not a tax procedure specialist, I would point out that the parties’ briefing on the motion did not mention either the Second Circuit’s opinion in Weisbart or the regulation under section 7502.  The brief accompanying the motion is here, the taxpayers’ brief is here, and the government’s reply brief is here.  I am quite dismayed, though, that the DOJ Trial Section attorney did not know of the relevant authority.  I have sent an e-mail to the Harrisons’ counsel suggesting a motion for reconsideration or an appeal to the Seventh Circuit.

The district court in Harrison did do something else right, though:  It did not treat compliance with the tax paid amounts rules of section 6511(b) as jurisdictional.  Rather, both the DOJ and the court (unlike many other courts) treated compliance with these rules as a merits issue.  The court granted the DOJ’s motion on the ground of summary judgment, not FRCP 12(b)(1) (lack of jurisdiction) or 12(b)(6) (failure to state a claim).  In not treating the rules of section 6511(b) as jurisdictional, the Harrison court followed Seventh Circuit precedent, stating:

In reviewing the caselaw, requiring administrative exhaustion of a refund claim may be a jurisdictional requirement. See Gillespie v. United States, 670 Fed. App’x 393 (7th Cir. 2016) (acknowledging that recent Supreme Court developments “may cast doubt on the line of cases suggesting that § 7422(a) is jurisdiction”). However, the Seventh Circuit has treated whether there are any tax payments within the “look back period” as an element of the claim. See Gessert v. United States, 703 F.3d 1028, 1036-37 (7th Cir. 2013) (holding that the claims do “not meet the [timing] requirements of the statute,” despite headnotes that describe it as a jurisdictional defect); Curry v. United States, 774 F.2d 852, 855 (7th Cir. 1985) (holding court lacks jurisdiction because plaintiffs failed to exhaust their claims, but even if they had exhausted, they would be barred from obtaining a refund because of the time requirements under § 6511). As such, the merits of plaintiffs’ claim appear to be properly before the court.

Footnote 2 (emphasis in original).

The Federal Circuit took a similar position (i.e., that compliance with the section 6511(b) tax payment rules is not jurisdictional) in Boeri v. United States, 724 F.3d 1367, 1369 (Fed. Cir. 2013), a case on which Stephen blogged here.  For a discussion of the Gillespie case cited by the Harrison court, see my prior post here.

Does Judge Toro Misunderstand Guralnik?

There’s a pro se deficiency case set for trial in San Francisco before Judge Toro in the week beginning February 3, 2020, Gebreyesus v. Commissioner, Docket No. 1883-19.  Although the IRS had not moved to dismiss the petition for lack of jurisdiction, Judge Toro, has essentially issued an order to show cause why he shouldn’t dismiss the case for lack of jurisdiction because of an untimely petition.  The Judge thinks the petition would be untimely if the notice of deficiency had been mailed to the taxpayer on the date shown on the notice of deficiency – October 22, 2018 – so the judge asks that proof of mailing be submitted to him by January 21, 2020.

This case gets into a particular issue of how the government shutdown interacts with (1) Guralnik v. Commissioner, 146 T.C. 230 (2016) (en banc), and (2) section 7502.  I think it pretty clear that the judge, who seems vaguely aware of Guralnik (but doesn’t cite the opinion), has the analysis wrong, and that there is no way this petition is untimely.  I hope the IRS lawyers in the case explain it to the judge, but just in case they don’t, I hope the judge gets to read this post before he rules.  No pro se taxpayer is likely to be able to explain about how Guralnik should work in this case.  Keith has blogged here, here, and here on the interaction of Guralnik and the recent government shutdown, but not on the facts of Gebreyesus.

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Gebreyesus Facts

Let’s assume that the IRS has documentary proof that it mailed the notice of deficiency on the date shown on the notice – October 22, 2018.  You would probably think the taxpayer has until January 20, 2019 (90 days) to file the petition in person, place it in the mails, or place it with a designated private delivery service.  But, January 20, 2019 was a Sunday, and the 21st was Martin Luther King Jr.’s Birthday – both of which under section 7503 can’t be the last date to file.  Interestingly, the notice of deficiency correctly stated that the last date to file was Tuesday, January 22, 2019.

But, then, the government (including the Tax Court) shut down in late December.  As a result, the Tax Court’s Clerk’s Office was not open again until Monday, January 28, 2019.

Judge Toro just noticed that on January 23, 2019, the petition was placed with a FedEx service that is a qualifying private delivery service under section 7502(f).  Had the government not shut down, the petition no doubt would have been delivered to the court overnight on Wednesday, January 24, 2019.  But, the petition arrived at the Tax Court instead on Monday, January 28, 2019 – the date the Clerk’s Office reopened – and was filed on that date.

Judge Toro’s Analysis

In his order, Judge Toro writes:

If the notice of deficiency was mailed on October 22, 2018 (that is, on the date shown on the notice of deficiency), then the 90-day period under section 6213(a) would have expired on January 22, 2019 (taking into account that January 20, 2019, was a Sunday and January 21, 2019, was a holiday in the District of Columbia).  Because the ship date reflected on the FedEx envelope – January 23, 2019 -is one day after January 22, 2019, the petition would be untimely under section 6213(a) and the rules of section 7502(a) and (f).
 
If, however, the notice was mailed after October 22, 2018, the 90-day period would have expired no earlier than January 23, 2019, and, since the petition was given to FedEx by January 23, 2019, under section 7502(a) and (f) the petition would be treated as having been timely filed. [footnote omitted]

What’s Wrong With This Analysis?

Section 7502 has no application unless the petition arrives after the last date to file.  But, that did not occur in this case.  Under Guralnik, if the Clerk’s Office is not open on what would ordinarily be the last date to file, then the last date to file becomes the date the Clerk’s office reopens – i.e., January 28, 2019 in this case. But, that’s the date the Tax Court physically received and filed the petition.  So, the petition did not arrive after the due date, taking into consideration Guralnik.  It arrived on the (revised) due date.  Effectively, the taxpayer here should be treated as if he personally walked into the Clerk’s Office on January 28, 2019 and handed in the petition for filing.  Clearly, that would be OK under Guralnik.  FedEx merely acted as the taxpayer’s agent in walking the petition in on that last date to file.

This result may strike some as odd – that the taxpayer could mail out the petition the day after the last date to file shown on the notice of deficiency, yet still get the benefit of filing a timely petition.  But, I don’t see how a court could rule any other way.

Review of 2019 (Part 1)

In the last two weeks of 2019 we are running material which we have primarily covered during the year but which discusses the important developments during this year.  As we reflect on what has transpired during the year, let’s also think about how we can improve the tax procedure process going forward.  We welcome your comments on the most important developments in 2019 related to tax procedure.

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Important IRS Announcements

CC Notice 2020-002Contacting IRS attorney by email

This recently-issued Chief Counsel notice announces a process for email communications between practitioners and Chief Counsel attorneys. Formerly, communication with Chief Counsel attorneys was difficult, due to internal restrictions on emailing taxpayer information. Under the new notice, Chief Counsel employees can now exchange email with taxpayers and practitioners using encrypted email methods. This new policy will likely prove helpful for practitioners, who can now make quicker progress in working with Chief Counsel to resolve Tax Court litigation or to prepare for trial.

CC Notice 2019-006Deference

This notice is a policy statement, warning Treasury and the IRS about the current judicial state of play on deference to agency regulations. It states that Chief Counsel attorneys will no longer argue that courts should apply Chevron or Auer deference to sub-regulatory guidance, such as revenue rulings, revenue procedures, or other notices. This guidance should be read in conjunction with the Supreme Court’s decision last term in Kisor v. Wilkie, in which the Court scaled back the applicability of Auer deference and indicated a willingness to rethink the scope of agency deference.  As tax lawyers it’s easy to overlook important administrative law decisions such as Kisor, but we all need to recognize the importance of such decisions on how to practice before the IRS. 

See Keith Fogg, Notices on Communicating with IRS, Chief Counsel’s Office and Deference, Procedurally Taxing (Oct. 28, 2019), https://procedurallytaxing.com/notices-on-communicating-with-irs-chief-counsels-office-and-deference/#comments

Altera, Good Fortune, & Baldwin – Deference to regulations

The 9th Circuit recently reversed the Tax Court’s decision that the transfer pricing regulations at issue in Altera Corp. v. Commissioner, 926 F.3d 1061 (9th Cir. 2019), rev’g 145 T.C. 91 (2015) were invalid because they lacked a “reasonable explanation” as required by the Supreme Court in State Farm.  A majority of the Ninth Circuit concluded that Treasury made “clear enough” its decision by including “citations to legislative history” that the dissent said were “cryptic.” The 9th Circuit recently denied Altera’s petition rehearing en banc over a vigorous dissent from three judges, making the case a possible vehicle for certiorari and the latest Supreme Court reexamining of administrative deference.

In contrast, a decision by the D.C. Circuit in Good Fortune Shipping v. Commissioner, 897 F.3d 256 (D.C. Cir. 2018), rev’g 148 T.C. 262 (2017), held invalid regulations that narrowed an excise tax exemption for corporations owned by shareholders in certain countries.  The regulations said ownership of bearer shares could not be used to qualify for the exemption.  The preamble to the regulations suggested the rule was needed because of the difficulty of reliably tracking the location of the owners of bearer shares, but the court observed that other regulations issued by the agency suggested that the location of the owners of bearer shares were becoming easier to track over time.

On the other hand, in Baldwin v. United States, 921 F.3d 836 (9th Cir. 2019), reh’g denied, 2019 U.S. App. LEXIS 18968 (9th Cir. June 25, 2019), petition for cert. filed, 2019 WL 4673331 (U.S. Sept. 23, 2019) (No. 19-402), the Ninth Circuit held that a claim for refund was late because the common law mailbox rule was supplanted by Treas. Reg. § 301.7502-1(e)(2)(i).  Because the Ninth Circuit had previously held the statutory rule (IRC § 7502) provided a safe-harbor that supplements the common-law rule, the district court held the regulations invalid.  Under the Supreme Court’s holding in Brand X, “[a] court’s 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.”  In this case, the regulations trumped the Ninth Circuit’s prior interpretation of IRC § 7502 because it said its earlier decision was filling a statutory gap.  Litigators have indicated this case may be the perfect vehicle for the Supreme Court to consider overruling Chevron or Brand X. 

See Andrew Velarde, Can the Humble Mailbox Rule Bring Monumental Changes to Chevron? 94 Tax Notes Int’l 412 (Apr. 29, 2019) (noting that Justices Thomas, Gorsuch, Kavanaugh, Alito, Breyer, and Chief Justice John Roberts have arguably expressed reservations about an overly broad reading of Chevron).

Taxpayer First Act (“TFA”)

Innocent Spouse changes/Effect of 6015 (e)(7)

The TFA made perhaps unintentional but significant changes regarding the Tax Court’s review of appeals of adverse innocent spouse determinations.  The change is codified at 6015(e)(7) Such appeals will be reviewed de novo (codifying previous Tax Court precedent). This part of the new law regarding the standard for review is uncontroversial and will not result in changes for those seeking innocent spouse relief; however, the legislation changes the scope of review.  Previously, the innocent spouse proceeding went forward with no restrictions on the information the taxpayer could present in the Tax Court.  Now, the scope of review is limited to the administrative record plus the Tax Court can consider “newly discovered or previously unavailable” evidence. While these provisions may seem innocuous, they also may lead to significant new disadvantages for taxpayers. For one, innocent spouse cases present uniquely burdensome evidentiary issues for taxpayers. Presenting evidence of spousal abuse, for example, may be difficult, especially if police or medical reports do not exist in the administrative record. Meanwhile, the one exception to the administrative record, “newly discovered or previously unavailable” evidence, remains ill-defined in the statute and may prove to be a source of confusion for taxpayers and practitioners. Important evidence that a taxpayer may already possess – thus not making it “newly discovered or previously unavailable” – but didn’t include in the administrative record could potentially be excluded. For pro se taxpayers in particular, who may not be aware of the relevance of certain documents when making their case, this is a particular challenge.

The first few Tax Court cases implicating 6015(e)(7) have begun to emerge and may provide more clarity. One potential judicial solution to the issue would be for the Tax Court to remand cases with under-developed records back to the IRS.

Carlton Smith, Should the Tax Court Allow Remands in Light of the Taxpayer First Act Innocent Spouse Provisions?, Procedurally Taxing (Oct. 17, 2019), https://procedurallytaxing.com/should-the-tax-court-allow-remands-in-light-of-the-taxpayer-first-act-innocent-spouse-provisions/

Keith Fogg, First Tax Court Opinions Mentioning Section 6015(e)(7), Procedurally Taxing (Oct. 16, 2019), https://procedurallytaxing.com/first-tax-court-opinions-mentioning-section-6015e7/

Christine Speidel, Taxpayer First Act Update: Innocent Spouse Tangles Begin, Procedurally Taxing (Oct. 10, 2019), https://procedurallytaxing.com/taxpayer-first-act-update-innocent-spouse-tangles-begin/

Steve Milgrom, Innocent Spouse Relief and the Administrative Record, Procedurally Taxing (July 9, 2019), https://procedurallytaxing.com/innocent-spouse-relief-and-the-administrative-record/

Carlton Smith, Congress Set to Enact Only Now-Unneeded Innocent Spouse Fixes, Part 2, Procedurally Taxing (Apr. 4, 2019), https://procedurallytaxing.com/congress-set-to-enact-only-now-unneeded-innocent-spouse-fixes-part-2/

Carlton Smith, Congress Set to Enact Only Now-Unneeded Innocent Spouse Fixes, Part 1, Procedurally Taxing (Apr. 3, 2019), https://procedurallytaxing.com/congress-set-to-enact-only-now-unneeded-innocent-spouse-fixes-part-1/

Ex parte in TFA and CDP

The TFA does not specifically address ex parte communications between appeals and examinations or collections personnel. However, it does codify appeals’ status as an independent office, which may further strengthen arguments against ex parte communication. The currently applicable ex parte restrictions are found in Rev. Proc. 2012-18, which sets forth extensive guidance on permissible and impermissible forms of ex parte communications.

 In CDP proceedings, ex parte communications can potentially occur between appeals officers and revenue officers via the transmission of the administrative file to Appeals. Rev. Proc. 2012-18 prohibits the inclusion of material that “would be prohibited if . . . communicated to Appeals separate and apart from the administrative file.” But as demonstrated by a recent case, Stewart v. Commissioner, this may be a high bar for taxpayers to clear in challenging such communications. In Stewart, the revenue officer included contemporaneous notes in the file that indicated the taxpayer’s representation was somewhat uncooperative during a field meeting. The Tax Court declined to accept the taxpayer’s argument that the notes were prejudicial and ruled in favor of the Commissioner. 

See Keith Fogg, Application of Ex Parte Provisions in Collection Due Process Hearing, Procedurally Taxing (Sep. 19, 2019), https://procedurallytaxing.com/application-of-ex-parte-provisions-in-collection-due-process-hearing/

Taxpayer protection program

Identify fraud has been a consistent and significant problem for the IRS. But the Service’s new procedures for protecting taxpayer information may be unduly burdensome, particularly for taxpayers who need representation with time-sensitive matters. For those representing taxpayers whose returns are flagged as potential victims of identity theft, the process of authenticating identity is difficult and requires knowledge of taxpayer personal information that may not be readily available, such as place of birth or parent’s middle name. The burden is such that it may even implicate the Taxpayer Bill of Rights (TBOR)’s “right to retain representation”. By de facto requiring that the taxpayer actively participate in the identity verification process, the taxpayer is effectively deprived of their right to have their representative act for them in dealings with the IRS.

See Barbara Heggie, Taxpayer Representation Program Sidesteps Right to Representation, Procedurally Taxing (Oct. 3, 2019), https://procedurallytaxing.com/taxpayer-protection-program-sidesteps-right-to-representation/

VITA referrals to LITCs

Especially relevant for our purposes, the TFA “encourages” VITA programs to advise participating taxpayers about the availability of LITCs and refer them to clinics. This is a helpful step, which strengthens the connection between VITA and LITCs and may help inform eligible taxpayers of the existence of their local LITC.

Internal Tracking Data Is Determinative for Designated Private Delivery Services under § 7502(f)

There was a recent Tax Court order (not a designated one) that caught my eye because of the contrast of the ruling with the Seventh Circuit’s ruling a few years ago in Tilden v. Commissioner, 846 F.3d 882 (7th Cir. 2017).  I blogged on the Seventh Circuit’s Tilden opinion here.  That opinion criticized the use of United States Postal Service (USPS) certified mail internal tracking information as a “postmark” for purposes of determining whether a Tax Court petition was timely filed.  In the recent order in Moncada v. Commissioner, T.C. Docket No. 13303-19 (Nov. 7, 2019), by contrast, the internal tracking information of a Designated Private Delivery Service (DPDS) – here, UPS Next Day Air – was held determinative of the date of the filing of the petition.

Initially, I questioned how these two rulings could be reconciled.   But, I think they are both right.  The different results are the fault of Congress in the adoption of § 7502(f), which allows to IRS to designate private delivery services for purposes of taking advantage of the § 7502(a) timely-mailing-is-timely-filing rule that applies to envelopes sent by USPS mail.

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Tilden Background

There are regulations under § 7502(a) that elaborate on the timely mailing rules when the USPS is used.  The regulations cover four common situations where the Tax Court receives the petition after the last date to file:  (1) where there is only a USPS postmark on the envelope, (2) where there is only a private postmark on the envelope, (3) where there is no postmark (or no legible postmark) on the envelope, and (4) where there is both a USPS and private postmark on the envelope.  See Reg. § 301.7502-1(c)(1)(iii).  In general, if there is a legible USPS postmark, it governs as the date of mailing, and if there isn’t, the envelope better get to the Tax Court within the period that mail ordinarily sent from that address would take to get to the court if the envelope had been mailed on the last date to file.  There are exceptions to this last rule that I won’t get into here, not being relevant.  Further, not relevant to either Moncada or Tilden are the special rules where mail does not arrive at the Tax Court, but had been sent certified or registered mail, and where the taxpayer has a USPS mailing receipt with a legible date stamp.

In Tilden, the envelope containing the deficiency 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. 

The IRS later conceded that the taxpayer’s counsel’s employee had brought the envelope to a USPS office on the 90th day.  Eventually, both the taxpayer and IRS argued that the petition should be treated as timely filed under the private postmark rules, since the petition arrived within 8 days of the 90th day, and the IRS agreed that 8 days was within the normal time it takes an envelope to go from Utah to the Tax Court.

The Tax Court, however, viewed the date from the Tracking data to be the equivalent of a USPS postmark and so held that the petition must be treated as having been mailed, late, on the 92nd day.

The Seventh Circuit rejected the Tax Court’s equation of USPS Tracking data and a postmark, writing:

Part [301.7502-1(c)(1)(iii)](B)(3) of the regulation specifies what happens if an envelope has both a private postmark and a postmark from the U.S. Postal Service. Tilden’s envelope had only one postmark. The regulation does not ask whether a date that is not a “postmark” is as good as a postmark. It asks whether there are competing postmarks.

To say “A is as good as B” is not remotely to show that A is B. “Vanilla ice cream is as good as chocolate” does not mean that a customer who orders chocolate must accept vanilla, just because the customer likes both. They are still different. Subsection (B)(3) does not make anything turn on a date as reliable as an official postmark. It makes the outcome turn on the date of an official postmark. If the Postal Service were to treat tracking data as a form of postmark, that might inform our reading of the regulation, but we could not find any evidence that the Postal Service equates the two.

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—and the IRS concedes in this litigation that the Postal Service did not do so for Tilden’s petition, in particular. Recall that the Commissioner has acknowledged that the envelope was received by the Postal Service on April 21. It took two days for the Postal Service to enter the 20-digit tracking number into its system, a step taken at a facility in zip code 84199, approximately ten miles away from the Arbor Lane post office (zip 84117) where the envelope was handed in.

846 F.3d at 887 (emphasis in original).

So, the Seventh Circuit held that the petition had been timely filed.

Moncada Facts

On April 15, 2019, the IRS mailed a notice of deficiency to the Moncadas.  Ninety days from that date was Sunday, July 14, so under § 7503, the due date for a Tax Court petition became the 91st day, Monday, July 15.

On the 88th day, Friday, July 12, the Moncadas went on line and created a shipping label for UPS Next Day Air, a DPDS.  From here, I quote from the taxpayers’ letter in response to the IRS motion to dismiss the petition:

The petition was prepared, signed and placed in the UPS pick-up box on the afternoon of Friday, July 12, 2019 for pick up at the posted pick-up time of 6:00PM. This action would have resulted in a timely delivery to the tax court on Monday, July 15, 2019.

However, UPS inexplicably did not pick up any packages form the pick-up location on Friday, July 12 or on Monday, July 15.  On Tuesday, July 16 we started to track the package and discovered there was no tracking information in the UPS system. We contacted UPS and asked why there was no tracking information. They had no answer. When the driver showed up on the 16th we discovered that the package was still in the box. UPS admitted that their driver did not stop at the box on Friday the 12th or on Monday the 15th. They shipped the package on July 16, and it arrived on July 17 . . . .

While the Tax Court did not find these letter statements to be facts, the taxpayers also submitted receipts to the Tax Court, dated July 12, generated in preparing the UPS label for shipment.

The IRS attached to its motion to dismiss UPS electronic database tracking information showing that the envelope was shipped (picked up) by UPS on July 16 (the 92nd day).  The envelope arrived at the Tax Court, and the petition was filed, on July 17 (the 93rd day).

Because of the different law that applies to shipment by DPDSs from the law that applies to shipment by the USPS, for purposes of the motion to dismiss, it turns out that whether the letter’s alleged facts were true is irrelevant.

Moncada Holding

Section 7502(f) was adopted in 1996.  It provides for the treatment of envelopes sent to the IRS or the Tax Court by IRS-designated private delivery services.  The IRS has designated UPS Next Day Air to be a DPDS.  Notice 2016-30, 2016-1 C.B. 676

There are several requirements for a service to be designated, among which is that the private service “records electronically to its data base . . . , or marks on the cover in which any item referred to in this section is to be delivered, the date on which such item was given to such trade or business for delivery”.  § 7502(f)(2)(C).  Section 7502(f)(1) provides:

Any reference in this section to the United States mail shall be treated as including a reference to any designated delivery service, and any reference in this section to a postmark by the United States Postal Service shall be treated as including a reference to any date recorded or marked as described in paragraph (2)(C) by any designated delivery service.

Thus, in the absence of a mark on the cover of the envelope (there was none here), tracking data supplies the deemed USPS “postmark”.  This is so clear from the statute that the regulations contain no rules about conflicts between private “postmarks” and DPDS “postmarks”.

Given the statute, the Tax Court had little choice but to rule that the UPS tracking data supplied a deemed USPS postmark of July 16 (the 92nd day), so the petition was not timely sent by UPS.  As noted above, the USPS postmark date always governs under the regulations if there is one.  In its order of dismissal in Moncada, the Tax Court was sympathetic to the taxpayers, but wrote:  “The creation of a label and mere placement in a UPS pick-up box is a risk analogous to that identified in the regulations when a sender affixes USPS postage and drops the items in a mailbox, at the mercy of the USPS to pick up and apply a postmark.”

Thus, even though the Seventh Circuit’s criticism in Tilden of using tracking data may still make sense, Congress has chosen for DPDSs to use tracking data instead of anything like the alternative proof of mailing by USPS in the absence of a true USPS postmark.

The moral of the story is that the still safest way to be certain that a petition will be timely filed in the Tax Court is to bring the envelope containing the petition to a USPS office, send it certified or registered mail, and get a legible postmark date on the mailing receipt from the USPS employee.  In that case, even if the document never gets to the Tax Court, the receipt will be proof of mailing.  § 7502(c) (deeming the date of registration or certification to be “the postmark date”); Reg. § 301.7502-1(c)(2) (deeming the date on the receipt that was placed there by a USPS employee to be the date of registration or certification).  Use of private postmarks is riskier.  And there is no way to make a private postmark that will have any legal effect when one uses a DPDS.  You simply can’t control when a DPDS will pick up an envelope from a drop box and enter the envelope into its electronic database.

Prison Mailbox Rule Doesn’t Apply to Refund Claims

In what the court thinks is apparently a case of first impression, a district court has held that a refund claim that arrived at the IRS more than three years after it was due is not timely under the “prison mailbox rule”.  Whitaker v. United States, 2019 U.S. Dist. LEXIS 165345 (N.D. Fla. 9/26/19), adopting magistrate’s opinion at 2019 U.S. Dist. LEXIS 166975.  The court also holds (following precedent in the Fifth Circuit which a court in the Eleventh Circuit had to follow) that the common law mailbox rule cannot apply because it has been superseded by section 7502.  Circuits are split as to the latter holding. Further, the court holds that the taxpayer did not make out a factual case for equitable estoppel to apply to the IRS.

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Facts

During 2012, the taxpayer, a single individual, performed some work for which he was eventually sent a Form W-2.  But he did not timely file a return for 2012 until sometime in 2016. 

The taxpayer says he filed an original Form 1040-EZ before he got a copy of the Form W-2.  The original return showed no tax liability for the year, but sought refund of (1) $446 that the taxpayer claimed had been withheld as income taxes from his wages and (2) an EITC of $475.  The taxpayer was incarcerated in 2016 and claims that he handed his original 2012 return to prison authorities for mailing on March 25, 2016 – within the 3-year lookback period of section 6511(b).  (Since it was an original return containing a claim, the return would have been timely under the 3-year look-forward rule of section 6511(a), so the issue is whether the 3-year lookback rule of section 6511(b) regarding the amount of taxes paid has been satisfied.)

The taxpayer says that in late April 2016, he first obtained a copy of the Form W-2 for 2012 and only then learned that no income tax withholding had been done on his wages.  He prepared an amended return, therefore, removing the portion of the prior claim for withheld income taxes.  The amended return still sought an EITC refund of $475.  The taxpayer handed this amended return to prison authorities for mailing on April 21, 2016.

The IRS says that it never received the original return, but on April 30, 2016, it received the amended return and filed it as of that date.  The IRS denied the claim as untimely.

The taxpayer brought suit on the $475 refund claim in the district court for the Northern District of Florida.  The DOJ moved for summary judgment that the amount of the claim was limited under section 6511(b) to $0.  The taxpayer cross-moved for summary judgment, arguing that the claim should be deemed filed on March 25, 2016.  The taxpayer supported his motion with an unsigned note purportedly from “Classification Counselor Mrs. Doll.” In that unsigned note, Mrs. Doll stated that “[o]n 3/25/16 Mailroom Staff Ms. Bailey sealed, timestamped and post-dated the 2012 tax return. This is logged in the legal/privileged mail log.”   The taxpayer also submitted a copy of his original return, his amended return, and affidavits of inmates who helped or observed him preparing his 2012 tax return.  The taxpayer did not, however, submit the envelope in which the original return was mailed or any proof of its mailing by registered or certified mail.

Holdings

The magistrate’s opinion that was later adopted by the district court judge begins by taking the position that a timely-filed refund claim is necessary to the district court’s jurisdiction, citing United States v. Dalm, 494 U.S. 596, 609 (1990).  As an aside, Keith and I have been arguing recently that Dalm is no longer good law on these points – that under more recent Supreme Court case law, both the filing of an administrative claim (required by section 7422(a)) and its timely filing (required by section 6511(a)) are merely mandatory claims processing rules not going to the court’s jurisdiction.  See Gillespie v. United States, 670 Fed. Appx. 393, 395 (7th Cir. 2016) (not deciding issue, but noting that current Supreme Court case law on the distinction between subject matter jurisdiction and mere claims processing rules “may cast doubt on the line of cases suggesting that § 7422(a) is jurisdictional”, including Dalm.).

Without discussion, the magistrate’s opinion then mentions the further tax amount paid look-back requirements of section 6511(b) and overall treats compliance with that subsection as a nonjurisdictional matter.  As another aside, most courts today, without noting it, still treat compliance with section 6511(b) as a jurisdictional matter.  However, the Federal Circuit has held that the issue of how much tax was paid during the lookback period of section 6511(b) is not jurisdictional.  See Boeri v. United States, 724 F.3d 1367, 1369 (Fed. Cir. 2013), on which Stephen blogged here.  So, the magistrate in Whitaker unknowingly aligns himself with the Federal Circuit.  By moving for summary judgment, the parties also seem to align with the Federal Circuit, since, if compliance with section 6511(b) is jurisdictional, the DOJ should, instead, have moved to dismiss for lack of jurisdiction under FRCP 12(b)(1).  It is odd, though, that sometimes in the opinion, the magistrate seems to equate compliance with section 6511(b)’s payment rules as also jurisdictional, but yet grants the DOJ summary judgment that he refund is limited to $0 – a merits holding.

Third, in applying the lookback rules of section 6511(b), the court is supposed to look at how much tax was “paid” in the 3-year period before the claim was filed.  The statute limits the refund to those taxes paid within the lookback period.  But, Whitaker’s claim is now solely predicated on the EITC, which, of course, he never actually “paid”.  Over a decade ago, while the director of the tax clinic of the University of Connecticut, now-Tax-Court-Special-Trial-Judge Leyden argued to the Second Circuit that there is no time limitation under section 6511(b) on EITC claims because they were never “paid” by the taxpayer.  In Israel v. United States, 356 F.3d 221, 225 (2d Cir. 2004), the court held that the EITC should be treated as “deemed paid” by the taxpayer on the April 15 following the end of the tax year, just like withholding and estimated taxes under section 6513(b)(1) and (2) are treated as paid on that date.  The magistrate in Whitaker cites and applies Israel.  Thus, he deems the EITC “paid” on April 15, 2013, so the amount of the claim allowable is limited to $0 if the claim was filed after April 15, 2016.  Aside:  I wonder why no one has ever litigated the Israel issue in any other Circuit?  As I see it, the Israel opinion’s reasoning is something like “ipse dixit”.

The magistrate in Whitaker then notes that section 7502(a) provides a timely-mailing-is-timely-filing rule for, among other things, refund claims.  But, that rule doesn’t benefit Whitaker, since it only extends the filing date when there is a postmark on the envelope that shows the envelope was mailed on or before the last date to file.  There is no envelope in the record, let alone one bearing such a postmark.  The court also notes the special rule under section 7502(c) that could deem evidence of the date of mailing by registered or certified mail as the date of the postmark under subsection (a), but there is also no evidence in the record as to registered or certified mailing of an envelope.

Next, the magistrate considers the possibility that the common law mailbox rule (allowing for parol and other extrinsic evidence of mailing) has not been eliminated by section 7502 or the regulations thereunder.  The court notes the existing split among the Circuits about whether the common law mailbox rule survived the enactment of section 7502 and the recent ruling of the Ninth Circuit in Baldwin v. United States, 921 F.3d 836 (9th Cir. 2019), that regulations under section 7502 have abrogated all case law holding that the common law mailbox rule still survives the enactment of section 7502.  We blogged on Baldwin and that case law split here.  As an aside (boy, am I abusing the privilege of asides), the Baldwins filed a petition for certiorari on September 23, 2019 at Supreme Court Docket No. 19-402, a copy of which can be found here.  In the petition, they argue that the Court should revisit the correctness of its opinion in National Cable & Telecomms. Assn. v. Band X Internet Services, 545 U.S. 967 (2005), where it held that regulations may overrule preexisting case law where the case law was not predicated on the court holding the statute’s language unambiguous.  In the alternative, the petition argues for Brand X to be limited so as not to permit regulations that overrule common law case law like the mailbox rule.

The district court in Whitaker is located in the Eleventh Circuit, which has not taken a precedential position regarding the continued existence of the common law mailbox rule since the passage of section 7502 or the enactment of the regulations thereunder.  However, the magistrate notes that the Fifth Circuit in Drake v. Commissioner, 554 F.2d 736, 738-39 (5th Cir. 1977), held the common law mailbox rule to no longer exist after section 7502.  Since that opinion was issued before the Eleventh Circuit was carved out of the Fifth Circuit in 1981, Drake is thus binding precedent on district courts in the Eleventh Circuit under Bonner v. City of Prichard, 661 F.2d 1206, 1209-10 (11th Cir. 1981), and the common law mailbox rule proof offered by Whitaker can be of no use to him.

Next, and most novel, the magistrate considers whether the “prison mailbox rule” applies to assist Whitaker.  The court apparently finds no case law on whether the prison mailbox rule can apply to tax refund claims.  In the following passage, the magistrate declines to extend the prison mailbox rule to tax refund claims:

The Supreme Court created the prison mailbox rule when it held that — for purposes of Rule 4(a)(1) of the Federal Rules of Appellate Procedure — a notice of appeal that a pro se prisoner sought to file in a federal court of appeals should be considered filed on the date the prisoner delivered it “to the prison authorities for forwarding to the court clerk.” Houston v. Lack, 487 U.S. 266, 275, 108 S. Ct. 2379, 2385 (1988); Daker v. Comm’r, Ga. Dep’t of Corrs., 820 F.3d 1278, 1286 (11th Cir. 2016). In reaching its decision, the Court reasoned that the word “filed” was ambiguous insofar as neither Rule 4(a)(1) nor the applicable statute set “forth criteria for determining the moment at which . . . ‘filing’ has occurred.” Houston at 272-76, 108 S. Ct. 2383-85; Bonilla v. United States Dep’t of Justice, 535 F. App’x 891, 893 (11th Cir. 2013). Additionally, in creating the prison mailbox rule, the Supreme Court never stated that the rule applies to every document a prisoner seeks to mail. Rather, the rule announced by the Supreme Court applied only to notices of appeal submitted to federal courts of appeals, and was subsequently codified consistent with that limitation. See Fed. R. App. P. 4(c).


Other courts expanded the rule announced in Houston v. Lack to apply the prison mailbox rule to other court filings. See Edwards v. United States, 266 F.3d 756, 758 (7th Cir. 2001) (per curiam) (noting that courts expanded the prison mailbox rule to include many other types of court filings). This expansion was codified to apply to appellate documents and habeas petitions filed with federal courts. See Fed. R. App. P. 25(a)(2)(A)(iii); Fed. R. Bankr. P. 8002(c); Rules Governing Section 2254 Proceedings For the United States District Courts, Rule 3(d); Rules Governing Section 2255 Proceedings For the United States District Courts, Rule 3(d).
Consistent with its historical roots, in the Eleventh Circuit, the prison mailbox rule is limited to filings made to courts. See Williams v. McNeil, 557 F.3d 1287, 1290 n.2 (11th Cir. 2009) (“Under the ‘prison mailbox rule,’ a pro se prisoner’s court filing is deemed filed on the date it is delivered to prison authorities for mailing.”) (emphasis added); Garvey v. Vaughn, 993 F.2d 776, 783 (11th Cir. 1993) (holding that the prison mailbox rule announced in Houston applies to pro se prisoners seeking to file in federal courts complaints under 42 U.S.C. § 1983 and the Federal Tort Claims Act) (emphasis added). Plaintiff has not cited any authority demonstrating that the prison mailbox rule applies to tax returns submitted to prison officials for mailing to the IRS.


Furthermore, the Supreme Court’s holding in Fex v. Michigan strongly suggests that the prison mailbox rule does not apply generally to all documents a prisoner seeks to mail to government entities. 507 U.S. 43, 47, 113 S. Ct. 1085, 1089 (1993). In that case, the prisoner sought to apply the prison mailbox rule to a request for disposition under the Interstate Agreement on Detainers that he had provided to prison officials to mail. Fex, 507 U.S. at 46, 113 S. Ct. at 1088. In determining the date the document was “caused to be delivered,” the Supreme Court did not apply the prison mailbox rule and instead held that the document was “caused to be delivered” on the date the prosecutor’s office and court received the request, and not on the date the inmate gave the request to prison officials for mailing. Fex, 507 U.S. at 47, 113 S. Ct. at 1089.


Other courts have noted that “the prison mailbox rule does not apply when there is a ‘specific statutory or regulatory regime’ governing the filing at issue.” Crook v. Comm’r of Internal Revenue Serv., 173 F. App’x 653, 656 (10th Cir. 2006) (quoting Longenette v. Krusing, 322 F.3d 758, 763 (3d Cir. 2003)); Smith v. Conner, 250 F.3d 277, 277, 279 (5th Cir. 2001); Nigro v. Sullivan, 40 F.3d 990, 994-95 (9th Cir. 1994). More specifically, when the particular statute defines the term “filing” or “filed” — as § 7502 essentially does — courts have seen no reason to usurp a statutory or regulatory definition by resorting to the prison mailbox rule. See Crook, 173 F. App’x at 656 (interpreting the word “filed” defined in Section 7502(a)(1) of the Internal Revenue Code); Smith, 250 F.3d at 279 (holding that the court “shall resort to Houston if the rule does not clearly define filing” and in all other cases the court “will enforce the regulations as written”); Nigro, 40 F.3d at 994 (noting that the prison-mailbox rule did not apply because the administrative regulations defined the word “filed” as “when the receipt is issued.”).  [Emphasis in original.]

Finally, Whitaker had argued that the government should be estopped from arguing for the section 6511(b) limitation in this case. It is well-settled that jurisdictional conditions are not subject to estoppel (just like they are not subject to waiver, forfeiture or equitable tolling).  Dolan v. United States, 560 U.S. 605, 610 (2010).  Since the magistrate appears not to treat section 6511(b) compliance as jurisdictional, this presents him with the question of whether estoppel could apply to the assertion that section 6511(b)’s conditions were not met. The magistrate states:

Plaintiff asserts that Defendant should be estopped from invoking § 6511’s three-year deadline because the IRS sent him a disallowance letter — dated and sent to Plaintiff on May 5, 2017 — in which the IRS incorrectly stated that May 15, 2016, was Plaintiff’s (already expired) deadline to file his claim for 2012 taxes. (Doc. 56-13 at 2). Plaintiff intimates that he relied on this letter (Doc. 56-13), even though the IRS issued this letter on May 5, 2017, more than a year after the deadline to file his return had expired (April 15, 2016), and long after the date Plaintiff claims that he sent his initial 2012 tax return to the IRS (March 25, 2016).


“The question of whether equitable estoppel is ever available against the federal government is unresolved,” but it is clear that the party asserting estoppel against the government has a heavy burden. Ferry v. Hayden, 954 F.2d 658, 661 (11th Cir. 1992) (citing Heckler v. Cmty. Health Servs., 467 U.S. 51, 61, 104 S. Ct. 2218, 2224 (1984)).  [footnote and some citations omitted; emphasis in original]

The magistrate does not decide whether estoppel could ever apply to section 6511, but details exhaustively why the facts alleged by Whitaker could not give rise to estoppel in any event.

Observations

I wonder if Whitaker will appeal his loss to the Eleventh Circuit?  The case only involves $475 plus interest from March or April of 2016 to date. 

Whitaker proceeded pro se in the district court and got the district court $350 filing fee put on an installment agreement so he could proceed in forma pauperis.  He is obligated to pay 20% of his income out of his “inmate account” towards the full $350 fee, over time.  He has so far paid $139.66 towards the fee.  Could he get the $505 appellate filing fee waived? 

Does anyone admitted to the Eleventh Circuit want to represent him?  (He appears to be quite the prison litigator, having filed numerous papers in the district court citing case law.)  In his motion for summary judgment, he argued for the application of the common law mailbox rule and estoppel.  In order for him to prevail in the Eleventh Circuit on the mailbox rule, he would need an en banc panel that decided to no longer follow the Fifth Circuit’s controlling Drake opinion holding that the common law mailbox rule has been supplanted by section 7502.  That is pretty unlikely.  And the Supreme Court in Baldwin is not being asked to resolve that Circuit split about the common law mailbox rule – merely to hold that the regulation under section 7502 doesn’t overrule any Circuit Court that has already held that the common law mailbox rule still applies after section 7502.  So, a taxpayer victory in Baldwin won’t be enough help Whitaker.

Whitaker’s case might have been a good litigating vehicle for the Israel issue of whether the section 6511(b) limits apply at all to EITC claims.  If section 6511(b) doesn’t apply, then all the issues decided by the magistrate on whether Whitaker mailed too late go by the wayside as irrelevant.  But, I have read Whitaker’s motion for summary judgment, and he doesn’t argue that section 6511(b) doesn’t limit EITC claims. It appears he has waived that Israel issue.  Too bad.