I think we all expected that the length of the shutdown would create some interesting procedural issues. At the recent ABA Tax Section meeting Rich Goldman from Procedure & Administration in Chief Counsel’s office reported on an interesting case that arose because of the shutdown. In the end the taxpayers will get their day in court but their visit to the Tax Court got off to a rocky start.
read more...The case is Hackash v. Commissioner, Dk. No. 2406-19S. Mr. and Mrs. Hackash received a statutory notice of deficiency (SNOD) on October 22, 2018. They sent a petition to the Tax Court on January 16, 2019 via FedEx using one of the FedEx services designated by the IRS. At the time they sent their petition to the Tax Court, it was closed. FedEx attempted delivery several times (January 17, 18 and 22); I guess the delivery person was not reading the news about the shutdown. Each time the delivery person showed up there was no answer at the Tax Court.
The story told by Rich at the ABA diverges a bit from the Court’s order determining that it had jurisdiction. The order says that after the last failed attempt FedEx attempted to return the petition to petitioners. Rich said that FedEx took the petition to a location in Mississippi. Meanwhile, the Court resumed operations on January 28, 2019 at the end of the shutdown. According to Rich, someone in Mississippi noticed that they had a package destined for the Tax Court and shipped the package back up to D.C. where it was delivered to the Court on February 1, 2019. In shipping the package from Mississippi to D.C., FedEx used one of its lowest delivery services which has not made it onto the IRS list of approved services.
When the package arrived at the Court on February 1, more than 90 days had run since the sending of the SNOD. Because the package arrived at the Court via an unapproved delivery service and because it arrived well after the 90th day, the Court issued an order to show cause why the case should not be dismissed as untimely.
Petitioners were able to show the Court that they did timely mail the petition and show the various attempts by FedEx to deliver the package during the shutdown. Rich noted that they had kept their receipt from the original mailing. Based on the timely mailing of the petition in the first instance and the mailing by an authorized third party, the Court determined that it did have jurisdiction, stating:
I.R.C. section 7502(f) governs the treatment of private delivery services under section 7502. It provides that the sending of a petition by a designated private delivery service may be treated as timely mailed. In Notice 2016-30, 2016- 18 I.R.B. 676,2 the Commissioner includes FedEx Standard Overnight among designated private delivery services. See I.R.C. sec. 7502(f)(2); sec. 301.7502-1(c)(3), Proced. & Admin. Regs. As respondent further notes, Notice 2016-30 further provides that, under section 7502(f)(1), the date recorded by FedEx to its electronic data base or the date marked by FedEx on the cover of the item is treated as the postmark for purposes of section 7502. Accordingly, the Court concludes and agrees with the parties that the petition in this case was timely mailed/timely filed with the Court.
So, the taxpayers have a happy ending and we get a story from one of the problems created by the shutdown. I am sure this is not the only problem. Here, the taxpayers were diligent in responding to the Court’s order, they had used an authorized delivery service to initiate the mailing to the Court, and they had kept proof of mailing. I hope that they have an outcome on the merits equal to their outcome on the jurisdictional issue. I also wonder how many private delivery servers stood at the Tax Court’s doors during the shutdown waiting for someone to answer.
Taxpayers subject to Cook v. Tait, i.e. US citizens and their property wherever found including outside of the US, cannot use any of the methods approved by Tax Court. They would lose this case.
Fortunately the 9th Circuit overturned Cook v. Tait. The right to a jury trial in a refund suit is a pretty fundamental right of US citizenship. The 9th Circuit ruled that Congress intentionally revoked the power that US Supreme Court had conferred in Cook v. Tait, to make complete the benefits of citizenship on US citizens and their property wherever found, by denying jury trials in refund suits. I intend to inform Tax Court of this development.
Private delivery services are not infallible, and cost twice as much as the Postal Service’s certified mail with return receipt. FedEx is in the news this morning because packages shipped from Hanoi to Hong Kong were diverted to Memphis. Last time I checked, mail to the Tax Court is diverted to an off-site decontamination facility and then delivered when determined to be safe. Was that happening during the shutdown? If not, I would expect many more cases like this one. Otherwise, this is just an example of paying more to get less.