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

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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.

About Carlton Smith

Carlton M. Smith worked (as an associate and partner) at Roberts & Holland LLP in Manhattan from 1983-1999. From 2003 to 2013, he was the Director of the Cardozo School of Law tax clinic. In his retirement, he volunteers with the tax clinic at Harvard, where he was Acting Director from January to June 2019.

Comments

  1. “[T]he still safest way to be certain that a petition will be timely filed in the Tax Court is” to mail it long before the last day. For example, I just mailed a petition by First Class mail, no tracking or return receipt requested, on the 30th day after the SNOD was dated. There are those who will suggest that the next 60 days could have been used for negotiating with IRS, but they have not dealt with the Ogden CP-2000 factory. The petition showed up in the online docket, and I received an email from the Court acknowledging its receipt, about a week later. Had it been lost in the mail, I had another copy. It’s not like the old days, when you had to mail half a dozen or so and wait several weeks for a Tax Court response.

    Of course, this method doesn’t work with taxpayers who decide to look for legal help on about the 80th day.

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