Monday, March 11, 2019
Lesson From The Tax Court: Murphy’s Law Of Mailing
When something goes right most of the time, we generally are not prepared for when it goes wrong. Last week’s opinion in Teri Jordan v. Commissioner, T.C. Memo. 2019-15 (Mar. 4, 2019) (Judge Buch) teaches that lesson as applied to the §7502 statutory mailbox rule. It also teaches us what we need to know to avoid the unhappy outcome for Ms. Jordan.
Most folks know something about the statutory mailbox rule in §7502. Or at least think they do. Almost everyone has a general idea if they mail their tax returns or, as here, their Tax Court petition on the last day of the deadline for filing, all will be well. That generally works out for them because the U.S. mail is reliable. That reliability leads many folks to think they can print off a stamp or postage label from an internet provider and drop the petition off at their nearest U.S. Post Office (USPS). Or taking it to the counter of a Fed Ex or UPS “store” is the same as taking it to a USPS counter. Again, those actions usually result in a timely petition.
More savvy (or cautious) taxpayers, however, not only know the mailbox rule, they also know Murphy’s law. They know the best way to beat Murphy’s law of mailing is to use Registered Mail or Certified Mail. Ms. Jordan was not one of the savvy. She used a private postage label printed out from Endicia.com to mail her Tax Court petition. That proved to be a mistake. To see how her case is a lesson for all of us, read on.
The IRS sent Ms. Jordan an NOD on December 6, 2017. It was addressed to her within the United States. That meant her last day to file her Tax Court petition was Tuesday, March 6, 2018. On that very day she put her petition in an envelope on which she printed an Endicia.com postage label. Here is an example of an Endicia.com postage label:
You can see other examples of Endicia postmarks here. You see all of them contain the date on which they are printed off.
The Endicia.com postage label on Ms. Jordan's envelope bore the date March 6, 2018, the last day of her filing period. She then put that envelope in the mail. It is not clear from the opinion whether she took it to a post office or just put it out for her carrier to pick up. It is also not clear when she actually put the envelope in the mail. She may have thought the March 6th date printed on the envelope would make it all ok and so dropped it off the next day. Or perhaps put it out too late to get picked up until the next day. If everything had gone smoothly, it would have worked out all right.
But everything did not go smoothly. Murphy’s law struck. By the time the petition actually reached the Tax Court on March 26th---20 days later---the envelope had somehow acquired not one, but two, USPS postmarks in addition to the Endicia postage label: a March 7th postmark and a March 20th postmark. Murphy's law strikes again.
Treas. Reg. 301.7502-1(c), titled “Mailing Requirements,” says that taxpayers must meet three requirements to get the benefit of the §7502 statutory mailbox rule. First (c)(1)(i) gives an address requirement. It requires taxpayers to properly address the petition. Second, (c)(1)(ii) gives a deposit requirement. It requires that taxpayers must deposit the petition “with the domestic mail service of the U.S. Postal Service (USPS)” before the end of the SOL. Third, (c)(1)(iii) gives a postmark requirement. It requires the envelope containing the petition to be properly post-marked.
It is this third requirement that Ms. Jordan stumbled over. Treas. Reg. 301.7502-1(c)(1)(iii) divides the universe of postmarks into USPS postmarks and "other than USPS" postmarks. That latter category includes private postage meters or their modern equivalents such as Endicia.com postage labels. See generally, Pearson v. Commissioner, 149 T.C. No. 40 (Nov. 29, 2017).
The regulations do not trust “other than USPS” postmarks. The reason should be obvious: taxpayer could back-date envelopes. More charitably, they might print off the labels and then not actually put them in the U.S. mail until a day or two later. That might have happened to Ms. Jordan. We don’t know.
To guard against this, the regulations have several provisions that Judge Buch calls “backstops.”
First, subsection (c)(1)(iii)(B)(3) provides that if the envelope contains both kinds of post-marks, only the USPS post-mark counts for meeting the post-mark requirement. As applied to this case, that means the March 7th USPS postmark trumps the March 6th Endicia.com postmark.
Second, subsection (c)(1)(iii)(B)(1)(ii) provides that even if a non-USPS postmark is the only postmark, the mailbox rule only applies if Murphy’s rule does not. That is, the Tax Court must actually receive the petition within the time period it “would ordinarily be received if it were postmarked at the same point of origin by the U.S. Postal Service.” As applied to this case, that means that even if one ignored the March 7th USPS postmark, Murphy’s law trumps the mailbox rule because the Tax Court’s actual receipt came 20 days later and that was way longer than the usual 3 days it ordinarily takes.
Third, subsection (c)(1)(iii)(B)(2) gives taxpayers who properly guarded against Murphy’s law a way out. It says that the taxpayer will get the mailbox rule even in situations where actual receipt was delayed way longer than normal transmittal time if, and only if, the taxpayer can show: (i) the item was actually deposited on or before the last day for filing; (ii) a cause for the delay; and (iii) that cause affected the USPS operations. As applied here, Ms. Jordan was simply not prepared to make these showings. She was not prepared for Murphy’s law.
So how should taxpayers prepare for Murphy’s law? The take-home lesson here is to use the USPS Registered Mail or Certified Mail services. Using those services (and keeping the receipts!) provides three important protections against the Murphy’s law of mailing.
First, taxpayers do not have to worry about postmarks or about the timely deposit requirement. Treas. Reg. 301-7502-1(c)(2) provides that “the date of the U.S. postmark on the receipt is treated as the postmark date of the document or payment. Accordingly, the risk that the document or payment will not be postmarked on the day that it is deposited in the mail may be eliminated by the use of registered or certified mail.” (emphasis added). Notice this also proves the timely deposit requirement.
Second, taxpayers do not have to worry about proving the cause of any delay for really late delivery. That is, if the Tax Court actually receives the petition long after the normal transmittal period, as happened to Ms. Jordan, the requirement to prove the cause of the delay only applies when the only postmark is one of those “other then USPS” marks. Treas. Reg. 301.7502-1(c)(i)(3)(B). Taxpayers who have used Registered or Certified mail do not have to prove why the delay occurred.
Third, and perhaps best of all, using Registered or Certified mail gives taxpayers a bonus presumption of actual delivery. That covers situations where Murphy’s law strikes the IRS, or Tax Court, and they have no record of receiving the document petition. Treas. Reg. 301-7502-1(e)(1) provides a general rule that taxpayers only get the benefit of the mailbox rule only if their petition is actually delivered (albeit late). However, when the taxpayer has used Registered or Certified mail services to file a petition, then subsection (e)(2) provides that proof of proper use of registered or certified mail establishes prima facie evidence of delivery as well. I do not actually know how often this third protection comes into play in Tax Court cases. It seems mostly useful when mailing a document to the IRS. And it only applies to the mailing of documents. It does not apply to the mailing of payments.
For these reasons, sending tax court petitions by Registered or Certified mail is totally a no-brainer. If Ms. Jordan is unlucky enough to once again have to petition the Tax Court, I hope she has learned this lesson. Meanwhile, the rest of us can learn from her case.
Bryan Camp is the George H. Mahon Professor of Law at Texas Tech University School of Law.
@Michael, Sadly, that third advantage I mention, the presumption of actual delivery, does not apply to payments. It only applies to documents. The best proof of payment is the IRS cashing your client's check.
Posted by: bryan | Mar 12, 2019 7:48:10 AM
I had 4 clients that each mailed out via certified mail - checks to properly address IRS in CT on April 11 or 12th last year. IRS mailed them all notices of non payment. I checked USPS website and all were delivered on April 14th a Saturday. Late penalty applied so I call IRS and lady said "How do We know there was checks in the envelopes".
Posted by: Michael Walrath | Mar 12, 2019 5:34:30 AM
I actually had a similar case with a tax court petition that was mailed certified but the USPS somehow stamped their copy of the receipt a day late and we had lost our copy. i eventually won the case but it was nerve wracking.
Posted by: Anthony Coleman | Mar 11, 2019 2:01:02 PM
Looks like a good illustration of the choice between a strict rule and a looser standard, which might include a concept of reasonableness. Here, the taxpayer acted reasonably but failed the strict test. The strict rule seems like the best approach, however, because applying a resaonbleness standard would lead to more disputes. A feature of a strict rule test is that there is a premium on knowing what the rule is and paying attention to it. Those taxpayers who do not pay attention run the risk of failing the test.
Posted by: Victor Thuronyi | Mar 11, 2019 10:22:14 AM
Unfortunately, those who need this won't read this, and those who read this don't need this. I've seen attorneys and CPAs who blow the ninety-day mailing cutoff (not too many), but the vast majority are self-representeds.
Posted by: lewis taishoff | Mar 11, 2019 8:02:20 AM
@Victor, really nice teaching point. I think the administrative need for bright-line rules may be part of why the Tax Court has been quite reluctant to green-light equitable tolling or estoppel. One finds a similar tension between rules and standards in the application of equitable relief provisions in 6015(f).
Posted by: bryan | Mar 12, 2019 7:51:13 AM