This year, the tax filing deadline for most folks is today, Monday, May 17th (here in Texas we get until June 15th because of the winter freeze). The May 17th date is thanks to this questionable national extension issued by the IRS. I say questionable because it is not clear why §7508A or any other statute gives the IRS the authority to extend the statutory deadline nationwide this year. But no one is complaining.
And the IRS needs the extension as much as taxpayers do. TIGTA reported in March that the IRS had still not processed almost 12 million 2019 paper returns as of last December 20th. That should not be a criticism of the IRS. While perhaps not the “master class” tweeted by Ms. Yellen, the IRS has done remarkably well to keep the machinery of tax collection moving during this time of COVID and Congressional Simon-Says statutes requiring immediate distribution of multiple Economic Impact Payments. It would be difficult to expect more of any agency. In short, everyone needs a little more time this year.
So today is Tax Day! It's a great time for the lesson I see in William J. Spain and Idovia A. Spain v. Commissioner, T.C. Memo. 2021-58 (May 11, 2021) (Judge Lauber): how to comply with filing requirements and how to substantiate that compliance. Sure, it’s a CDP case, but the lesson is equally applicable to all those last-minute tax return filings that will happen today. In today’s case, the taxpayer’s careless CPA used his office postage meter to mail the Tax Court petition, but put no date on the envelope. He relied on the U.S. Post Office to pick up the mail and postmark it. Bad move. The USPS did not postmark the envelope. That failure at least created an opportunity to rescue the situation, but the CPA failed there as well. The sad details are below the fold.
Law: The Mailbox Rule
Taxpayers have many opportunities to seek Tax Court review of IRS actions. To properly invoke those opportunities taxpayers must timely file a petition. To do that you need to first determine your deadline and then timely file. And you must be prepared to prove you timely filed.
Determining the right date to file by can be tricky. The Tax Court generally starts the relevant filing deadline on the later of two dates: (1) the date on which the relevant IRS document (generally an “NOD” of some kind, whether Notice of Deficiency or Notice of Determination) was issued (i.e. the date on the document itself) or (2) the date the document was actually mailed (look at the postmark on the envelope). But generally is not always. For details see Bryan Camp, Equitable Principles and Jurisdictional Time Periods, Part 2, 159 Tax Notes 1581, 1589-90 (June 2018).
Determining whether the filing is timely can also be tricky. Just like an income tax return, a Tax Court petition is filed when it is received. That’s called the physical delivery rule. See Bongam v. Commissioner, 146 T.C. 52 (2016). So the first step is to see whether the Tax Court (or relevant IRS office) received the document before the deadline. If so, you have timely filed and have no need for further analysis.
But if you do not meet the physical delivery rule, you may still be rescued by the Mailbox Rule. Tax Court Rule 22 provides that the same timely-mailing-equals-timing-filing rules in §7502 that apply to documents filed with the IRS also apply to petitions filed with the Tax Court. That is why cases involving Tax Court petitions are applicable to situations involving the timeliness of filing documents with the IRS.
Section 7502 sets out the basic Mailbox Rule: if the document being filed was properly mailed by the filing deadline, then it will be treated as timely filed even though it is actually received late. Timely mailing equals timely filing. The key, of course, is making sure the document is properly mailed. That’s where taxpayers, return preparers, CPAs and lawyers routinely mess up.
The §7502 regulations tell us what constitutes proper mailing.
First is an address requirement. Taxpayers must properly address the document. Treas. Reg. 301.7502-1(c)(1)(i). For Tax Court petitions that means addressing it to the United States Tax Court, 400 Second Street, N.W. Washington, D.C. 20217-0002.
Second is a deposit requirement. Treas. Reg. 301.7502-1(c)(1)(ii) requires taxpayers to have deposited the petition “with the domestic mail service of the U.S. Postal Service (USPS)” before the filing deadline.
Third is the postmark requirement. The statute’s plain language requires a USPS postmark. Section 7502(a) says “the date of the United States postmark...shall be deemed to be the date of delivery.....” The regulations expand that requirement to permit three kinds of postmarks: USPS postmarks; Private Delivery Service (PDS) postmarks; and taxpayer-generated postmarks. For those interested, I explain more in Lesson From The Tax Court: Using 7502 To Beat the Statute Of Limitations, TaxProf Blog (Nov. 11, 2017).
So what happens where there is no postmark? Ah, that is when the Tax Court appears to allow taxpayers to introduce extrinsic evidence of proper mailing. See Seely v. Commissioner, T.C. Memo. 2020-6. Neither the statute nor regulation permit extrinsic evidence. It’s a court-created rule, otherwise known as “common law.” I explain that more in Lesson From The Tax Court: The Common Law Mailbox Rule Lives!, TaxProf Blog (Feb. 3, 2020).
Today’s lesson is about that pesky postmark requirement.
The taxpayers here received an NOD for the 2014 tax year and did not respond to it. The IRS assessed the tax and started collection. The taxpayers timely requested a CDP hearing; they wanted to contest the merits of their tax liabilities. But, of course, they could not do that because the NOD was a proper communication giving them a prior opportunity to contest the liability. See §6330(c)(2)(B); Lesson From The Tax Court: The CDP Consequences Of A Failure To Communicate, TaxProf Blog (July 26, 2020)(Letter 1153 did not automatically prevent a taxpayer from contesting the merits of a proposed Trust Fund Recovery Penalty in a later CDP hearing).
On September 11, 2019, Appeals mailed petitioners its Notice of Determination (NOD). The NOD was dated September 10, 2019. Under the Tax Court’s general approach, that made their petition filing deadline 30 days from September 11, which would be October 11.
The USPS delivered the petition to the Tax Court Clerk’s office on October 21, 2019. Waaaaaay late. The only hope now was the Mailbox Rule. Going down the checklist, two of the three requirements were met. The petition was properly addressed and it had been deposited with the USPS.
It was the postmark rule that created a problem. The envelope containing the petition had no postmark of any kind. That’s right. None. While the USPS had delivered the envelope it had failed to put on a postmark. And while the postage had been put on by an office postage meter but, apparently, the meter had also failed to put on a postmark. So there was not even a taxpayer-provided postmark. If there had been, and if the petition had been received by the Tax Court within the ordinary time for mail to be delivered from the point of origin, then the taxpayer-provided postmark would satisfy the Mailbox Rule. Treas. Reg. 301.7502-1(c)(1)(iii)(B)(2).
Here, however, there was no postmark at all. And the only evidence of timely mailing these pro-se taxpayers could produce was a letter from their CPA---one Richard Shapiro, of Scottsdale---which said only that the taxpayers had signed the petition in his office on October 10, 2019 and he had mailed the petition that day from his office.
Lesson: How To Prove Timely Mailing Without A Postmark
Judge Lauber explains that when the Tax Court receives a petition late and there is no postmark on the envelope, all is not lost. He tells us that “case law instructs us to...permit the introduction of extrinsic evidence to ascertain the mailing date.” Op. at 7. The taxpayer must “present convincing evidence of timely mailing.” Id. Evidence can include testimony from the person mailing the petition, but the Tax Court is deeply suspicious of “uncorroborated, self-serving statements” such as statements from return preparers who might face some liability for having screwed up the mailing! Lookin’ at you, Mr. Shapiro!
Here, Judge Lauber said Mr. Shapiro’s letter was woefully inadequate to prove timely mailing. Heck, it was not even testimony! It was not submitted under penalty of perjury and was not subject to cross-examination. It was not corroborated. It was self-serving. And it apparently did not explain why the office postage meter had failed to put a date stamp on the envelope. It just said that the taxpayer signed the petition on October 10th (a Thursday) and the petition was mailed later that day.
So take all those problems with the letter and you see what must be done to prove timely mailing when you don’t have a postmark. Of course, the better practice is: get the postmark! Judge Lauber reminds us: “Had Mr. Shapiro used certified mail, he would have a receipt postmarked by the [USPS] employee to whom he presented the envelope, and that postmark would be treated as the postmark date of the document.”
Comment 1: Regulations v. Common Law. Alert readers will notice the ellipses is this quote from Judge Lauber’s opinion: “case law instructs us to...permit the introduction of extrinsic evidence to ascertain the mailing date.” The full quote is “case law instructs us to deem the postmark illegible and permit the introduction of extrinsic evidence to ascertain the mailing date.” The bolded stuff is an eminently reasonable rule, but ignores the regulations. Judge Lauber relies on case law predating the current regulations. The current regulations provide that when a postmark is illegible, then “the person who is required to file the document or make the payment has the burden of proving the date that the postmark was made.” Treas. Reg. 301.7502-1(c)(1)(iii)(A).Not only do current regulations thus impose a different burden of proof than prior case law (proof of date of postmark rather than proof of date of mailing), they also only allow such proof for illegible USPS marks. The regulations simply do not permit illegible taxpayer-provided marks. Treas. Reg. 301.7502-1(c)(1)(iii)(B)(1). The IRS Office of Chief Counsel takes the position that envelops without a postmark or with only an illegible taxpayer-provided postmark simply cannot qualify for the Mailbox Rule. I am glad to see the Tax Court consistently rejecting that view.
Comment 2: Proving your Proof! I have seen comments on the ABA Tax Section Low Income Taxpayer Committee listserv reporting that some IRS employees refuse to accept even certified mail receipts unless the practitioner can link the receipt to the document in question. That is, the IRS employees are not believing that the certified mail receipt is properly reflecting the contents of the envelop represented by the certified mail receipt. So. Awkward. They apparently think that the representative is going to the trouble of obtaining a certified mail receipt for an envelop full of garbage. From that great list, I took away this best practice: prepare a short transmittal letter to be placed inside the envelope that shows the taxpayer’s name, address and TIN, the document being sent, a declaration that it is being mailed certified mail, and the certified mail number from the slip being used. Another suggestion was to hire a videographer....but I do think that was a joke...
Comment 3: This is The Year To Get It Right. Today’s lesson (get the postmark!) is all the more important for taxpayers today because of the IRS processing backlog. Say the IRS is six months behind in processing paper-filed returns. Having the proper proof of mailing (rather than relying on the USPS) thus might not only save six months of late filing penalties, but it might also shave six months off the otherwise applicable ASED (assessment statute expiration date).
This is indeed a lesson worth taking to heart today of all days.
Bryan Camp is the George H. Mahon Professor of Law at Texas Tech University School of Law. He invites readers to return to TaxProf Blog each and every Monday for a new Lesson From The Tax Court