Tuesday, September 11, 2012

Timely-Mailing, Timely-Filing - Tax Court Case Reminder of Requirements (9/11/12)

In my Tax Procedure class last Thursday, we covered return filings.  A key component of the discussion was the timely mailing, timely filing rule in Section 7502, here.  The Tax Court yesterday decided Scaggs v. Commissioner, T.C. Memo. 2012-258, here.  Scaggs offers an object lesson in how not to qualify for the timely mailing, timely filing rule.  So I will review the rules and then the decision in Scaggs.

I cut and paste my discussion from my Federal Tax Procedure book (no footnotes):

Section 7502 provides a “timely-mailing, timely-filing” rule, which treats the mailing date as the filing date for returns (and other documents) received by the IRS after the due date (either the original due date where there is no extension or the extended due date if there is an extension) but mailed on or before that due date.  The timely-mailing, timely-filing rules (and risks) may be summarized as follows:
1.   The document filed must be a “return, claim, statement, or other document required to be filed.”  I focus here on the “required to be filed” element.  Original tax returns are the quintessential type of document that is required to be file and thus clearly meets this element of the statute.  Tax Court petitions are also required to be filed by the Code in order to meet the jurisdictional requirements for the Tax Court and, in that sense, are required to be filed and thus meet this element of the statute.  What about amended returns?  The standard conceptualization of the amended return is that the Code itself does not require amended returns to be filed.  So, do amended returns qualify?  The answer is that some clearly do and some may not.  Since, as we shall see later, the Code requires claims for refunds to be filed within a statute of limitations period, amended returns making refund claims qualify as returns required to be filed thus permitting the taxpayer to meet this element of the timely mailing, timely filing rule.  But, that analysis does not apply to amended returns reporting additional liability.  The IRS has ruled that amended returns reporting additional liability are not “required” and thus any tax reported on such returns actually filed after the assessment limitations period but otherwise mailed within the assessment period, do not qualify under § 7502.  What this means is that the IRS may not assess and must return any payment remitted with the amended return reporting a liability.
2. The mailing must occur within the time otherwise prescribed (either on or before the due date, whether original or extended). 
3. The delivery to the IRS must occur after the time otherwise required for filing (either the original due date or extended due date).  If the delivery to the IRS occurs within the time otherwise required, the timely-mailing, timely-filing rule is not needed and does not apply.  This aspect of the timely-mailing, timely-filing rule is, of course, subject to the other rule we noted that returns filed before the original due date are deemed filed on the original due date (April 15 for individuals).  So, an individual return mailed to the IRS on April 1 but received after the original due date of April 15 is deemed filed on the date of mailing (April 1) but is subject to the rule that it is deemed filed on the original due date (April 15).  By contrast, an individual return on extension through October 15 is mailed on October 1 but received after October 15 is deemed filed on October 1 (because the timely-mailing , timely-filing rule is needed).  To carry this one step further, in the latter example, if the return is received by the IRS on October 5, the return is filed on October 5 (rather than October 1) because the timely-mailing, timely-filing rule only apples if the return is filed after the extended due date (October 15).  This latter result can thus give the IRS several days on the statute of limitations for a return that has an extended due date if the IRS receives it before the extended due date. 
4. The timely-mailing, timely-filing rule applies to filings with the IRS and with the Tax Court. 
5. If the Postal Service fails to deliver the mailing to the IRS (or alternatively, the IRS has lost it and has no record that it was delivered), the taxpayer may be out of luck.  There is a critical exception, however.  By use of registered mail or certified mail, pursuant to the conditions in the Regulations, the mailing will be prima facie evidence that the IRS received the mailing and the document will be deemed timely filed on the date of mailing.  Indeed, the document will be deemed timely filed even if the IRS has no record of ever receiving the document or it could be affirmatively proved that the IRS did not receive it.  This means that the taxpayer (or his practitioner) has it within his or her power to assure timely-filing simply by meeting this condition.  The taxpayer still must prove that he or she sent the document by registered or certified mail as prescribed in the Regulations; that is done by taking the envelope to the Post Office and having the Postal Service clerk stamp the retained receipt with a Postal Service stamp indicating the date. 
6. There are risks if the foregoing guaranteed methods are not used.  Simply mailing a return using a Postal Service postage stamp will not work unless the IRS receives the envelope and, if there is a postmark, it is or can be proved that the postmark was within the prescribed period or, if there is not a postmark, the taxpayer can prove that it was timely and properly mailed.  Obviously, simply using a Post Office stamp will inject risks that the Postal Service may not receive or properly process the mailing so that the taxpayer may be required at a minimum to explain the delay while in the bowels of the Postal Service.  Similarly, if private post metering is used, the taxpayer is subject to rules prescribed in Regulations.  Because private post metering can be manipulated, the Regulations require that the mailing sent by private post metering actually reach the office to which it is mailed within the normal period (based on Postal Service statistics) or, if delivered later than that normal period, the taxpayer can persuasively explain why it was not delivered timely (often an impossible burden while the mailing was within the very large bowels of the Postal Service).  As you can see there are risks related to the use of simple postage or private post metering. 
7. The foregoing rules apply to mail posted through the U.S. Postal Service.  Two key expansions of the rule apply.  First, mail sent via private delivery services that meet certain strict tests prescribed in IRS Regulations and in periodic announcements qualify for the rule.  The usual suspects (Federal Express, United Parcel Service, DHL, etc.) are approved.  These rules permit qualifying private deliveries to guarantee that the timely-mailing, timely-filing rule will apply.  Second, mail delivered via foreign country postal services to the IRS qualifies for the rule.  Note the underlining carefully, because foreign country postal service mailings do not qualify if sent to the United States Tax Court.  Persons in foreign countries desiring to qualify for the timely-filing, timely-mailing rule for Tax Court petitions and notices of appeal must use the designated delivery services.  Finally, the use of such private delivery services does have some risk, for the date of timely-mailing is the date the private delivery services records its acceptance of the document package over which the practitioner or taxpayer using the service has no control.


Now for a discussion of the Scaggs case.  The taxpayers, appearing pro se, used FedEx, an approved service.  But they used FedEx's "Express Saver Third business day" service.  By statute, the IRS can identify both the delivery service and the type of delivery.  In Notice 2004-83, 2004-2 C.B. 1030, the approved deliveries for FedEx were:
FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2 Day, FedEx International Priority, and FedEx International First. The 2004 notice expressly states that FedEx is not designated with respect to any type of delivery service not expressly identified. Thus, "Express Saver Third business day" service is not a designated private delivery service. See Raczkowski v. Commissioner, T.C. Memo. 2007-72 (holding in part that the timely mailing/timely filing rule of section 7502 does not apply to "UPS Ground" service because such service was not a designated private delivery service under the 2004 notice).
I hope that the lesson is learned for practitioners.  As I told my class last week, I did not ever want to see their names in any case where they failed to do what was necessary to assure timely mailing, timely filing.

I hope also that readers will bear with me for an anecdote / war story (actually 2 related war stories).  When I started at DOJ Tax Appellate, I met with the Chief of the Section, the esteemed Lee Jackson.  With great eloquence, Lee assigned met my first case, the case of Fishman v. Commissioner, 420 F.2d 491 (2d Cir. 1970), here.  He advised that the Government had won in the Tax Court on the timely-mailing timely filing rule (a private post meter was used but, while the meter date was timely, it was delivered 6 days later to the Tax Court when normal mail from NYC took 3 days max).  He said the case was one of great importance to the tax law and implied that the whole superstructure of the Code would collapse if the case were lost. He was pumping me up, of course; they did not assign important cases to new attorneys.  I suspected that, but then Lee told me that my opposing counsel in the case would be Morton Ginsberg.  He did not offer me the spelling -- just stated the name orally.  I had been a student of Martin Ginsberg at NYU Law School.  Martin was one of the smartest ever -- some would say the smartest ever -- tax lawyers (and also husband to Justice Ruth Bader Ginsberg).  Martin's Wikipedia entry is here.  So, I thought, if Martin is involved, then this must really be an important case and, not only that, but that Martin would likely not take a futile case, so I would, I imagined, have a rough time of it.  After going back to the office with the file, I quickly discovered that my opposing counsel was Morton Ginsberg rather than Martin Ginsburg.  I was greatly relieved.  With great anticipation, though, I leapt into the task.  I wrote the brief (my early efforts are painful to read now), and had oral moot court argument.  The Appellate Section "panel" told me that I was better at oral argument than brief writing.  (I hope I got better at both over time, but that's another story.)  So, oral argument was scheduled and I showed at the Second Circuit, also with great anticipation to show my nascent oral argument skills (as minimal as they were).  My panel included the great jurist, Judge Friendly.  Mr. Ginsberg went first, using most of his time (I think it was 30 minutes).  I rose to answer the opening argument.  I was ready to go with my prepared argument which could have lasted perhaps 15 to 20 minutes even without questions -- but about 3 minutes into the argument, I noticed that the judges did not seem to be paying attention and were reading something.  I intuited that they were reading something related to the next case (just an intuition based in part on the questions during the opening argument, but I think I was right on that).  So, I brought my argument to an orderly close and sat down in under 5 minutes.  That was one of my shorter arguments.  (I actually beat that time in the Second Circuit in a subsequent case, Estate of Kahn v. Commissioner, 499 F.2d 1186 (2d Cir. 1974), here, where the Government was appellee; the opening argument was by John Nolan, one of the finest tax lawyers in the country; the panel questioned him pretty hard during opening argument and I knew that, if I made an extended (up to 30 minute answer), I could not improve my position, so I rose and said it appeared from the questions that the judges had a good understanding of the positions and that I would only clarify in one sentence one point that had been made in the opening argument; I then sat down; I think under a minute total; the Government won the case, as you can see from the link.)

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