Failure to File Penalty When Return Not Filed-What is Reasonable Cause to Avoid the Penalty? (11/24/23)

In Lee v. United States, 84 F.4^th 1271, (11^th Cir. 8/24/23) (GS here), the Court held that reliance upon a return preparer to e-file a tax return is not reasonable cause for the failure to file penalty. This is a logical and probably necessary holding from Boyle’s bright line holding for those penalties applying for failure to file and pay by mail. United States v. Boyle, 469 U.S. 241 (1985), here.

Lee serves as a reminder that taxpayers assume the risk of their preparer’s failure to file (whether in hard copy format or by e-file). Of course the taxpayer has to sign the hard copy manually and should be able to know at least whether that essential act was done in time. So, if signing the return occurs in time, the taxpayer should simply mail the return in one of the § 7502 guaranteed timely mailed, timely filed way.

In this regard, readers may want to review Judge Lagoa’s “specially concurring” opinion warning of the risks in this process for manually mailed and efiled returns.

I posit one hypothetical as a possible reasonable cause defense for failure to file timely. Assume an individual taxpayer with an extended filing date of 10/15/XX. He engages with a competent preparer to whom he timely delivers all documents and data required to prepare the return and offer it to the taxpayer for filing and mailing in early October. The expectation is that the taxpayer will do the guaranteed timely mailing-timely filing method under § 7502. During the preparation phase, the taxpayer and the preparer correspond as necessary to make sure the preparer has the information sufficiently to prepare the return competently and timely and is progressing in a timely manner to meet the early October time to deliver to the client for filing. On October 13/XX, the taxpayer goes to the preparer’s office to sign, physically signs, and takes possession of the return, bringing a properly addressed envelope with a postage-paid envelope for one of the guaranteed timely mailing -timely filing methods. The taxpayer finds at the preparers office that for some reason the return has not been prepared and the underlying documents and data are in such a mess that the mess cannot be resolved in time to file the return timely. Would that be reasonable cause? Surely this is a different case than Boyle where the problem resulted from the adviser giving incorrect legal advice as to the filing date so that, apparently no attempt was made to prepare a return in time for timely filing. Also, assume that the failure to file penalty is $1,000,000. Would you take the case on a contingency fee?

Of course, taxpayers who can prove that they reasonably relied upon the preparer under state law have a likely cause of action under state law. But pursuing that right might be expensive, timely, and perhaps fruitless.

9th Circuit En Banc Holds That Filing Tax Returns for Statute of Limitations Purposes Means Proper Filing as Prescribed in Regulations (3/11/23)

In Seaview Trading, LLC v. Commissioner, 62 F.4th 1131 (9th Cir. 3/10/23) (en banc), CA9 here and GS here,  the Ninth Circuit rejected its panel opinion analysis at 34 F.4th 666, here, and held that sending a to an IRS agent a “copy” of a tax return the partnership claimed it previously filed timely CMRRR was not a filing for purposes of starting the partnership period of limitations.

I reported on the previous panel opinions earlier: 9th Circuit Holds That Copy of Unfiled Return Delivered to Examining Agent is Filing of Return for Statute of Limitations Purposes (Federal Tax Procedure Blog 5/12/22; 3/11/23), here. In that blog, I used the Court’s Summary of the panel opinion. I will do so here (at least key excerpts) for the en banc holding, and repeat what I said earlier that, although the Ninth Circuit cautions that the summary, prepared by staff, is not part of the opinion, the summary, like a Supreme Court syllabus, is not a nothingburger. See Supreme Court Opinion Syllabus as Persuasive Authority? (Federal Tax Procedure Blog 2/8/21), here. I include only the core holdings of the majority.

SUMMARY*

* This summary constitutes no part of the opinion of the court. It has been prepared by court staff for the convenience of the reader.

Tax

       Affirming the Tax Court’s decision concluding that the Internal Revenue Service’s notice of final partnership administrative adjustment was timely, the en banc court held that neither Seaview Trading LLC’s faxing a copy of their delinquent 2001 tax return to an IRS revenue agent in 2005, nor mailing a copy to an IRS attorney in 2007, qualified as a “filing” of the partnership’s return, and therefore the statute of limitations did not bar the IRS’s readjustment of the partnership’s tax liability.

 * * * * *

        26 U.S.C. § 6230(i) (2000), which was applicable during the period in question, provided that a partnership’s return “shall be filed . . . at such time, in such manner, and at such place as may be prescribed in regulations.” The implementing regulations, 26 C.F.R. § 1.6031(a)-1(e)(2001), in turn, provided that “[t]he return of a partnership must be filed with the service center prescribed in the relevant IRS revenue procedure, publication, form, or instructions to the form” and that “[t]he return of a partnership must be filed on or before the fifteenth day of the fourth month following the close of the taxable year of the partnership.” The Tax Court held that Seaview never “filed” its 2001 return because it failed to send the return to [*4] the designated place for filing under Treasury Regulation § 1.6031(a)-1(e)(1))—namely, the IRS’s Ogden Service Center. The en banc court agreed.

       The en banc court explained that Seaview did not meticulously comply with the regulation’s place-for-filing requirement because neither the IRS revenue agent nor the IRS attorney to whom Seaview sent copies of its 2001 return qualified as a designated place for filing. And at no point was Seaview’s return ever forwarded to the designated place for filing at the Ogden Service Center. The en banc court concluded that because Seaview did not meticulously comply with the regulation’s place-for-filing requirement, it was not entitled to claim the benefit of the three-year limitations period. Rather, having never properly filed its return, Seaview was instead subject to 26 U.S.C. § 6229(c)(3) (2000), which allows taxes attributable to partnership items to be assessed “at any time.”

JAT Comments:

9th Circuit Holds That Copy of Unfiled Return Delivered to Examining Agent is Filing of Return for Statute of Limitations Purposes (5/12/22; 3/11/23)

Caveat, by Order filed 11/10/22, the Ninth Circuit vacated this decision discussed below and ordered rehearing en banc. 9th Cir. here; TN here. On 3/10/23, the Ninth Circuit en banc held that the "copy" of the allegedly timely filed return was not a filing to start the statute of limitations.  See Seaview Trading, LLC v. Commissioner, 62 F.4th 1131 (9th Cir. 3/10/23), CA9 here, and GS here. and my blog on it, 9th Circuit En Banc Holds That Filing Tax Returns for State of Limitations Purposes Means Proper Filing as Prescribed in Regulations (Federal Tax Procedure Blog 3/11/23), here.

In Seaview Trading, LLC v. Commissioner, 34 F.4th 666 (9th Cir. 5/11/22), CA 9 here and GS here, the Court (majority panel) held that filing for starting a relevant statute of limitations (there TEFRA § 6229(a), for partnership return) is (from the summary)

when (1) an IRS official authorized to obtain and receive delinquent tax returns informs a partnership that a tax return is missing and requests that tax return, (2) the partnership responds by giving the IRS official the tax return in the manner requested, and (3) the IRS official receives the tax return, then the partnership has "filed" a tax return for purposes of § 6229(a).

The relevant facts and law, highly summarized, are: (1) pursuant to the regulations and procedures, the partnership return was required to be filed timely at the relevant IRS service center; (2) the IRS service center did not receive a timely filed 2001 partnership return; (3) the partnership did not timely file (or could not prove that it timely filed) an original 2001 partnership return (see JAT Note #2 below); (4) the IRS in due course audited the partnership for 2001; (5) in the course of the audit, the IRS agent requested and received a copy of the 2001 partnership return and had that copy in his possession by January 2006; and (6) in October 2010 (more than three years after the agent had the return in his possession for use in the audit), the IRS issued the partnership FPAA, noting that no return was filed but that a copy of the return was provided "during the examination;" the FPAA reduced the reported loss of $35 million to zero. [As an aside, likely a bullshit tax shelter, but that is only inference from the large loss disallowed.]

The partnership filed a petition in the Tax  Court. The Tax Court held that "(1) Seaview did not "file" the tax return by faxing a copy to the IRS revenue agent or by mailing a copy to the IRS counsel, and (2) in any case, the copies of the 2001 Form 1065 sent to the IRS in 2005 and 2007 were not "returns." Seaview and the IRS then settled all their disputes but preserved Seaview's right to appeal the Tax Court's denial of summary judgment."

The issue was whether a return (said to be a copy of the original return) delivered to an agent in the audit was a delinquent filing or whether the delinquent return must be filed with the service center. The Court held that the regulations requiring filing with the service center applied only to timely filed returns, that there are no regulations applying to filing delinquent returns and that "no IRS regulation prohibits the filing of untimely returns with a requesting IRS official." Based on that, the Court held "we hold that a delinquent partnership return is "filed" under § 6229(a) when an IRS official authorized to obtain and process a delinquent return asks a partnership for such a return, the partnership delivers the return to the IRS official in the manner requested, and the IRS official receives the return."

Cert Petition Filed in Baldwin re Timely-Mailing, Timely Filing Regulations and Chevron (10/30/19)

Some conservative/libertarians who claim loudly to fear the administrative state are now worked up over a tax case.  In Baldwin v. United States, 921 F.3d 836, 840 (9th Cir. 2019), here, which I discuss in my Federal Tax Procedure 2019 Practitioner edition (p. 188 n. 832).  Baldwin applied the dreaded Chevron and Brand X, feared as tools of the dreaded administrative state.

The background is the timely mailing timely filing rule of Section 7502.  Baldwin held that, because of changes in the regulations (through the filters of Chevron and Brand X), the requirements of 7502 pre-empt the field of timely mailing-timely filing.  Here is the discussion in the text and footnote of the practitioner edition.

2. Common Law Mailbox Rules.
    a. General. 

The Supreme Court has summarized the common-law mailbox rule:  

The rule is well settled that if a letter properly directed is proved to have been either put into the post office or delivered to the postman, it is presumed, from the known course of business in the post office department, that it reached its destination at the regular time, and was received by the person to whom it was addressed.  

This rule may apply in tax cases, although the decisions are varied as to how and if it applies (i.e. some courts hold that § 7502 pre-empts the field, particularly in light of changes to the underlying regulations n832 ).
   n832 Baldwin v. United States, 921 F.3d 836 (9th Cir. 2019). Regs. § 301.7502-1(e)(2) provides that, if there is no actual delivery (which would set the latest date), proof of proper use of the USPS methods or the designated PDS methods “are the exclusive means to establish prima facie evidence of delivery.” DOJ (and thus the IRS’s) position, accepted by the Court in Baldwin, is currently arguing that these regulations to limit mailing as delivery to the prescribed method are exclusive under the authority of Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984) on the basis that the statute itself is ambiguous as to the application of the mailbox rule. As such, not only is the regulation valid, it pre-empts earlier judicial authority to the contrary under Nat’l Cable & Telecomms.  ss’n v. Brand X Internet Servs., 545 U.S. 967 (2005) (which hold that Chevron qualified interpretive regulations can pre-empt judicial authority except where the judicial authority precludes the interpretation).

The Cato Institute, NFIB and some scholars have filed an amicus brief on the Baldwin petition for cert. See William Yeatman, Baldwin v. United States Is Ideal Vehicle to Revisit Reflexive Deference, 36 Yale J. on Reg.: Notice & Comment (10/29/19), here.  I recommend the article, although it uses APA-speak which may not be familiar to many tax procedure types who spend their time wallowing around in the IRC.  The linked article has further links to the amicus brief.  A key excerpt from the article:

The Tax Court Jurisdictional Brouhaha that Should Never Have Been - Malpractice Alert (1/16/2017)

For many years through 2015, I taught Tax Procedure at the University of Houston Law School.  Some professors teach the subject at a more theoretical level, spending a lot of time, for example, on Chevron and its policy implications.  I do a combination of the theory and the every day rules required to work through the various aspects of tax procedure to benefit the client.  In conjunction with that course, I have published a free downloadable Tax Procedure text.  Actually, the text comes in two editions -- a student edition without footnotes and a practitioner edition with footnotes.  (These may be downloaded from the links to the right of the blog page; I update these two editions annually by mid-August for use by students and law professors.)  The design of the nonfootnoted student edition is for a tax procedure class.  My goal for the student edition is to provide summaries of the procedures, with only key Code sections and key cases cited in the text.  In the practitioner edition, I provide authority and digressions in the footnotes that I don't expect students to know for the class.

One of the important subjects I discuss is the timely mailing, timely filing statute, § 7502, here, for key documents required to be filed under the Code.  In a nutshell, as I state in my text:  the timely mailing, timely filing statute, often called a rule, "treats the mailing date as the filing date for a return (or certain 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 discussion of the rule from the book may be viewed on line or downloaded, here.  This linked document is from the practitioner version with footnotes for more detail.  I do provide at the end of this blog entry, the cut and paste from the student edition without footnotes.

One of the points I hammered into my students in class when we covered this subject in class was that there is an easy way to absolutely assure that the conditions for application of the rule will be met and that easy way should be used in all -- ALL -- cases where mailing is close to the deadline (and even in other cases from an abundance of caution).  If that easy way is chosen (see the linked materials), the document will be treated as timely filed even if it never gets to the place of filing (the IRS or the Tax Court).  That easy way is to use an authorized USPS service or an authorized private postage service (such as FedEx or UPS).  (Must be careful to use the authorized service in each case).

Filing dates are critical to avoid penalties (e.g., for late filed returns).  Penalties are bad, but it could be worse.  In one key facet of the tax practice they are critical.  That is the filing of certain documents with the Tax Court, most commonly the petition for redetermination of a notice of deficiency.  Timely filing is required for a key remedy -- prepayment judicial review in the Tax Court for a deficiency redetermination.  Section 6213(a), here, requires filing within 90 days for Tax Court review to redetermine the deficiency.  Thus, given the importance of timely filing of the petition for redetermination (and some other filings with the Tax Court), as a practitioner, I always use one of the guaranteed methods.  (See the linked portions of my text above and the cut at paste at the end of this blog entry.)

In Tilden v. Commissioner, ___ F.3d ___, here, the Seventh Circuit addressed a situation where the tax practitioner failed to use a guaranteed easy way to assure application of the timely mailing, timely filing rule.  The practitioner used the the Stamps.com third party service that operates like a private postage meter.  The statute generally makes postmarks made by the USPS dispositive, but other non-USPS postmarks are dispositive only pursuant to regulations issued by the IRS.  § 7502(b). Those regulations appear at 26 CFR § 301.7502-1, here.

For application of the rule to a private post metering service (including Stamps.com) postage the mailing must meet the conditions in the regulations.  I won't get into the details here of the various faints and starts encountered in the Tax Court's and then the Seventh Circuit's meandering through the applicable regulations.  The Tax Court held that the taxpayer did not meet the conditions.  The Seventh Circuit held that the taxpayer did, although it was a thin reed of a victory for the taxpayer.

Tax Procedure Book Errata - Addition re Starting Date for Statute of Limitations to Return Filed Before Due Date (8/29/16)

I have made an addition to Example 1 on p.  115 of the Student Edition and 162 of the Practitioner edition.  I quote here the entire example, noting the text added in red and the footnote added in red.\

Example 1: The Year 01 return is mailed on February 1 of Year 02 and received by the IRS on February 6 of Year 02.  The return is timely filed, so the timely-mailing, timely-filing rule does not apply or need to apply.  The return is deemed filed on the due date of April 15 of Year 02.  (Note that this filing date applies to establish the filing date for purpose of the civil and criminal statutes of limitations even if April 15 falls on a weekend or holiday which is treated by § 7503 as being timley filed on the next succeeding.) fn.
   fn. See United States v. Johnson, 2016 U.S. App. LEXIS 15879 (6th Cir. 2016) and the relate case United States v. Johnson, 599 Fed. Appx. 242; 2015 U.S. App. LEXIS 5446 (6th Cir. 2015) dealing with the starting date for the criminal statute of limitations.  The same analysis applies for the civil statute of limitations, although if, as in Johnson, the return was fraudulent, the unlimited civil statute would apply.  The statutory analysis for both civil and criminal statutes is: (1) § 6501(b)(1) treats an early filed return as being filed on the “the last day prescribed by law;” (2) § 6072(a) provides that the last day prescribed by law for an individual return is April 15 of the next year; and (3) § 7503 provides that, where the day prescribed by law is a weekend or holiday, a return filed after the day prescribed by law but on the next business day after the weekend or holiday shall be “considered timely.”  The key point is that the day prescribed by law is still April 15; but a subsequent filing on the next succeeding business day is simply “considered timely.”  Hence, from a statutory interpretation context, conceded by the Government in the Johnson cases, the statute of limitations starts on the last day prescribed by law, which is April 15 for an early filed return.  Now, for a return filed after that normal due date which falls on a weekend or holiday, I suspect that the statute would start running on the date of filing. 

For more detail, see my Federal Tax Crimes Blog entry titled Government Avoids Hyde Amendment Fees and Expense Liability After It Blew the Criminal Statute of Limitations (Federal Tax Crimes Blog 8/29/16), here.

Follow the Rules for Timely Mailing, Timely Filing (11/26/13)

In Eichelburg v. Commissioner, T.C. Memo. 2013-269, here, the taxpayer failed to perfect his qualification for timely-mailing, timely filing under Section 7502, here.  The taxpayer in Eichelburg unknowingly used a private delivery service provider otherwise qualified for the rule -- Federal Express -- but he used the type of service offered by that provider that did not qualify -- that service was the "FedEx Express Saver."  The Court held that he did not qualify, saying (only one footnote included):

In Notice 2004-83, 2004-2 C.B. 1030, the IRS listed all private delivery services that have been designated by the Secretary under section 7502(f). The Federal Express delivery services included on this list are as follows: FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2 Day, FedEx International Priority, and FedEx International First. Notice 2004-83, 2004-2 C.B. at 1030, explicitly states that "FedEx * * * [is] not designated with respect to any type of delivery service not identified above." Thus, FedEx Express Saver is not a "designated private delivery service" within the meaning of section 7502(f). See Scaggs v. Commissioner, T.C. Memo. 2012-258 (holding that the "timely mailed, timely filed" rule of section 7502 does not apply to "Fed Ex Express Saver Third business day" service because that service is not a designated private delivery service under Notice 2004-83, supra); see also Raczkowski v. Commissioner, T.C. Memo. 2007-72 (holding that the "timely mailed, timely filed" rule of section 7502 does not apply to "UPS Ground" service because that service is not a designated private delivery service under Notice 2004-83, supra). 

Petitioner mailed his petition on September 10, 2012, using the FedEx Express Saver delivery service. Because FedEx Express Saver is not a "designated private delivery service," petitioner cannot avail himself of the "timely mailed, timely filed" rule of section 7502(a) and (f). His petition was not filed until September 12, 2012, two days after the expiration of the 90-day period. It was therefore untimely, and this Court lacks jurisdiction to redetermine the deficiency. 

We acknowledge that the result we reach may seem harsh. Notice 2004-83, supra, was issued nine years ago; private delivery companies may have since initiated delivery services resembling those listed in Notice 2004-83, supra; and many taxpayers may be unaware of the nuanced differences among these services.4 However, this Court may not rely on general equitable principles to expand the statutorily prescribed time for filing a petition. See Austin v. Commissioner, T.C. Memo. 2007-11 (citing Woods v. Commissioner, 92 T.C. 776, 784-785 (1989)). The statute gives us jurisdiction under the "timely mailed, timely filed" rule only if a private delivery service has been "designated by the Secretary." Sec. 7502(f)(2). Because FedEx Express Saver has not been so designated, our hands are tied.  n5
   n5 Although petitioner cannot pursue his case in this Court, he may not be without a judicial remedy. He may pay the tax, file a claim for refund with the IRS, and, if his claim is denied, sue for a refund in the appropriate U.S. District Court or the U.S. Court of Federal Claims. See McCormick v. Commissioner, 55 T.C. 138, 142 n.5 (1970).

See prior blogs on this issue:  Pay Attention to Court Filings Not Qualifying for the Timely Mailing-Timely Filing Rule (Federal Tax Procedure Blog 7/10/13); here, and Watch the Details in Relying on the Timely Mailing, Timely Filing Rule (Federal Tax Procedure Blog 2/7/13), here.

This is a cautionary tale.  I tell my students that this is such an easy rule to comply with, I better not read a case in which they failed to comply.  Of course, it is often the pro se taxpayer who is caught by this nuance.

Tax Court Announcement on Effect of Government Shutdown (10/21/13)

The United States Tax Court, here, has issued an announcement regarding the resumption of Tax Court operations after the Government Shutdown.  The announcement is here.  I think that, for most readers of this blog, the key part of the announcement relates to statutory filing deadlines during the shutdown.  The following is the announcement

Statutory Filing Deadlines 

The Court lacks authority to extend statutory filing deadlines imposed in the Internal Revenue Code (I.R.C.). For example, I.R.C. section 6213(a) provides that a taxpayer must file a petition with the Court to redetermine a deficiency within 90 days after the mailing of a notice of deficiency, and I.R.C. section 6330(d)(1) provides that a taxpayer must file a petition to review a determination involving a proposed lien or levy within 30 days after the mailing of the notice of determination. Hand-delivery to the Courthouse was not available during the period the Court was closed due to the Federal government shutdown. During that period, taxpayers were required to comply with the statutory deadlines by timely mailing petitions to the Court. Timeliness of mailing of the petition is determined by the United States Postal Service’s postmark or the delivery certificate of an approved private express delivery company.

The Code sections cited are 6213, here, and 6330(d)(1), here.  As I remind my students, Section 6213(a) is the key code section for the prepayment remedy afforded by the Tax Court.  That section kicks in provisions from other sections (such as suspension of the statute of limitations) to assure that prepayment remedy.  The key point here is that the petition for redetermination has be filed in the 90-day period from the date of the notice of deficiency.

Pay Attention to Court Filings Not Qualifying for the Timely Mailing-Timely Filing Rule (7/10/13)

Every tax controversy practitioner and student is aware of the time-mailing, timely-filing rule in Section 7502, here. The general concept is easily stated -- a document timely mailed to the IRS or a petition to the Tax Court will be deemed timely filed even if it arrives after the due date.  The rule is subject to some nuance and risks.  I won't get into the nuances and risks now.

But, I do want to remind readers that there is no such timely mailing-timely filing rule for other filings.  Perhaps the other most common filing that tax practitioners will deal with is the filing of the suit for refund, necessarily in a court other than the Tax Court.  There is a statute of limitations for a suit for refund -- 2 years from the date the refund claim is denied.  There is no timely-filing, timely-mailing rule for such suits.

I guess I could leave it at that, but I do call readers' attention to a recent case, Langan v. United States, 2013 U.S. Claims LEXIS 740 (Fed. Cl. June 28, 2013), here.  In this case, the claim disallowance was mailed on 12/16/09.  The taxpayer's lawyer delivered the envelope containing the Court of Federal Claims complaint to the USPS in Massachusetts late on 12/15/11, just one day before the statute closed.  The Court of Federal Claims received the envelope and stamped the complaint on 12/19/11.  Too late.

The taxpayer tried to save the day on some older authority from the court that could be read to say that a filing timely delivered to the USPS in time to be timely received by the court will be deemed to have been timely delivered even if was not timely delivered.  In effect, there would be some type of equitable relief if the timely mailing was prudent because of the expectation of timely delivery. This authority even if it were still good, did not apply because the late delivery in Langan to the USPS on the day before the complaint was required to be filed was not filed in time that, in due course, it would be timely delivered the next day.  (The taxpayer's counsel actually used a type of USPS service that would have promised timely next-day delivery had it been deposited with the USPS earlier in the day, but the late delivery (around 11pm) did not qualify for USPS assurance of next day delivery and thus taxpayer's counsel did not act prudently, a necessary condition for the special relief if it even continued to exist.)

This is a cautionary tale.  Just based on the bare facts, the taxpayer's lawyer appears to have botched this and, if so, the tax dollars paid are gone forever.  (As I read the rules, the IRS is  now forbidden to make a refund even if it were to discover that it was due.)

Watch the Details in Relying on the Timely Mailing, Timely Filing Rule (2/7/13)

I write today to provide a reminder to students, practitioners and even law professors as to not thinking through and accomplishing simple tasks in a tax controversy practice.  This object lesson is based on Glenn v. Commissioner, T.C. Memo. 2013-33, here.

In Glenn, the lawyer did, as most practitioners do, intended to rely upon the timely mailing, timely filing rule in Section 7502, here, to meet Section 6213(a)'s jurisdictional requirement for timely filing a Tax Court petition.    See Section 6213(a), here.  Section 7502 requires a timely USPS mailing to the Tax Court in a properly addressed envelope with proper postage prepaid.  (A similar rule applies for qualified overnight delivery services.)  When the USPS mailing is by registered or certified mail, it is prima facie proof of timely filing even if  the petition arrives at the Tax Court late or even never arrives.

In this case, the lawyer wanted to receive a return stamped petition copy which requires that the envelope with the petition include the copy for stamping and a self-addressed, postage prepaid envelope to return the  stamped copy to whomever is designated to receive it (in this case the attorney).  The attorney took both envelopes, with appropriate certified mail form, to the USPS to obtain the proper postage.  She handed it to the USPS person, presumably at the window with instructions to determine and apply the proper postage (for which she paid) and then to insert the return envelope with the other documents into the envelope for delivery to the Tax Court.  The USPS person made a mistake.  He put the Tax Court delivery postage on the return delivery envelope and apparently put no postage on the Tax Court delivery envelope; he then placed everything into the envelope that was to be the return envelope.  Hence, that return delivery envelope went through the mail back to the attorney along with the petition and the petition envelope and did not go to the Tax Court as intended.  Ms. Walker then promptly sent the package to the Tax Court with an  explanation of why the petition was late.

The IRS moved to dismiss the petition as untimely filed.

The Tax Court held that the error was the USPS person's error.  The Court relied upon its cases holding that USPS error does not vitiate timely mailing timely filing if the mailing were otherwise proper (proper address, proper postage).

The opinion saves the attorney's bacon.  The message though is that this case could have gone the other way.  Cross your t's and dot your i's.

I recommend that practitioners periodically review Section 7520 and the regulations, 301.7502-1, here.

Is the Timely-Mailing, Timely-Filing Statute Exclusive (1/19/13)

In Stocker v. United States, 705 F.3d 225 (6th Cir. 2013), here, the Sixth Circuit applied its precedent in holding that the statutory time-mailing, timely-filing rule in Section 7502, here, is the exclusive exception to actual timely filing requirement for returns and similar documents.  Here is the key holding with the circuit split noted in the footnote and even quoting the Sixth Circuit's expressed prior reservations about its precedent.

Nonetheless, the Stockers insist that the two methods set forth in § 7502 for establishing timely filing are not the sole avenues of proof for overcoming the physical delivery rule, and that taxpayers remain free to prove timely filing through other means.  This contention, however, runs directly counter to our decision in Miller, in which we expressly held that "the only exceptions to the physical delivery rule available to taxpayers are the two set out in section 7502." 784 F.2d at 731. In that case, the plaintiff sought to rely on an affidavit from his attorney stating that he had timely sent a claim for a refund by ordinary mail, but the IRS had no record of ever receiving this claim. Because the plaintiff could not produce a postmarked envelope that could confirm the timely filing of his claim, and because this claim had been sent by ordinary rather than registered or certified mail, we found that "the exceptions in section 7502 do not apply to the filing of [the plaintiff's] refund claim." Id. at 730. We then rejected the plaintiff's contention that the two exceptions set forth in § 7502 merely created "safe harbor[s]" to which a taxpayer could appeal "without question, while not barring him from relying on other exceptions created by the courts." Id. Instead, we elected to follow the decisions of other courts holding that the "exceptions embodied in [§ 7502] [a]re exclusive and complete." Id. at 731 (following Deutsch v. Comm'r, 599 F.2d 44, 46 (2d Cir. 1979), and other cases cited therein). n5
   n5 As noted by the Stockers, there is a circuit split on this issue, with other circuits having concluded that § 7502 does not altogether displace the common-law rules, such as the mailbox rule, that the courts have invoked to determine whether a tax return or other document has been timely filed with the IRS. See, e.g., Philadelphia Marine Trade Ass'n — Int'l Longshoremen's Ass'n Pension Fund v. Comm'r, 523 F.3d 140, 150 (3d Cir. 2008) (reasoning that Congress's intent in enacting § 7502 "was to supplement, not supplant, [the] means by which taxpayers can timely file documents with the IRS"); Anderson v. United States, 966 F.2d 487, 491 (9th Cir. 1992) ("[W]e decline to read section 7502 as carving out exclusive exceptions to the old common law physical delivery rule."). We, of course, are bound to adhere to this Circuit's resolution of this issue in the published Miller decision. See Carroll v. Comm'r, 71 F.3d 1228, 1232 (6th Cir. 1995) (expressing reservations about the ruling in Miller but confirming that it "remain[s] good law in the Sixth Circuit").

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.