Chief Counsel's Position is Use of UPS to Deliver Notice of Non-Judicial Sale Did Not Satisfy IRC Requirements, IRS Lien Remains Intact

In Chief Counsel Email 201545025 the issue involved whether the use of an approved private delivery service was acceptable for delivery to the IRS of notices of non-judicial sales.

IRC §7425 deals with the IRS’s rights when the service obtains a lien on property.  Generally such a lien is not impacted by any judicial proceeding to which the IRS is not a party.  A limited exception occurs in certain cases described in IRC §7425(b) if the IRS is properly notified of the proceeding.

Generally, IRC Section 7425(c)(1) says:

(c) Special rules

(1) Notice of sale

Notice of a sale to which subsection (b) applies shall be given (in accordance with regulations prescribed by the Secretary) in writing, by registered or certified mail or by personal service, not less than 25 days prior to such sale, to the Secretary.

In the case in question notices of a non-judicial sale were delivered to the IRS via UPS.  As the email notes:

Under section 7425(c), notice of sale must be given, per regulations prescribed by the Service, in writing, by registered or certified mail or by personal service, not less than 25 days prior to sale.  We have always interpreted “registered or certified mail” as referring to the registered or certified mail services provided by the United States Postal Service (USPS), and not to refer to any alternative mailing services. Treas. Reg. § 301.7425-3 (a)(1) provides that “[t]he provisions of sections 7502 (relating to timely mailing treated as timely filing) . . . apply in the case of notices required to be made under this paragraph.” Section 7502(f) allows the Service to define, within certain parameters, “designated delivery services” that serve as equivalents to United States mail service. It also provides that the Service “may provide a rule similar to the rule of paragraph (1) [related to regular mail] with respect to any service provided by a designated delivery service which is substantially equivalent to United States registered or certified mail.” I.R.C. § 7502(f)(3). In addition, Treas. Reg. § 301.7502-1(c)(3) provides that “the Commissioner may, in guidance published in the Internal Revenue Bulletin (see § 601.601(d)(2)(ii)(b) of this chapter), prescribe procedures and additional rules to designate a service of a PDS for purposes of the postmark rule of section 7502(a).”

But what about the expanded “private delivery services” provisions of IRC §7502?  After all, didn’t that make the use of a PDS equivalent to certified or registered mail?

That is not the view of the emailed advice, arguing that it just provided proof of a postmark date—and this rule requires more than a postmark date.

As the email continues:

Section 7502 does not apply here with regard to defining registered and certified mail for purposes of section 7425(c). The Service has never provided rules pursuant to section 7502(f)(3). The applicable revenue procedure regarding designation of delivery services specifically states that the designation rules in the revenue procedure apply only with respect to regular mail, not for purposes of § 7502(f)(3), related to delivery services to be deemed equivalent to United States registered or certified mail. Rev. Proc. 97-19, section 3.02. Furthermore, the Service has not to date designated any services as equivalent to United States registered and certified mail. See Notice 201538 (May 26, 2015).  As such, even if section 7502 could be construed to expand the definition of “registered and certified mail” for purposes of section 7425, no private delivery services are currently treated under section 7502 as equivalent to registered or certified mail.

But doesn’t the fact the documents actually arrived at the IRS offices make a difference?  The IRS is not denying the documents were actually delivered.

The emailed advice concludes that’s not a relevant issue.  As it notes:

In addition, we considered whether delivery by private delivery services satisfies the requirement of delivery by personal service. Neither the Code nor the regulations specifically indicate whether delivery by private delivery services satisfies the requirement of delivery by personal service. In fact, “by personal service” is not defined in the Code or in the regulations. Nor is it currently addressed in the Internal Revenue Manual. Publication 786, Instructions for Preparing a Notice of Nonjudicial Sale of Property and Application for Consent to Sale repeats the Code. In our view, “personal service” means delivery by the submitter of the notice, not a third party. The Code section anticipates that any third-party delivery must be by USPS certified or registered mail.

Thus, the advice concludes “the UPS delivery did not satisfy the personal service or the registered/certified mail requirement.”

As always, this must be considered only the IRS’s opinion until such time as someone challenges the matter in court.  But clearly it seems discretion is the better part of valor here, and any such notices should always be sent via registered or certified mail to avoid the possibility a court might agree with the IRS’s view in this case.