Ninth Circuit Panel Holds Taxpayers Cannot Rely on Common Law Mailbox Rule to Prove Timely Filing of Documents

The Ninth Circuit Court of Appeals rejected a taxpayer’s attempt to use the common law mailbox rule to prove that an amended return the taxpayer claimed to have mailed to the IRS four months before the deadline for filing the claim was timely filed.  In Baldwin, et. ux. v. United States, CA9, No. 17-55115; No. 17-55354 the Court found that the IRS’s 2011 regulations under IRC §7502 take precedence over the Ninth Circuit’s prior holding that taxpayer could make use of the common law mailbox rule to prove timely filing in Anderson v. United States, 966 F.2d 487, 490 (9th Cir. 1992).

The facts of the situation were summarized by the panel as follows:

The Baldwins’ 2007 tax return reported a net operating loss of approximately $2.5 million from their movie production business. They wanted to carry that loss back to the 2005 tax year in order to offset their 2005 tax liability. Based on that carryback, the Baldwins prepared an amended 2005 tax return claiming entitlement to a refund of approximately $167,000.

To obtain a refund, the Baldwins were required to file their amended 2005 tax return by October 15, 2011 — three years from the extended due date for their 2007 tax return. See 26 U.S.C. § 6511(b)(1), (d)(2)(A). The Baldwins assert that they sent their amended 2005 tax return to the IRS by U.S. mail in June 2011, well before the October 15th deadline. But the IRS never received that return, or any other return postmarked by the October 15, 2011, deadline. The IRS did eventually receive an amended 2005 return from the Baldwins in July 2013, but it was postmarked after the statutory deadline had passed. The IRS accordingly denied the Baldwins’ refund claim as untimely.

IRC §7502 governs situations where the IRS claims not to have received a document filed by the taxpayer or that the taxpayer did not timely file such a document.

IRC §7502(a) governs the issue of reliance on postmarks to show the date a return was “delivered” to the IRS and provides:

(1) Date of delivery

If any return, claim, statement, or other document required to be filed, or any payment required to be made, within a prescribed period or on or before a prescribed date under authority of any provision of the internal revenue laws is, after such period or such date, delivered by United States mail to the agency, officer, or office with which such return, claim, statement, or other document is required to be filed, or to which such payment is required to be made, the date of the United States postmark stamped on the cover in which such return, claim, statement, or other document, or payment, is mailed shall be deemed to be the date of delivery or the date of payment, as the case may be.

However, as the panel notes, that only covers situations where the document is actually delivered to the IRS.  In this case the IRS claims never to have received such a document.

IRC §7502(c) provides a method that taxpayer may use to both establish the date and the deemed delivery of the document by use of registered mail or other mechanisms the IRS may approve by regulation:

(c) Registered and certified mailing; electronic filing

(1) Registered mail

For purposes of this section, if any return, claim, statement, or other document, or payment, is sent by United States registered mail—

(A) such registration shall be prima facie evidence that the return, claim, statement, or other document was delivered to the agency, officer, or office to which addressed; and

(B) the date of registration shall be deemed the postmark date.

(2) Certified mail; electronic filing

The Secretary is authorized to provide by regulations the extent to which the provisions of paragraph (1) with respect to prima facie evidence of delivery and the postmark date shall apply to certified mail and electronic filing.

The IRS has issued such regulations with regard to certified mail and electronic filing.  Similar authority was granted to the IRS to provide for the use of private delivery services and the IRS has issued guidance on that method as well.[1]

In August 2011 the IRS issued final regulations under IRC §7502 that limited the taxpayer’s ability to prove actual delivery to cases where registered mail, certified mail or a private delivery service is used.  Reg. §301.7502-1(e)(2) provides:

(i)Registered and certified mail. In the case of a document (but not a payment) sent by registered or certified mail, proof that the document was properly registered or that a postmarked certified mail sender's receipt was properly issued and that the envelope was properly addressed to the agency, officer, or office constitutes prima facie evidence that the document was delivered to the agency, officer, or office. Other than direct proof of actual delivery, proof of proper use of registered or certified mail, and proof of proper use of a duly designated PDS as provided for by paragraph (e)(2)(ii) of this section, are the exclusive means to establish prima facie evidence of delivery of a document to the agency, officer, or office with which the document is required to be filed. No other evidence of a postmark or of mailing will be prima facie evidence of delivery or raise a presumption that the document was delivered.

The regulation had initially been proposed in 2004, and the effective date of the final regulation was tied back to that date as allowed under IRC §7805(b).  Under that provision, the IRS “gives notice” of the intent to change the rules and how they will be changed.  If the agency goes through with the final regulation, the rule can be applied back to the date notice was given through publishing proposed regulations.  While the Baldwins mailed their returns two months before the regulations went final, they did so seven years after the IRS had put taxpayers on notice of the possibility this rule would change.

The Baldwins did not use any of the protected methods.  Rather, they simply mailed the claim to the IRS.  At trial they introduced testimony of their employees that they had mailed such a document in June 2011, giving more than sufficient time for the return to be delivered to the IRS. 

The trial court found that the IRS regulation was invalid.  In the view of the trial court, in §7502(c) Congress had merely provided a safe harbor that taxpayers could use to prove timely delivery and that it supplemented rather than replaced the common law mailbox rule.  Finding the taxpayers had carried their burden under the common law mailbox rule, the court ruled the taxpayers had timely filed their claim. The IRS appealed that decision to the Ninth Circuit.

The Circuit Court reversed the trial court’s holding.  The Court found that while the statute could be read in the manner the trial court did, it also could be read to bar the use of evidence not specifically provided in that statute.  The panel noted that, prior to the regulations and Congress’s action to add the proof of filing option to IRC §7502, there had been a split in the circuits regarding whether §7502 offered the sole option of proving timely filing.

The Ninth Circuit, in the Anderson case noted earlier, had taken the position that the law and regulations in place in 1992 did not bar the use of the mailbox rule.  But the panel noted that Anderson had not held that the statute unambiguously allowed for the use of the mailbox rule.  Rather, Anderson found the statute did not mention the matter.  The Andserson panel did not find that there were not multiple reasonable interpretations and, the current panel points out, the split in the circuits indicates that, in fact, such multiple reasonable interpretations existed.  Even in 1992, for taxpayers in a large portion of the country use of the mailbox rule to prove timely filing was effectively barred by prior holdings of the applicable Circuit Court of Appeal.

In 2011 the IRS exercised its discretion to issue regulations resolving this ambiguity and establishing a consistent nationwide standard.  The 2011 regulations clearly bar the use of the mailbox rule to establish delivery of the document to the IRS.  That regulation serves to override the Anderson result since, like the Anderson decision, the regulation resolved the ambiguity in the statute.

The panel found the regulation thus properly served to obtain a consistent result across the country—and to get to that consistency the Anderson case no longer could serve to justify use of the mailbox rule.  The IRS could have adopted the view that the mailbox rule applied—but they did not abuse their discretion in choosing to adopt the opposite holding.

[1] IRC §7502(f)