Today we welcome back our frequent contributor, Carlton Smith, who is writing on the September Tax Court case, Tilden v. Commissioner. Tilden was an IRS victory where a stamps.com label did not constitute a valid postmark for timely mailing, which the Service subsequently tried to reverse. Carl explains what the heck is going on below. Steve
I considered doing a post on Tilden v. Commissioner, T.C. Memo. 2015-188, when it came out on September 22, 2015. I didn’t. But, now that the IRS has challenged its own victory in Tilden and asked for a reversal, I couldn’t resist. After all, how often does the IRS succeed in getting a Tax Court case dismissed for being untimely brought, then not object to a taxpayer’s motion for reconsideration that asks the Tax Court to find the petition timely? Indeed, the IRS has taken three different positions in this case as to the applicable law. However, in an order dated December 3, 2015, Special Trial Judge Armen refused to reconsider his ruling, despite the IRS’ most recent change of heart.
So, what was all the hubbub about? Well, Tilden is a case where a deficiency petition arrived at the Tax Court after the 90th day. It arrived by certified mail (United States Postal Service (USPS)), but bore no real postmark, just a shipping label from stamps.com and a certified mail receipt, both dated the 90th day, and the latter only dated in the handwriting of an employee of the taxpayer’s attorney. Applying regulations under section 7502 and prior Tax Court case law, Judge Armen held that since internal USPS tracking data showed that the USPS first got possession of the envelope after the 90th day, section 7502 did not apply, the petition was untimely, and the Tax Court therefore lacked jurisdiction.
Section 7502(a) provides a rule that allows a Tax Court petition to be timely when it is received by the court after the date by which it must be filed and bears a timely “United States postmark”. Section 7502(b) provides: “This section shall apply in the case of postmarks not made by the United States Postal Service only if and to the extent provided by regulations prescribed by the Secretary.” As PT has noted in its recent post on the Guralnik case (found here and here) , section 7502(f) provides rules for certain private delivery services to get the benefit of the subsection (a) rule. Tilden did not involve a private delivery service, though. The issue in Tilden was whether subsection (b) or the common law mailbox rule applied, and what the regulations under subsection (b) provided.
Boultbee
Before discussing Tilden, we need to detour here to another opinion decide by Judge Armen, Boultbee v. Commissioner, T.C. Memo. 2011-11 – especially since Judge Armen relied on it as the centerpiece of his Tilden rulings.
In Boultbee, the IRS sent a notice of deficiency to a taxpayer in Canada, who, thus, being out of the country, had 150 days under section 6213(a) to file a Tax Court petition. A petition arrived at the Tax Court after the 150th day in the USPS mail. The envelope bearing it had been sent through the Canadian Post by its registered mail and bore a clearly visible Canadian post postmark within the 150-day period. The envelope bore no USPS postmark, but internal USPS tracking information (from the USPS’ “Track and Confirm” service) showed that the envelope had entered the USPS system in Los Angeles several days before the 150th day and arrived at the Tax Court 7 days later.
The IRS moved to dismiss the petition as untimely. The IRS argued that foreign postmarks do not get the benefit of section 7502. The IRS distinguished a provision of the regulations that allowed extrinsic evidence of mailing where a USPS postmark was illegible or missing, arguing that no USPS postmark was required for foreign mail transmitted to the USPS, so no USPS postmark was “missing”.
Judge Armen wrote that in, these circumstances, “we regard the U.S. Postal Service Track and Confirm data as tantamount to, and/or the functional equivalent of, a U.S. Postal Service postmark. See sec. 7502(f) (regarding the treatment of private delivery services and the use of corporate records electronically written to a database)”. Slip op. at *13. Therefore, relying on that USPS data, he held that the petition was filed timely.
Boutlbee was never appealed by the IRS, perhaps because the case was later dismissed for lack of prosecution.
Tilden
Tilden similarly involved an envelope that bore no USPS postmark. Since this case involved a Wisconsin taxpayer, the 90-day period in section 6213(a) was applicable. The envelope containing the petition bore a private postage label from stamps.com dated the 90th day. Apparently, the envelope was placed in the mail by an employee of counsel for the taxpayer, and that employee also affixed to the envelope a Form 3800 certified mail receipt (the white form) on which the employee also handwrote the date that was the 90th day. The Form 3800 did not bear a stamp from a USPS employee. Nor did the USPS ever affix a postmark to the envelope.
The envelope arrived at the Tax Court from the USPS. The USPS had handled the envelope as certified mail. That meant that the USPS internally tracked the envelope under its “Tracking” service (formerly known as “Track and Confirm”). Plugging the 20-digit number from the Form 3800 into the USPS website yielded Tracking data showing that the envelope was first recorded in the USPS system on the 92nd day. The envelope arrived at the Tax Court on the 98th day.
In Tilden, the IRS moved to dismiss the case based on the ground that the USPS Tracking data showed the petition was mailed on the 92nd day.
In his objection, the taxpayer disagreed, arguing that this was a situation covered by Reg. 301.7502-1(c)(1)(iii)(B)(1). That regulation states:
(B) Postmark made by other than U.S. Postal Service.–(1) In general.–If the postmark on the envelope is made other than by the U.S. Postal Service–
(i) The postmark so made must bear a legible date on or before the last date, or the last day of the period, prescribed for filing the document or making the payment; and
(ii) The document or payment must be received by the agency, officer, or office with which it is required to be filed not later than the time when a document or payment contained in an envelope that is properly addressed, mailed, and sent by the same class of mail would ordinarily be received if it were postmarked at the same point of origin by the U.S. Postal Service on the last date, or the last day of the period, prescribed for filing the document or mailing the payment.
The taxpayer argued that the stamps.com mailing label, combined with the Form 3800, was a “postmark” not made by the USPS that legibly showed a date that was the 90th day and that the 8-day period between the 90th day and receipt by the Tax Court was when mail of such class would “ordinarily be received”. Thus, under the regulation, the petition was timely filed.
In responding to the objection, the IRS changed position and now argued that the taxpayer had the wrong portion of the regulation, and that the relevant portion of the regulation was actually Reg. 301.7502-1(c)(1)(iii)(B)(2), which provides:
(2) Document or payment received late.–If a document or payment described in paragraph (c)(1)(iii)(B)(1) is received after the time when a document or payment so mailed and so postmarked by the U.S. Postal Service would ordinarily be received, the document or payment is treated as having been received at the time when a document or payment so mailed and so postmarked would ordinarily be received if the person who is required to file the document or make the payment establishes–
(i) That it was actually deposited in the U.S. mail before the last collection of mail from the place of deposit that was postmarked (except for the metered mail) by the U.S. Postal Service on or before the last date, or the last day of the period, prescribed for filing the document or making the payment;
(ii) That the delay in receiving the document or payment was due to a delay in the transmission of the U.S. mail; and
(iii) The cause of the delay.
The IRS argued that the petition had arrived beyond the time it would “ordinarily be received”, triggering the taxpayer’s obligation to prove the three conditions of the relevant portion of the regulation – none of which had been proved.
Judge Armen held that both parties had the wrong portions of the regulation. He believed the relevant portions of the regulation were found at:
(1) Reg. 301.7502-1(c)(1)(iii)(B)(2), which provides:
(3) U.S. and non-U.S. postmarks.–If the envelope has a postmark made by the U.S. Postal Service in addition to a postmark not so made, the postmark that was not made by the U.S. Postal Service is disregarded, and whether the envelope was mailed in accordance with this paragraph (c)(1)(iii)(B) will be determined solely by applying the rule of paragraph (c)(1)(iii)(A) of this section; and
(2) Reg. 301.7502-1(c)(1)(iii)(A), which provides:
If the postmark does not bear a date on or before the last date, or the last day of the period, prescribed for filing the document or making the payment, the document or payment is considered not to be timely filed or paid, regardless of when the document or payment is deposited in the mail.
Judge Armen admitted that no postmark from the USPS actually appeared on the envelope, but he cited his opinion in Boultbee for the proposition that USPS Tracking data was the equivalent of a USPS postmark. “After all,” he wrote, “both USPS Tracking data and the more traditional postmark are products of the USPS, and nothing would suggest that the former is not as reliable and accurate as the latter when it comes to determining the time of mailing.” Tilden, slip op. at *11. Since the Tracking data first showed the envelope with the USPS as of the 92nd day, the non-USPS “postmark” was disregarded, and it did not matter when the envelope was deposited in the mail. The petition was untimely.
The judge dismissed the taxpayer’s argument that the USPS data does not accurately reflect either where or when the envelope first entered the USPS mailstream. The court noted that similar arguments had been rejected when it was clear that the USPS postmark had been affixed at a postal facility other than the one where the envelope was placed into the mailstream or because the USPS was dilatory in postmarking the envelope. The judge observed:
As section 301.7502-1(c)(1)(iii)(A), Proced. & Admin. Regs., makes clear, “the sender who relies upon the applicability of section 7502 assumes the risk that the postmark will bear a date on or before the last date, or the last day of the period, prescribed for filing the document”. The regulation goes on to advise that such risk may be avoided by using registered mail or by using certified mail and having the sender’s receipt postmarked by the postal employee to whom the document is presented . . . . Such risk may also be avoided through the judicious use of a designated delivery service. See sec. 7502(f)(2)(C). [id. at *12-*13 (some citations omitted)]
Motion for Reconsideration
In its motion for reconsideration, the taxpayer, among other things, argued for applying the common law mailbox rule. The taxpayer reported that the IRS told him that the IRS objected to the granting of the motion for reconsideration.
But, when the IRS actually filed a response to the motion, the IRS changed position again and now did not object to the granting of the motion. A copy of the IRS response can be found here. The IRS noted that section 7502 has been held to supersede the common law mailbox rule in most Circuits (with one exception not relevant to this case). And, in any case, the common law mailbox rule couldn’t apply here where there was actual delivery – and delivery was on a date after the due date. You still needed section 7502 to make the late envelope timely.
But, the IRS now took the position that the envelope had been received at the limit of, but still within, the time in which the envelope would be expected to “ordinarily be received” if mailed on the 90th day from Utah, where the taxpayer’s attorney’s office was. In part, the IRS concession was based on the delay to be expected because (as many people forget), since the 2001 anthrax in the mail scare, all mail to the Tax Court gets irradiated. Thus, the IRS conceded that the taxpayer’s petition was timely under the portion of the regulation on which the taxpayer relied, Reg. 301.7502-1(c)(1)(iii)(B)(1). The IRS, without mentioning Boultbee, simply told the court that the court had relied on the wrong provisions of the regulation, since there was no actual USPS postmark in this case, just tracking data.
Somewhat incensed that neither party responded to Boultbee — the lynchpin of his prior ruling in Tilden — Judge Armen denied the motion for reconsideration, telling the parties the truism that the court’s jurisdiction may not be conferred by mere concession by the parties.
To date, neither the taxpayer nor the IRS has appealed the December 3 denial of the motion for reconsideration in Tilden.
Observation
Tilden presents a common situation and now may throw up more obstacles in those situations to the Tax Court taking jurisdiction of such cases. Many attorneys’ offices have mailroom people who use private postage meters, and such mailroom people, when sending an envelope certified mail, themselves date the Form 3800, rather than getting a date stamp on the envelope and the Form 3800 by a USPS employee. I know that at Cardozo School of Law, where I worked running the Tax Clinic, that was also the procedure for certified mail in its mailroom.
I don’t know what is acceptable proof of timely mailing in other areas of the law, but I always told my students that a Tax Court petition had best be sent certified mail, and the students should themselves go down to the post office and see that both the envelope and the Form 3800 get timely, legible date stamps made on them by a USPS employee. I banned my students from simply dropping the envelope with the completed Form 3800 in the Cardozo mailroom. Either take this step or use the private delivery service companies, after double-checking the current list of approved private delivery companies and the approved services of those companies.
In comments on PT, Jason T has often complained that any Tax Court practitioner who does less – like the attorney did in the Tilden case – has probably committed malpractice if the mailing is later held to fail the section 7502 rules. I agree. Take Tilden as a cautionary tale.