The Common Law Mailbox Rule Now Superseded By Regulations
July 3, 2020
According to the Tax Advisor, prior to the enactment of Sec. 7502, whether tax documents, including tax returns and claims for refund, were timely delivered to the IRS was determined under two common law rules: the physical-delivery rule and the mailbox rule. Under the common law physical-delivery rule, tax documents must be physically received on time by the IRS to be timely filed. This rule often led to documents' not being timely filed because the Post Office delayed in delivering the documents or did not deliver them at all.
To mitigate this problem, many courts began applying the more taxpayer-friendly common law mailbox rule. Under this rule, documents properly addressed and deposited in the U.S. mail by taxpayers are presumed to have been physically received by the IRS in the time such a mailing would ordinarily take to arrive. Proof of mailing can be established by testimonial or circumstantial evidence.
In 1954, Congress addressed the problems caused by the common law physical-delivery rule by enacting Sec. 7502. Under Sec. 7502, a tax document is timely filed if it is:
- Deposited in the U.S. mail in a properly addressed envelope with adequate postage;
- Postmarked on or before the prescribed filing date; and
- Actually delivered by the U.S. mail.
After Sec. 7502's enactment, the courts generally took two positions regarding its effect on the common law mailbox rule. Some courts held that it superseded the common law mailbox rule and provided the exclusive exceptions to the common law physical-delivery rule. Other courts held that Sec. 7502 only provided a safe harbor to the physical-delivery rule and that under the common law mailbox rule, testimonial and circumstantial evidence could still be used to prove timely mailing.
To resolve the split among the courts, the IRS issued regulations (proposed in 2004, finalized in 2011) to make clear that the common law mailbox rule is no longer available. Under the regulations, a document must be postmarked by the U.S. Postal Service on or before the last date prescribed for filing, and the document must actually be delivered to the IRS (Regs. Secs. 301.7502-1).
Whether this 2011 regulation is valid was tested recently in Baldwin,921 F.3d 836 (9th Cir. 2019). The Baldwins filed a 2005 amended return requesting a refund of $167,000 from a net operating loss carryback from 2007. The due date for filing the claim for refund was Oct. 15, 2011, three years from the extended due date of their 2007 tax return. The Baldwins said they mailed the amended return in June 2011, but the IRS did not receive it by the Oct. 15, 2011, deadline. The IRS therefore denied their refund claim as untimely. The Baldwins filed suit in district court and sought to rely on the common law mailbox rule. Two of their employees testified that they deposited the amended return in the mail at the post office on June 21, 2011.
The district court credited the testimony of the employees and held, based on the common law mailbox rule, that the Baldwins' claim for refund had been timely filed in June (Baldwin, No. 2:15-CV-06004-RGK-AGR (C.D. Cal. 12/2/16)). The court concluded that Sec. 7502 unambiguously supplemented rather than supplanted the common law mailbox rule and, thus, Regs. Sec. 301.7502-1(e)(2) was invalid. The IRS appealed the decision to the Ninth Circuit.
The Ninth Circuit reversed the district court decision, holding that Regs. Sec. 301.7502-1 precluded the taxpayers from relying on the mailbox rule. In its decision, the appeals court applied the two-step analysis under Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), to determine if the regulation was valid. Under Chevron, a court first considers whether Congress has spoken to the precise question. If it has, a government agency may not adopt an interpretation at odds with the plain language of the statute. If the statute is silent or ambiguous, a court then asks whether the agency's interpretation is based on a permissible construction of the statute. If Congress has not spoken to the precise question and the agency's interpretation is permissible, the regulation is valid.
Here, the court found that Sec. 7502 is silent as to whether it replaces the common law mailbox rule and that the regulation's interpretation is based on a permissible construction of the statute. Therefore, under Chevron, the regulation is valid.
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