9th Circ. Finds Inadequate Proof Of Mailing in Dening $167,000 Tax Refund

The Court of Appeals for the Ninth Circuit has reversed a district court decision that held that the taxpayers timely filed their refund claim because they met the requirements of the common-law mailbox rule.

So according to the Ninth Circuit, the 2011 Treasury rule is definitive on whether a tax filing is mailed on time, and taxpayers cannot rely on the common-law “mailbox rule.”

Howard and Karen Baldwin claimed to have filed an amended tax return on time via U.S. mail, but they could not show they complied with the regulation, which says the only way to establish that a document was mailed to the IRS is proof of proper use of certified mail or a private delivery service, the appeals court said in a published opinion. Therefore, their amended return was filed late and their case should be dismissed, the court said, voiding a $167,000 refund and $25,000 award of legal fees.

The Baldwins contended they followed the mailbox rule, which says testimonial or circumstantial evidence can provide sufficient proof of proper mailing, but the 2011 Treasury regulation displaced that rule, the court said.

It was reasonable for the Treasury regulation to set “the sole means by which taxpayers may prove timely delivery in the absence of direct proof of actual delivery,” the court said.

At trial, two employees of the couple testified the 2005 amended return was timely mailed just before a statutory deadline expired, according to the opinion. The IRS said it never received that amended return by the Oct. 15, 2011, deadline, but it did eventually receive the return in July 2013. (Something is Fishy Here).

The U.S. District Court for the Central District of California ruled that the Baldwins had complied with the common-law mailbox rule and awarded them the $167,000 refund that they claimed on the amended return along with $25,000 in legal fees.

In reversing the decision with instructions to dismiss the case, the Ninth Circuit said the IRS replaced the mailbox rule by promulgating Treasury Regulation Section 301.7502-1(e) in August 2011, the court said. That regulation says Section 7502 of the Internal Revenue Code provides the exclusive means to prove delivery and renders the common-law mailbox rule unavailable, the court said.

To comply under Section 7502, a document must be sent by registered mail, which provides a receipt to the person sending it, the court said. Registered mail also provides heightened security for the mailed item, such as keeping it in a locked space, and electronically tracks the chain of possession from the taxpayer to the recipient, the opinion said.

The regulation resolved a circuit split over the correct interpretation of Section 7502, which “left the law in an undesirable state, as it allowed similarly situated taxpayers to be treated differently depending on where they lived,” the court said.