Ninth Circuit Allows IRS to Overrule Common-Law Mailbox Rule
Most tax professionals are aware of the common-law “mailbox rule,” which provides that proof of proper mailing creates a rebuttable presumption that the document was physically delivered to the addressee. Internal Revenue Code (Code) section 7502 was enacted to codify the mailbox rule for tax purposes. Thus, for documents received after the applicable deadline, the document will be deemed to have been delivered on the date the document is postmarked. To protect taxpayers against a failure of delivery, Code section 7502 also provides that when a document is sent by registered mail, the registration serves as prima facie evidence that the document was delivered, and the date of registration is treated as the postmark date. In other words, if the Internal Revenue Service (IRS) claims not to have received a document, the presumption arises that such document was delivered so long as the taxpayer produces the registration.
Over the years, courts struggled with the impact, if any, that Code section 7502 had on the common-law mailbox rule, and a circuit split arose. Some courts held that Code section 7502 effectively displaced the common-law mailbox rule by providing an objective standard without the need to resort to testimonial and circumstantial evidence to provide when a document was mailed. Other courts held that Code section 7502 was intended as a safe harbor, and that the common-law mailbox rule could still be used to prove the date of a mailing. The US Circuit Court for the Ninth Circuit was in the latter camp, holding that the statute was not intended to create the exclusive exception to the common-law mailbox rule.
In 2004, the IRS proposed regulations to resolve the circuit split by interpreting Code section 7502 in a manner that created the exclusive exceptions to the physical-delivery rule. The regulations, which were finalized in 2011, provide that the common-law mailbox rule is no longer available, and taxpayers must demonstrate direct proof that a document was actually delivered to the IRS.
In Baldwin v. United States, the taxpayers asserted that they timely mailed an amended return in 2011 (prior the finalization of the regulations). The IRS acknowledged that it received the amended return, but not until 2013, and it noted that the postmark was after the statutory deadline for filing a refund claim had expired. Based on the testimony of two of their employees that the employees deposited the return in the mail at the post office in 2011, the taxpayers argued that under the common-law mailbox rule that testimony, if found credit by the court, would give rise to a rebuttable presumption that the refund claim was timely.
The district court agreed with the taxpayers, holding that Code section 7502 merely supplemented, not supplanted, the common-law mailbox rule. Therefore, the IRS could not adopt a contrary construction by issuing a regulation. The Ninth Circuit reversed, finding that the regulation was valid under the two-step analysis of Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 US 837 (1984). As to the first step, the court held that Code section 7502 was silent on the issue presented: whether a taxpayer who sends a document by regular mail can rely on the common-law mailbox rule to establish a presumption of delivery when the IRS claims to have not received the document. Under the second step, the court concluded that the regulation was a permissible construction of the statute because, as reflected by the circuit split, Code section 7502 could be read in two reasonable ways. In reaching this conclusion, the Ninth Circuit rejected the taxpayers’ reliance on the canon of construction that the common law should not be deemed repealed unless the statutory language is clear and explicit.
The Ninth Circuit noted that its prior interpretation of Code section 7502—that it did not displace the common-law mailbox rule—was not a bar. It reasoned that, under National Cable & Telecommunications Association v. Brand X Internet Services, 545 US 967 (2005), the court’s prior construction of Code section 7502 did not preclude a different interpretation by the IRS because the prior construction was based on filling a statutory gap in a reasonable manner. Put another way, the IRS’s subsequent, conflicting position in its regulations was appropriate because that position was also reasonable and the statutory language was ambiguous.
Finally, the Ninth Circuit rejected the taxpayers’ argument that the 2011 regulation did not apply because it was promulgated after they allegedly mailed their amended tax return. The court reasoned that the regulation expressly provided that it applied to all documents mailed after the date the proposed regulations were issued, and that Code section 7805(b) authorizes the retroactivity of regulations as far back as the date of their proposal.
Practice Point: It is always a best practice to mail tax documents by registered mail to ensure that no disputes arise in the future if the documents get lost in the mail or delivery is delayed by the carrier. Without such proof of mailing, it can be extremely difficult to convince the IRS that mailing was timely. So spend a few extra dollars; it may save you a lot of heartache!