As April 15th recently passed, the case of Baldwin v. United States, No. 17-55115 (9th Cir. 2019) should serve as a cautionary reminder to taxpayers of the importance of maintaining proper documentation of all mailings and communications with the Internal Revenue Service (IRS).
Howard and Karen Baldwin filed their 2007 federal tax return reporting a $2,500,000 net operating loss from their movie production business. In order to carry the loss back to their 2005 tax year to offset their 2005 tax liability, the Baldwins were required to file an amended 2005 tax return by October 15, 2011, three years from the extended due date of their 2007 tax return. The Baldwins claimed that they mailed their amended 2005 tax return via U.S. mail in June 2011 (four months before the deadline), but the IRS claimed that they never received it. The Baldwins submitted another amended 2005 return that was received by the IRS in July 2013, but this was postmarked well after the October 15, 2011 deadline. As a result, the IRS denied the Baldwin's refund as untimely.
The Baldwins filed suit in the United States District Court for the Central District of California. The Baldwins did not dispute that the IRS never received the amended 2005 tax return mailed in June 2011, but instead relied on the "mailbox rule" to establish the presumption that the IRS received the June 2011 amended return. Under the common-law mailbox rule, proof of proper mailing, which can be done through testimonial or circumstantial evidence, gives rise to a rebuttable presumption that the document was physically delivered to the addressee in a timely fashion. Two of the Baldwin's employees testified that they mailed the Baldwin's amended 2005 tax return on June 21, 2011. The district court relied on the testimony of the employees and ruled, based on the mailbox rule, that the Baldwins filed a timely claim for refund.
The government appealed to the United States Court of Appeals for the Ninth Circuit. The court of appeals found for the government, concluding that the district court incorrectly interpreted IRC § 7502 and Treasury Regulation § 301.7502-1(e)(2), which overrule the mailbox rule with respect to tax documents sent to the IRS. IRC § 7502 provides that if a document is received by the IRS after the relevant deadline, it will be considered to have been delivered on the date that the document was postmarked. Treasury Regulation § 301.7502-1(e)(2) applies when the document is not ever delivered to the IRS and thus is beyond the scope of IRC § 7502. The regulation states that the ONLY way to raise a presumption that the document was delivered is to show proof of mailing by certified mail, registered mail, or by a duly designated private delivery service, thereby supplanting the mailbox rule. Testimonial evidence is not enough. Thus, since the Baldwins had no documentary proof of mailing their amended return in June 2011, their refund claim was untimely.
The Baldwin case illustrates the importance of implementing proper procedures and maintaining adequate records of mailings and communications with the IRS. If the Baldwins had mailed their amended 2005 return in June 2011 via registered or certified mail, and held on to that tiny receipt, the Baldwins would have made a timely claim for a refund. Whenever dealing with the IRS, it is important to read the rules carefully. In the recent case of Floyd v. United States, Misc. No. 18-276-RGA (D. Del. 2019), the taxpayer attempted to quash a summons that the IRS issued with respect to the taxpayer's bank account. However, the taxpayer failed to take into account the requirements of IRC § 7609, including the requirement that a taxpayer attempting to quash a summons must mail the petition by registered or certified mail. As a result, the district court ruled that it lacked jurisdiction to hear the taxpayer's claim. Again, the case was lost due to missing a tiny procedural detail.