Most of us are aware of the timely-mailed-timely-filed “mailbox rule” contained within the Internal Revenue Code. Most of us are probably also aware that a document mailed with a private delivery service may also qualify for the rule. However, as illustrated by the U.S. Tax Court’s recent decision in Sanders v. Commissioner, there are important details to the rules governing private delivery services, the failure to adhere to which can lead to disaster. Also complicating matters, many states do not conform to these federal rules, so taxpayers must carefully review and adhere to the filing rules in each state where they have state tax filing obligations.
The mailbox rule is codified in Internal Revenue Code (IRC) § 7502. Pursuant to IRC § 7502(a), the deemed delivery date for any return, claim, statement or other document required to be filed by a prescribed date under the “internal revenue laws” is the U.S. postmark, provided that the document is actually delivered by U.S. mail to the agency, officer or office to which the document is required to be filed. The same general rule applies to payments required to be made under the internal revenue laws. The reference in IRC § 7502 to the “internal revenue laws,” however, makes that provision broadly applicable in various contexts. Thus, while the provision applies to tax returns and tax elections, it also applies to documents filed with the U.S. Tax Court.
The IRC and related regulations clarify important requirements and definitions to IRC § 7502. While the discussion here focuses on the timely filing requirements for documents, similar rules may also apply for payments. Select requirements and definitions from IRC § 7502 and the underlying regulations are provided below:
- Envelope and proper address: Although obvious, the IRC and related regulations specify that documents must be placed in a properly addressed envelope.
- Timely deposited in the U.S. mail with proper postage: The document must be deposited in the U.S. mail with sufficient prepaid postage. For these purposes, “U.S. mail” means the domestic mail service of the U.S. Postal Service (USPS). Section 7502 does not apply to any document sent through the mail service of another country.
- Postmark: If the postmark on the envelope is made by the USPS, the postmark must bear a date on or before the last date or the last day of the period prescribed for filing the document (the “required filing date”). Generally, the sender assumes the risk that the postmark will bear a date on or before the required filing date. If the postmark does not bear a date on or before that date, the document or payment is considered to be not timely filed, regardless of when it was actually deposited in the mail.
Non-USPS postmarks, such as private-meter postmarks, must satisfy two conditions: (1) the postmark must bear a legible date on or before the required filing date and (2) the document must be received no later than the time when a document that is properly addressed, mailed and sent by the same class of U.S. mail would ordinarily be received if it were postmarked at the same point of origin by the USPS on the required filing date. If the second condition is not met, the taxpayer may rely on an alternative rule to prove timely filing if it can establish: (1) that the document 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 USPS on or before the required filing date; (2) that the delay in receiving the document or payment was due to a delay in the transmission of the U.S. mail; and (3) the cause of the delay.
Where an envelope bears both a private-meter postmark date before the last date prescribed for filing and a USPS postmark dated after the last date prescribed for filing, the Tax Court has held the USPS postmark controls.
- Delivery: Generally, the document must actually be delivered by U.S. mail to the agency, officer or office with which the document is required to be filed or to which payment is required to be made.
Registered or Certified Mail
The IRC and the related regulations sanction the use of registered and certified mail and relax the postmark and delivery requirements for each. If a document is sent by U.S. registered mail, the date of registration of the document or payment is treated as the postmark date. Similarly, if a document is sent by U.S. certified mail and the sender's receipt is postmarked by the postal employee to whom the document or payment is presented, the date of the U.S. postmark on the receipt is treated as the postmark date of the document. Thus, the risk that the document will not be postmarked on the day that it is deposited in the mail may be eliminated by the use of registered or certified mail. Additionally, for documents sent by registered or certified mail, proof that the document was properly registered or that a postmarked certified mail sender's receipt was properly issued and that the envelope was properly addressed to the agency, officer or office constitutes prima facie evidence that the document was actually delivered.
Non-U.S. Mail Delivery
Taxpayers can also satisfy IRC § 7502’s rules governing timely filing by using certain approved non-U.S. mail delivery methods. These delivery methods have their own special rules.
A document filed electronically with an electronic return transmitter in the manner and time prescribed by the USPS is deemed to be filed on the date of the electronic postmark given by the authorized electronic return transmitter. Thus, if the electronic postmark is timely, the document is considered filed timely although it is received by the agency, officer or office after the required filing date. For these purposes, an electronic postmark is the record of the date and time that an authorized electronic return transmitter receives the transmission of a taxpayer's electronically filed document on its host system. However, if the taxpayer and the electronic return transmitter are located in different time zones, it is the taxpayer's time zone that controls the timeliness of the electronically filed document.
Private Delivery Services
In 1996, Congress granted the U.S. Department of the Treasury (Treasury) authority to designate certain private delivery services (PDSs) to be treated like the U.S. mail for purposes of IRC § 7502’s mailbox rule. However, a PDS can be afforded such treatment only if: (1) it is available to the general public; (2) it is at least as timely and reliable on a regular basis as the U.S. mail; (3) it records electronically to its data base, kept in the regular course of its business, or marks on the cover of the delivered item the date on which such item was given to the service for delivery; and (4) it meets such other criteria as the U.S. Secretary of the Treasury (Secretary) may prescribe. Congress also authorized Treasury to provide a rule similar to the rules for registered and certified mail to any service provided a designated PDS that is “substantially equivalent” to U.S. registered or certified mail.
The legislative history to the act that conferred this authority on Treasury indicates that Congress was responding to Correia v. Commissioner, 58 F. 3d 468 (9th Cir. 1995), where the U.S. Court of Appeals for the Ninth Circuit upheld the Tax Court’s decision that IRC § 7502 does not apply to private delivery companies. The Ninth Circuit found a legitimate policy rationale for extending the rule to private delivery companies, but it concluded that only Congress, and not the courts, has the power to make such a change. The House Report reasoned that “[t]here were many private delivery companies ... which [could] meet the U.S. Postal Service’s ability to deliver documents quickly and securely,” and “many taxpayers needlessly [ran] afoul of ... [the mailbox] rule because they [made] a reasonable assumption that using a private delivery service is adequate to show timely filing of their tax returns.”
Exercising the designation authority conferred on the Secretary, the Internal Revenue Service (IRS) has, from time to time, designated various PDSs as equivalent to the U.S. mail for purposes of IRC § 7502. Notice 2004-83 sets forth the current list of designated PDSs:
- DHL Express (DHL): DHL Same Day Service, DHL Next Day 10:30 am, DHL Next Day 12:00 pm, DHL Next Day 3:00 pm, and DHL 2nd Day Service;
- Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2 Day, FedEx International Priority, and FedEx International First; and
- United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A.M., UPS Worldwide Express Plus, and UPS Worldwide Express
Notice 2004-83 does not identify any service provided by these PDSs that is substantially equivalent to U.S. registered or certified mail.
PDSs: Still a Potential Trap for the Unwary
Despite congressional efforts to ease the burden on taxpayers making “reasonable assumptions” about the use of PDSs, unwary taxpayers nevertheless have still run afoul of the PDS provisions. Sanders v. Commissoner, T.C. Summ. Op. 2014-47, a recent Tax Court opinion, is representative of a line of cases in which taxpayers have failed to pay close attention to Notice 2004-83. In Sanders, the taxpayer’s petition was due on May 3, 2013. On May 6, 2013, the Tax Court received the petition, which was dated May 1, 2013, and was delivered by UPS bearing a label, dated May 2, 2013, that indicated that it had been sent by UPS Ground service.
The IRS filed a motion to dismiss for lack of jurisdiction on the ground that the petition was not timely filed, noting that UPS Ground is not a designated PDS pursuant to IRC § 7502. Because the petition was actually received by the Tax Court on May 6, 2013, the IRS argued that the petition was untimely.
After observing that it was a court of limited jurisdiction and may exercise jurisdiction only to the extent authorized by Congress, the Tax Court cited the mailbox rule and discussed the special rules for PDSs. In reviewing Notice 2004-83, the Court noted that UPS Ground service had not been designated by the IRS as an approved PDS, held that the taxpayer could not rely on the mailbox rule and that the petition was not timely filed, and dismissed the case for lack of jurisdiction.
The Tax Court “acknowledge[d] that the result may appear harsh,” but noted it “cannot rely on general equitable principles to expand the statutorily prescribed time for filing a petition.” The Tax Court also noted that the taxpayer was not without a judicial remedy as he could pay the tax, file a claim for refund, and, if his claim were denied, sue for a refund in federal district court or the U.S. Court of Federal Claims.
As the Sanders case illustrates, taxpayers should not assume that all the delivery services offered by DHL, FedEx and UPS are designated PDSs. Notably, UPS Ground and FedEx Express Saver are not designated PDSs under Notice 2004-83. The opportunity to pursue a judicial remedy outside of the Tax Court will come as little solace to taxpayers facing having to pay a large deficiency simply because they failed to pay close attention to the detailed conditions of Notice 2004-83.
State Tax Sidebar
Taxpayers should not assume that the federal mailbox rule applies at the state level and, if it does apply, should not assume that the state rule is interpreted and applied in the same manner as the federal rule. Indeed, some states do not adopt the mailbox rule at all and require actual receipt of a document or payment before the prescribed deadline. For example, in Kentucky, a protest filed with the Kentucky Board of Tax Appeals must be “received by the board within thirty (30) days of the date of issuance of the final ruling, order, or determination” being appealed. 802 Ky. Admin. Regs. 1:010, §2(1)(d).
In addition, states that adopt a mailbox rule do not necessarily conform to the various nuances and details of the federal rule. For example, states may not extend their mailbox rule to PDSs at all or may have specific rules regarding PDSs that differ from the federal rules. See, e.g., Connecticut Department of Revenue Services, Policy Statement 2012(2): Designated Private Delivery Services and Designated Types of Service (Dec. 2, 2008). Further complicating matters, a particular state may have different rules for different filings. For example, in New York, the use of certain designated PDSs will generally qualify for the mailbox rule for purposes of filing tax returns, payments or other documents with the New York State Department of Taxation and Finance. But for purposes of filing documents, such as a petition, with the Division of Tax Appeals and Tax Appeals Tribunal, the mailbox rule extends only to documents filed using the U.S. mail. Compare New York State Department of Taxation and Finance Publication 55, Designated Private Delivery Services (Dec. 2013) with 20 NYCRR 3000.22(a)(1).
Therefore, taxpayers must carefully review and adhere to the mailing rules that apply in each jurisdiction where they make payments or file state tax returns and other tax documents to ensure that those payments and documents are timely filed or risk facing penalties or other harsh consequences, such as the inability to protest a proposed assessment.