The Third Circuit Court of Appeals has
reaffirmed as still valid the “common-law mailbox
rule”—that a properly mailed document is presumed to
reach the IRS within normal delivery time—despite
holdings by other circuits that the rule was
supplanted by the 1954 Tax Code provision that allows
a postmark date to be treated as the filing date of a
return or document. In so doing, the Third Circuit
found that a trust fund had a chance to prove its
refund claim was submitted in a timely fashion, even
though the IRS had no record of receiving it.
The Philadelphia Marine Trade
Association/International Longshoremen’s Association
Vacation Fund was a multiemployer trust fund that
accumulated contributions from collective bargaining
agreements between the Philadelphia Marine Trade
Association and the local unions of the International
Longshoremen’s Association. The fund hired O’Neill
Consulting Corp. to withhold and remit to the IRS
income and payroll taxes from money distributed by the
fund. In 2001, the IRS found the fund in violation of
several regulations, including remittance of
fourth-quarter 1999 and second-quarter 2000 taxes by
paper coupon rather than electronically, and late
remittance of fourth-quarter 2000 taxes. The IRS
assessed penalties against the fund and notified
O’Neill. The O’Neill employee did nothing to correct
the problems, and the IRS levied on $160,386 in the
fund’s money market account on June 25, 2001. The
O’Neill employee resigned in February 2003 without
disclosing the levy to O’Neill or the fund.
The levy was discovered by the fund’s CPA in the
spring of 2003 during an audit. Immediately, the CPA
and O’Neill’s president contacted the IRS revenue
officer for an explanation of the levy but received no
information, as the case was considered closed.
Subsequently, two letters, dated May 8, 2003, and June
13, 2003, requesting a refund were sent to the revenue
officer. After more communications between the IRS and
the CPA, the revenue officer and an IRS
“troubleshooter” met with the CPA and O’Neill’s
attorney and discussed a refund. The fund formally
filed for a refund in September 2003 and received a
partial refund of $93,365. (The government later sued
to recover this refund, saying it was paid in error.)
No refund was granted for the penalty assessed on the
fourth quarter of 1999 because the penalty was
considered paid on June 25, 2001 (date of the levy),
and under IRC § 6511(a), the refund request should
have been made by June 25, 2003 O’Neill
reimbursed the fund for the penalty, and the fund and
O’Neill filed suit in the District Court for the
Eastern District of Pennsylvania to recover the
remaining penalty. The District Court agreed with the
IRS that O’Neill lacked standing and could not sue for
a refund; nor could the fund, since the refund request
was not timely. The fund and O’Neill appealed.
The Third Circuit held that the District Court had
correctly concluded that O’Neill lacked standing and
could not sue for the refund. But on the issue of
untimely filing, it said there was enough direct
evidence of timely receipt of the refund request to
preclude summary judgment against the fund. The
plaintiffs were able to present some evidence they
mailed the request, including a copy of the June 13
letter. The court went on to argue that even if the
direct evidence of the mailings was insufficient, the
common-law mailbox rule allowed a presumption that
they were timely received. The rule was
developed by the courts to determine the timing of
physical delivery and allows them to presume that a
properly mailed document was delivered by the U.S.
Postal Service in the usual time. The IRS contended,
and the Second and Sixth circuit courts have held,
that IRC § 7502, regarding timely mailing treated as
timely filing and paying, pre-empts the common-law
mailbox rule. In this case, the fund did not rely on
section 7502, since the refund requests were filed
with enough time for them to arrive before the
deadline. Rather, it only asked that delivery be
presumed to have occurred in the usual time after
mailing. The Third Circuit, in direct opposition to
the Second in Deutsch v. Commissioner (44
AFTR2d 79-5063) and the Sixth in Miller v. United
States (57 AFTR2d 86-928), maintained that the
common-law mailbox rule was not repealed by section
7502 and may be used to determine when delivery
occurred in cases where a taxpayer does not need to
rely on section 7502 and produces evidence beyond its
own testimony that the mailing occurred early enough
to allow receipt by the IRS before the deadline.
When finalized, Prop. Treas. Reg. §
301.7502-1(e)(1) may prevent similar results for
mailings after Sept. 21, 2004. The proposed regulation
states that only proof of proper use of registered or
certified mail will establish prima facie evidence of
delivery of a document and that no other evidence of a
postmark or mailing will raise a presumption that the
document was delivered. Given this proposed
regulation, it appears that the precedential effect of
the Third Circuit’s opinion may be extremely limited.
Philadelphia Marine Trade Association
v. Commissioner , 101 AFTR2d 2008-1759
By Karyn Bybee Friske , CPA,
Ph.D., Pickens Professor of Business and associate
professor of accounting, and Darlene Pulliam
, CPA, Ph.D., McCray Professor of Business
and professor of accounting, both of the College of
Business, West Texas A&M University, Canyon,
Texas. |