Common-Law Mailbox Rule Reopened

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.