Taxpayers frequently rely on Sec. 7502, commonly known as the "mailbox rule," and Sec. 7503, which relates to timely filings of returns or other documents when a due date falls on a Saturday, Sunday, or holiday. As illustrated by a recent U.S. Tax Court order, taxpayers must follow strict procedural requirements to properly qualify under these provisions for a timely filing when the IRS receives a return or other document after the due date.
The U.S. Tax Court addressed whether a petition was timely filed in Guralnik, No. 4358-15 L. (Tax Ct. 8/24/15) (order denying motion to dismiss). In Guralnik, the IRS asserted that the taxpayer was late in filing his Tax Court petition to appeal a notice of determination on a federal tax lien.
A taxpayer has 30 days from the date of the notice of federal tax lien to file a petition with the Tax Court (Sec. 6330(d)(1)). In Guralnik, the 30th day fell on Sunday, Feb. 15, 2015.
On the preceding Friday, Feb. 13, the taxpayer mailed his Tax Court petition using FedEx First Overnight delivery service. The petition was supposed to be delivered on Tuesday, Feb. 17, as Monday, Feb. 16 was a legal holiday; however, due to a snowstorm, the District of Columbia (District), and federal government offices, including the Tax Court, were officially closed that Tuesday. As a result, the taxpayer's petition was not delivered until Wednesday, Feb. 18.
The IRS sought to dismiss the filing on the grounds that the taxpayer's petition was not timely. Initially, both parties focused on the timely mailed, timely filed rule under Sec. 7502. The Tax Court agreed that Sec. 7502 did not apply, as the taxpayer failed to use a designated private delivery service (PDS) as specified by the IRS.
The Tax Court then examined whether the closure of District and federal government offices on Feb. 17, 2015, constituted a holiday for purposes of Sec. 7503. If so, then under Sec. 7503, the time for the taxpayer to file his petition was extended until Wednesday, Feb. 18. In its order, the Tax Court examined the legislative history of Sec. 7503 and noted the Tax Court did not have a drop box or means of filing other than mail delivery; thus, filing on Feb. 17 would have been impossible. Ultimately, the Tax Court concluded that the closing of District and federal government offices and the Tax Court due to a snow day could be treated as a holiday under Sec. 7503.
Timely Mailed, Timely Filed: Sec. 7502
Generally, any return, claim, statement, or other document required to be filed is considered filed when the IRS receives it, unless there is a specific exception (see, e.g., Lombardo, 241 U.S. 73 (1916), and Phinney v. Bank of the Southwest Nat'l Ass'n, 335 F.2d 266 (5th Cir. 1964)).
Sec. 7502 provides an exception that allows a mailing date to be considered the filing date in certain situations. When a taxpayer mails a document required to be filed prior to a deadline but the IRS does not receive that document until after the filing deadline, the filing date is deemed to be the date of the U.S. postmark stamped on the cover in which the return, claim, statement, or other document or payment is mailed (Sec. 7502(a)). To rely on this provision, taxpayers must strictly comply with the procedural requirements discussed below.
Required documents: It is important to note that only certain documents fall within the purview of Sec. 7502. Regs. Sec. 301.7502-1(b)(1) defines the term "document" as any return, claim, statement, or other document required to be filed within a prescribed period under any provision of the Internal Revenue Code. This definition does not include items sent by any method other than mailing or any document filed in a court other than the Tax Court. Further, the IRS has taken the position that amended returns showing tax due are not "required to be filed" for purposes of triggering Sec. 7502 (see Service Center Advice Memorandum 1998-001 and Chief Counsel Advice 201545017).
Mailing and receipt requirements: Several requirements must be met for a taxpayer to qualify to use the mailing date as the filing date as allowed by Sec. 7502 and the regulations thereunder:
- The date of the U.S. postmark on the package containing the return/document required to be filed is on or before the due date;
- The taxpayer appropriately addresses and pays the proper postage for the package containing the return/document. For example, a taxpayer who files a return with the wrong service center may not start the running of the statute of limitation (see, e.g., Winnett, 96 T.C. 802 (1991));
- The taxpayer properly mails the package containing the return/document in the United States; and
- The package containing the return/document is received by the IRS after the due date (original or extended).
The filing must meet all of the above requirements or the return/document will not be deemed filed on the date of the U.S. postmark under Sec. 7502. Additionally, the postmark, applied prior to the due date, must be a U.S. postmark for purposes of a Tax Court filing. A foreign postmark is not sufficient for Tax Court filings to meet the standards under Sec. 7502 (see Sarrell, 117 T.C. 122 (2001); Pekar, 113 T.C. 158, 168 (1999)). However, a foreign postmark that meets the same type of standards as a U.S. postmark may be sufficient for documents mailed to the IRS (see Rev. Rul. 2002-23).
Generally, Sec. 7502(a) contemplates the use of the U.S. Postal Service for purposes of mailing a return or document. Regs. Sec. 301.7502-1(c) specifies the timing for a postmark under U.S. Postal Service mailings: (1) For U.S. registered mail, the relevant date is the date of registration, and (2) for U.S. certified mail, the relevant date is the U.S. postmark stamped on the receipt. However, Sec. 7502(f) allows a taxpayer to use a designated PDS, which under certain circumstances is treated as the equivalent of a postmark by the U.S. Postal Service. The names of qualified PDSs historically have been set forth in IRS notices (see, e.g., Notices 2002-62, 2004-83, and 2015-38).
In Guralnik, the taxpayer used FedEx First Overnight to mail his petition. This service was not listed as a designated PDS in Notice 2004-83, the notice in effect at the time he filed the petition; therefore, the taxpayer was unable to have the shipping date, i.e., the date on which the petition was given to FedEx, treated as the postmark date for purposes of Sec. 7502. This case illustrates the strict compliance necessary under Sec. 7502
Notice 2015-38: Shortly after the government filed its motion to dismiss the petition in Guralnik, the IRS issued Notice 2015-38, updating the list of PDSs that qualify under Sec. 7502. One update in this notice was to add the FedEx First Overnight service that the taxpayer had used. Under that notice, the following services are designated PDSs:
- FedEx: First Overnight, Priority Overnight, Standard Overnight, 2 Day, International Next Flight Out, International Priority, International First, and International Economy;
- UPS: Next Day Air Early A.M., Next Day Air, Next Day Air Saver, 2nd Day Air, 2nd Day Air A.M., Worldwide Express Plus, and Worldwide Express.
It is important to note that the shipping date will be treated as equivalent to a postmark by the U.S. Postal Service for purposes of Sec. 7502 only for these services. In addition, the taxpayer must meet all other procedural requirements under Sec. 7502, such as using the proper address, to meet the timely mailing, timing filing rule.
Holiday/Weekend: Sec. 7503
If the last day for performing a required act falls on a Saturday, Sunday, or legal holiday, the performance of the act is considered timely if it is performed on the next business day (Sec. 7503). Similar to Sec. 7502, this provision applies only to returns/documents required to be filed within a prescribed period under the Internal Revenue Code.
Regs. Sec. 301.7503-1(a) provides that Sec. 7503 applies to acts performed by the taxpayer, including filing of a return and/or payment of any income, estate, or gift tax; filing of a petition with the Tax Court; and filing of a claim for credit or refund. Additionally, Sec. 7503 applies to extend the time for the IRS to perform certain acts, such as giving notice of, or demanding payment of, any tax or assessment or collection of any tax (see Regs. Sec. 301.7503-1(a)).
Generally, a legal holiday is defined pursuant to legal holidays in the District of Columbia as set forth in D.C. Code Ann. Section 28-2701. However, if the return/document is required to be filed or the act performed outside the District, then a legal holiday includes any statewide legal holiday of the state in which the act is required to be performed. Similarly, if the return is required to be filed or the act performed in a territory or possession of the United States, then any legal holiday recognized in that area is deemed a legal holiday for purposes of Sec. 7503 (Regs. Sec. 301.7503-1(b)).
In Guralnik, the taxpayer sought to timely file a petition with the U.S. Tax Court, which is located in the District. Ultimately, the Tax Court concluded that the snow day closure, which impacted the District and federal government offices, qualified as a legal holiday under Sec. 7503; however, other courts may interpret the term "legal holiday" differently and not recognize a filing in this situation as timely.
A timely filing is important not only for purposes of filing and avoiding penalties but also to start the statute of limitation for both assessments and refund claims. Additionally, certain elections are required to be made on timely filed returns, such as the election to waive the carryback of net operating losses pursuant to Sec. 172(b)(3).
The existence of the mailbox rule and the holiday/weekend rule under Secs. 7502 and 7503 are well-known; however, the intricacies of these provisions are not as frequently discussed. As a result, taxpayers that do not strictly comply with these provisions may face an unfortunate consequence of not having timely filed a return or other document. Guralnik highlights the importance of strict compliance with these provisions to ensure timely filing.
Alex Brosseau is a senior manager in the Tax Policy Group of Deloitte Tax LLP’s Washington National Tax office.
For additional information about these items, contact Mr. Brosseau at 202-661-4532 or firstname.lastname@example.org.
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