Timely filing from foreign countries

Editor: Valrie Chambers, CPA, Ph.D.

A variety of tax consequences may depend on whether a return or other document is timely filed with the IRS. But consider this query: A taxpayer is stuck in Canada due to the pandemic and mails via the Canadian postal service his 2019 tax return on April 15, 2020. Is it timely filed? The answer is yes, but there are intricacies and confusion involved here.

Sec. 7502 currently codifies what some still refer to as the "mailbox rule." Before Sec. 7502's enactment in 1954, whether a document was considered timely filed depended upon the "physical-delivery rule." That is, documents were timely filed only if the document was delivered to the IRS by the due date, because the common law understanding of "filed" meant delivering something to where it needed to get to, not just "sending it off."

Sec. 7502 was enacted in response to disputes about whether a document had indeed been physically delivered to the IRS, intending to eliminate taxpayers' arguments that a document had been appropriately mailed to the IRS with sufficient time for the document to reach the IRS — even if the IRS had no record of receiving it. The enactment of Sec. 7502(a) and its subsequent amendments and regulations created exceptions to the physical-delivery rule, specifically:

• If the IRS in fact receives the document, a U.S. postmark date is deemed the date of delivery, even if the IRS receives the document after the applicable deadline (Sec. 7502(a)(1)), as long as the document was actually mailed before the deadline.
• A document sent by registered or certified U.S. mail is deemed to have been delivered to the IRS, even if the IRS has no record of receiving it, and the date of registration or certification is deemed the postmark date (Sec. 7502(c) and its regulations).
• Documents sent by a designated private delivery service (PDS) receive similar exceptions, under delegated authority to Treasury (Sec. 7502(f)(3)).
• Rules for e-filing electronic postmarks are set forth in Regs. Sec. 301.7502-1(d).

However, afterward, the courts were split as to whether the enactment of Sec. 7502 eliminated the possibility that a taxpayer could rely on other types of evidence that a document had been mailed in a timely manner, when the IRS had no record of receiving the document and the taxpayer had not used registered or certified mail. For instance, could timely mailing be proved through personal testimony or witnesses? The conflicting judicial decisions "left the law in an undesirable state, as it allowed similarly situated taxpayers to be treated differently depending on where they lived" (Baldwin,921 F.3d 836, 841 (9th Cir. 2019)).

Treasury's 2011 regulations

Therefore, in 2011, Treasury amended its regulations and set forth "the only ways to establish prima facie evidence of delivery of documents that have a filing deadline prescribed by the internal revenue laws, absent direct proof of actual delivery" (T.D. 9543). Namely, "proof of proper use of registered or certified mail, and proof of proper use of a duly designated PDS [private delivery service] . . . are the exclusive means to establish prima facie evidence of delivery of a document to the agency" (id.). Under the regulations, no other evidence of a postmark or of mailing will be prima facie evidence of delivery or raise a presumption that the document was delivered (Regs. Sec. 301.7502-1(e)(2)(i)).

In Baldwin, taxpayers unsuccessfully challenged Treasury's authority to promulgate this regulation. The married couple wanted to be able to prove timely mailing by presenting the testimony of two of their employees, who had been given the task of mailing the document on their behalf, but the regulation disallowed this type of proof. After losing in the Ninth Circuit, the taxpayers sought certiorari at the Supreme Court, which was denied (No. 19-402 (U.S. 2/24/20)). Perhaps the Court agreed that the Treasury regulation in question was valid.

Postmark from a foreign country

Returning to the Canadian scenario at the outset of this discussion, where a hypothetical taxpayer mailed a return from Canada on April 15 because they were stuck there due to the pandemic, can a Canadian postmark showing an April 15 mailing date prove timely filing? While a U.S. postmark dated April 15 on a delivered document will satisfy the filing deadline, the postmark rules adopted under Sec. 7502 do not apply to foreign postmarks. Indeed, Sec. 7502 provides that its provisions apply to non-U.S. postmarks only if and to the extent provided by regulations, and the regulations state: "Section 7502 does not apply to any document or payment that is deposited with the mail service of any other country" (Sec. 7502(b), Regs. Sec. 301.7502-1(c)(1)(ii)).

Nonetheless, an official foreign postmark stamped April 15 would indeed be accepted by the IRS. The IRS policy on accepting foreign postmarks dates to at least 1967 and is currently reflected in Rev. Rul. 2002-23. A policy statement can be found at Internal Revenue Manual (IRM) Section 1.2.1.4.3, Policy Statement 3-3 (rev. 7/27/67), and the de facto acceptability of foreign postmarks is cited in multiple other places within the IRM (which have recent revision dates).

In particular, IRM Section 1.2.1.4.3 states that returns mailed by taxpayers in foreign countries will be accepted as timely if postmarked there on or before midnight of the last date prescribed for filing, including any extension of time for such filing; and IRM Section 3.10.72.6.2(4) states that tax returns and extensions mailed from a foreign country are timely if the foreign postmark is on or before the prescribed due date.

As with in-U.S. filings, proof of filing using the foreign country equivalent of certified or registered mail is recommended. Similarly, a designated international delivery service can be used to timely file documents with the IRS, and the filed date is the date recorded electronically by the delivery service for when the document entered its database or as marked on the cover of the envelope in which the item is to be delivered. Keep in mind that the next-business-day rule under Sec. 7503 does not treat a holiday in a foreign country as a holiday.

Tax practitioners may ask: How is it that the IRS can overrule a statute and decide to accept a foreign-postmarked return as timely? Indeed, the Tax Court itself seemed to believe that Sec. 7502 was controlling because it held that taxpayers cannot avail themselves of the postmark rule with a foreign postmark. The IRS had requested this ruling from the court, apparently without realizing that an existing revenue ruling authorized the acceptance of foreign postmarks. The Service subsequently announced that it would not follow the court's reported opinion (Pekar, 113 T.C. 158 (1999), and see Action on Decision CC-2002-04).

The source of the IRS's authority to accept foreign postmarks is probably intuitive. Sec. 6081(a) provides that:

The Secretary may grant a reasonable extension of time for filing any return, declaration, statement, or other document required by this title or by regulations. Except in the case of taxpayers who are abroad, no such extension shall be for more than 6 months.

This Code section gives the IRS broad administrative discretion to consider a taxpayer's return timely filed. Chief Counsel Memorandum (CCM) 200012085 specifically explained that the IRS's acceptance of foreign postmarks is based on "the Commissioner's broad authority to enforce and administer the federal tax laws, including those sections dealing with timeliness of filing of federal tax returns."

Thus, "the decision to accept a return as timely when it is mailed and officially postmarked in a foreign country is a reasonable and proper exercise of the Commissioner's administrative authority" (id.). In short, the IRS may provide administrative relief and accept foreign postmarks in assessing the timeliness of documents sent to it.

A different rule applies to Tax Court filings: Timely filing treatment will not be granted to foreign-postmarked documents such as petitions and notices of appeal, unless given to a designated international delivery service.

One final point about foreign postmarks is that the date of the actual postmark is what matters. One taxpayer argued unsuccessfully that since she lived over the international date line, it should not matter if her postmark was the day after the IRS due date as long as, at the time, it was not past the due date in the United States (Dietsche, No. 08-1398 (D.C. Cir. 4/20/09)).

COVID-19

Returning to the original taxpayer who mailed a return on April 15 from Canada, while stuck there during the pandemic, there is another reason besides the foreign-postmark rule to deem the return timely filed. The IRS granted a filing extension due to the COVID-19 pandemic until July 15, 2020, for many acts (time-sensitive acts set forth in Regs. Sec. 301.7508A-1(c) and Rev. Proc. 2018-58), under Notice 2020-23, pursuant to the authority under Sec. 7508A. Under the notice, almost any filing that was due between April 1 and July 15, 2020, was due July 15, 2020. So, under the notice, the original taxpayer that mailed a return on April 15 from Canada would be covered — even without the foreign-postmark rule — so long as the return reached the IRS by July 15, 2020.