In a recent case out of the U.S. District Court in Wisconsin, the Court granted a motion to reconsider its previous ruling in favor of the government (filed by the IRS) in a case involving the postmark rule.1 Additionally, the IRS was the recipient of some pretty strong criticism from the Court. So much so, the Court even considered awarding attorneys’ fees due to the fact the IRS argument was in direct contravention of their own Treasury Regulations and Chief Counsel Advice Notice without presenting those authorities to the Court.2
Background of the Case
Harrison is a refund case out of the Western District of Wisconsin.In it’s initial ruling handed down on January 9, 2020, the Court ruled in favor of the government’s motion for summary judgment on the grounds that the taxpayers’ refund claim was time barred by being 2 days late.3 Following the taxpayers filing of a motion to reconsider and relying on relevant case law, a Chief Counsel Notice, and Treasury Regulations, the Court overturned its own ruling.
For the year 2012, plaintiffs, Mark and Ellen Harrison, paid $16,720.48 in federal income tax. In their refund claim, the Harrisons alleged they owed only $9,334, and were therefore due a refund in the amount of $7,286.48. The Harrisons failed to file their 2012 tax return by their extended due date of October 15, 2013. The Harrisons mailed their 2012 return on Tuesday, October 11, 2016 via certified mail. The 2012 return showed an amount due of $9,334 and thus claimed a refund for the overpayment. The return was received by the IRS on Monday, October 17, 2016. Initially, the IRS maintained the position that the postmark rule under IRC § 7502(a) (described below) did not apply and, therefore, the return at issue was filed outside of the three-year window during which a claim for refund must be made (extended due date of October 15, 2013 to October 15, 2016). The Court ruled in favor of the government holding that a late filed return would not benefit from the postmark rule, therefore the claim for refund was outside of the proscribed window by 2 days.
At issue in Harrison is whether the postmark rule under IRC § 7502(a) applied resulting in the claim being deemed to have been filed on October 11, 2016. IRC § 7502(a) (the statutory postmark rule) provides as follows:
(a) General rule
(1) Date of delivery
If any return, claim, statement, or other document required to be filed, or any payment required to be made, within a prescribed period or on or before a prescribed date under authority of any provision of the internal revenue laws is, after such period or such date, delivered by United States mail to the agency, officer, or office with which such return, claim, statement, or other document is required to be filed, or to which such payment is required to be made, the date of the United States postmark stamped on the cover in which such return, claim, statement, or other document, or payment, is mailed shall be deemed to be the date of delivery or the date of payment, as the case may be.
Applying the above, the Court held that the postmark date was the filing date under the statutory rule only when the postmark date precedes the due date of the return. However, with respect to a late filed return, this favorablerule does not apply.
However, the Harrisons and the government made a glaring of a Treasury Regulation directly on point. It turns out Treas. Reg. §301.7502-1(f) (adopted by the IRS in 2001) deals with the very issue presented by the Harrisons. The regulation provides as follows:
(f) Claim for credit or refund on late filed tax return
(1) In general.
Generally, an original income tax return may constitute a claim for credit or refund of income tax. See section 301.6402-3(a)(5). Other original tax returns can also be considered claims for credit or refund if the liability disclosed on the return is less than the amount of tax that has been paid. If section 7502 would not apply to a return (but for the operation of paragraph (f)(2) of this section) that is also considered a claim for credit or refund because the envelope that contains the return does not have a postmark dated on or before the due date of the return, section 7502 will apply separately to the claim for credit or refund if —
(i) The date of the postmark on the envelope is within the period that is three years (plus the period of any extension of time to file) from the day the tax is paid or considered paid (see section 6513), and the claim for credit or refund is delivered after this three-year period; and
(ii) The conditions of section 7502 are otherwise met.
(2) Filing date of late filed return.
If the conditions of paragraph (f)(1) of this section are met, the late filed return will be deemed filed on the postmark date.
Under this regulation, notwithstanding the return being filed late, the claim was filed timely.4 Accordingly, the postmark rule would apply and therefore the deemed date of the filing of the claim (by filing of the return) was October 11, 2016.
Furthermore, the Second Circuit previously encountered the exact same issue (pre-regulation).5 In Weisbart, the Second Circuit held that a refund claim enjoys the benefit of the mailbox rule and therefore, should be treated as filed on the date mailed under such circumstances.6 Following the Weisbart case, the IRS issued IRS Chief Counsel’s Notice describing a change in IRS litigation policy. Then, the IRS issued the revised regulation cited in Harrison. Unfortunately in Harrison, nobody cited to Weisbart, Treas. Reg. §301.7502-1(f), or the Chief Counsel Notice until after the Court granted summary judgment to the IRS. The Department of Justice did identify Weisbart in its research, but did not cite as the case was from a different appellate court circuit and therefore was not controlling. This did not sit well with the Court. The Court was so troubled that it considered whether to award attorneys’ fees to the taxpayer. However, the Court did not award fees as the acts of the DOJ seemed to be more negligent in nature (albeit significantly so) and not in bad faith. Counsel also admitted to the error following discovery and brought it to the Court’s and defendant’s attention. Finding the conduct of the IRS illustrated a desire merely “not to fall below the bare minimum ethical threshold,” the Court required the IRS to circulate the order, regulation, and Chief Counsel Notice to all attorneys in the IRS Office of Chief Counsel and the Tax Division of the DOJ.
Other than merely rehashing the applicability of the postmark rule to a claim versus a tax return, this case presents how easy it can be for even seasoned practitioners to miss something easy and significant. If anything, it is important to note that a tax return, even if untimely, can be deemed filed on a date different that the date of a claim for refund which is itself the tax return. In short, an exception applies with respect to a tax return filed as a claim for refund, even if late as filed as a tax return under the postmark rule. Nonetheless, it is fun and interesting to see the Court turn full circle in favor of a taxpayer (and receive a little benchslapping in the process).7
- Harrison v. U.S., 125 AFTR 2d (W.D. Wis., Jan. 29, 2020).
- See Treas. Reg §§ 301.6402-3(a)(5) and 301.7502-1, Chief Counsel Notice CC-2001-019.
- Harrison v. IRS, 125 AFTR 2d 2020-442 (W.D. Wis., Jan. 9, 2020).
- See IRC § 6511 and Treas. Reg. §301.6402-3(a) providing that a tax return that claims a refund qualifies as a claim for refund.
- See Weisbart v. U.S., 222 F.3d 93 (2d Cir. 2000).
- For additional discussion on the postmark rule, see But I Complied with the Mailbox Rule on my Refund Request… You Still Missed the SOL, Charles J. Allen, J.D., LL.M., CPA (Aug. 16, 2019) and A Reminder in the Basics: Timely Mailing is Timely Filing, Joshua W. Sage, J.D., LL.M. (July 2, 2019)