ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – EDD AND IRS PETITIONS – BEWARE OF USING COMPUTER GENERATED POSTAGE
By Robert S. Schriebman
One learns many disciplines in the practice of tax law and especially tax controversies, but I have found that the most important disciplines center around the use of paper and the importance of paperwork to prove the timeliness of filing important papers such as EDD petitions and US Tax Court petitions. I have learned that the best proof of timely filing comes down to documentation such as a USPS “round stamp” or a Federal Express delivery confirmation printout. I do not rely on my postage meter and I have little faith in these new on-line computer generated postal systems. My long-time bias was recently confirmed by the US Tax Court case of Teri Jordan (Teri Jordan v. US Tax Court, CCH Dec. 61, 419(M), T.C. Memo. 2019-15 (March 4, 2019)).
Ms. Jordan tried to rely on a website postage printout to prove that she timely filed her US Tax Court petition. The judge respectfully disagreed and held that her petition was late. What does this mean? Because she was late, Ms. Jordan will have to first pay a huge IRS bill, file a claim for refund, and sue the IRS in federal court. All of this will be time consuming and cost big bucks. Here’s the story.
The Case of Teri Jordan
Ms. Jordan was audited by the IRS for the years 2014 and 2015. She received an audit assessment of $17,700 and $42,460, respectfully, plus 20% penalties and accruing interest on everything. When you are audited by the IRS, and disagree with the assessment, you have a right to take the IRS to the US Tax Court. This Court is unique in the entire American tax system because in the Tax Court you do not first have to pay the IRS to get your day in court. The IRS sends the taxpayer a Statutory Notice of Deficiency also known as a 90-Day Letter. The petition to the Court must be postmarked no later than the 90th day after the date of issuance. It is OK if the Court receives the petition after the 90th day.
Ms. Jordan used a private postage label printed from Endicia.com, a website for buying postage. The Endicia date was the 90th day. However, Ms. Jordan also had on the envelope two USPS postmarks after the 90th day. In fact one of the USPS postmarks was 20 days after the deadline clearly printed on the 90-Day Letter. In addition to all this, the US Tax Court actually received her petition 20 days after the latest postmark date. It was clear to the Court that Ms. Jordan dropped the envelope in the mail 20 days after the deadline date. The Tax Court judge had no room to grant her any relief. Her case was thrown out of the US Tax Court.
This case illustrates how important it is to use a well accepted delivery system that is universally recognized as being legally binding proof of timely filing. This is why I have repeatedly advised my readers and my graduate students at USC, to take the steps in having the right paperwork to prove that you timely filed time-sensitive documents.
The US Tax Court, in deciding Ms. Jordan’s case, cited IRS Regulations that deal with private postage and USPS postage. Ms. Jordan’s envelope had her private postage from Endicia and USPS postage. IRS Regulations state that when this happens, private postage data is disregarded and only official USPS postage dates are recognized by the courts. (IRS Reg. 301.7502-1(c))
Timely Mailing As Timely Filing
We all know that sometimes USPS delivery can be slow; we also know that things can get lost in the mail. When this happens in the world of tax filing, the Internal Revenue Code has a statute that protects the taxpayer so long as it can be proven that package was timely deposited in the USPS. IRC §7502 provides that when a taxpayer sends a petition using USPS within the prescribed period, and it is received after the expiration of the prescribed period, the date of the USPS postmark stamped on the envelope is treated as the date the package, letter, etc was received. This rule applies not only to Tax Court petitions but applies to any tax return, claim, other document required to be filed. This same rule has been extended to recognized private carriers such as Federal Express and UPS. A private postage meter or website receipt does not have the same weight under the law.
The old way is still the best way – take the package to the Post Office. Send it by Certified mail, and have the clerk round-stamp the white form 3800. This is your best proof under the law. The second best proof will be a FedEx or UPS tracking printout.
Ms. Jordan could not convince the Tax Court judge that she dropped her petition in the mail on the 90th day. This proved to be very expensive and inconvenient. She may eventually get money back by resolving her difference with the IRS. But first she will have to pay every dime of the initial assessment plus interest. When you have a legal deadline to meet, it’s not a good idea to try to prove timeliness by using a private postage meter or website postage. We all want to be modern, and computers have become essential to our daily lives, but sometimes doing things “old school” work out the best.
Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 40 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD and he is not employed by the EDD or any other agency of the State of California.
Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
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