Can the Humble Mailbox Rule Bring Monumental Changes to Chevron?
As far as tax regs are concerned, Treasury’s guidance foreclosing the mailbox rule isn't among the most striking. Still, the possibility remains that it could play an outsized role in transforming administrative law.
Circuit courts have disagreed over whether the 1954 enactment of section 7502 completely displaced the common law mailbox rule for timely return filing or whether it simply provided a safe harbor.
Amid this confusion, Treasury promulgated section 7502-1(e) in 2011, which states that, excepting physical delivery, proof of use of registered or certified mail or proof of use of a designated private delivery service “are the exclusive means to establish prima facie evidence of delivery” of a tax return.
That reg doomed Howard and Karen Baldwin’s refund as untimely filed, according to the Ninth Circuit on April 16 in Howard L. Baldwin et ux. v. United States, No. 17-55115, No. 17-55354 (9th Cir. 2019). The Baldwins claimed they mailed their return through regular mail in a timely fashion and relied on the testimony of two postal employees as evidence.
Analyzing Chevron and National Cable & Telecommunications Association v. Brand X Internet Services, 545 U.S. 967 (2005), Judge Paul J. Watford wrote that section 7502, which was intended to provide exceptions to the physical delivery rule, is silent on whether taxpayers sending a document by regular mail can rely on the common law mailbox rule when the IRS hasn’t received it.
Because of this, Treasury’s rule invalidating the mailbox rule, which provides that proof of proper mailing creates a rebuttable presumption that the document was delivered to the addressee on time, “was free to fill [the] gap by adopting its own reasonable interpretation of the governing statute,” the court held.
But despite the circuit court loss, the litigation isn't over and the possibility remains of an assault on the long-standing Chevron deference, a doctrine that provides judicial deference to reasonable agency interpretations of ambiguous statutes.
Carlton M. Smith, acting director of the Harvard Law School Federal Tax Clinic, predicted that numerous amicus briefs could ask the Supreme Court to take up the case as the “perfect litigating vehicle” for the Court to consider overruling Chevron and Brand X.
Patrick J. Smith of Ivins, Phillips & Barker Chtd. agreed. He criticized the Ninth Circuit’s rationale and found the case a sympathetic one for taxpayers.
“It seems like a particularly egregious example of what’s wrong with Chevron,” Smith said, adding that the most straightforward reading of the statute is as a safe harbor. “I can well imagine that any justices on the Supreme Court that are not fans of Chevron would think that this would be an extremely appealing vehicle. . . . Even though the Supreme Court doesn’t typically like tax cases, they might, partly for that reason, think here is the IRS overreaching.”
Smith took special note of Judge Susan Graber sitting in on the decision in Baldwin. Given that Graber is also the new judge sitting in on the reargument in Altera v. Commissioner, Nos. 16-70496 and 16-70497 (9th Cir. 2018), on the administrative validity of cost-sharing regs, taxpayers may find no comfort in seeing her rule in favor of the government in Baldwin, he said.
Taxpayers’ counsel in Baldwin, Robert W. Keaster of Chamberlin & Keaster LLP, told Tax Notes that he first plans to file a petition for a rehearing en banc. If that fails, he'll petition for review by the Supreme Court.
“Our position is going to be that the opinion essentially provides a license to administrative agencies, like the Internal Revenue Service, to adopt regulations which repeal common law whenever the statute is silent,” Keaster said.
Keaster said the problem with the Ninth Circuit's analysis is that if the statute is silent on whether it displaces common law, the rule is that common law still applies.
"The [Ninth Circuit] just allowed administrative agencies to repeal common law in connection with almost every statute that’s enacted,” Keaster said. He said the “huge delegation of power” to agencies is “certainly an issue the Supreme Court will be interested in.”
Keaster’s primary argument has been that Baldwin should be controlled by United States v. Home Concrete & Supply LLC, 566 U.S. 478 (2012). In invalidating a reg on the definition of omission from gross income, that decision held that the statute was clear on its face, but that even if it wasn’t, the IRS interpretation conflicted with controlling precedent.
“In Home Concrete . . . once a court has ascertained congressional intent with respect to a statute, that intent must be given effect,” Keaster said, noting that the decision cites Chevron. He cited Anderson v. United States, 966 F.2d 487 (9th Cir. 1992), as precedent in which the court previously used traditional statutory construction tools such as applying common law in the face of statutory silence.
There, the Ninth Circuit previously held that section 7502 didn't provide an exclusive list of exceptions to the old common law physical delivery rule. The court was essentially overruling Anderson with Baldwin, Keaster argued.
But that decision was reached before the regulation was issued, and the Ninth Circuit didn't view its prior decision in Anderson as a bar to its holding in Baldwin. It cited Brand X for the proposition that prior judicial statutory construction bests agency construction that would otherwise receive Chevron deference only if the court decision flows from an unambiguous statute.
Because Anderson wasn’t the only reasonable interpretation of the law, Brand X provides room for Treasury to fill the statutory gap with its reg, the court held.
The Justice Department also argued in its appellant brief that potential inconsistent treatment of taxpayers lent further support of Chevron deference for the reg.
“This is an unsatisfactory state of affairs in a legal regime where hundreds of millions of documents are mailed to the IRS each year, and the determination of whether the documents were actually delivered may have very significant practical consequences,” the brief states. “The approach reflected in the Treasury regulations, in addition to preventing taxpayer abuse, will produce greater uniformity of treatment among similarly situated taxpayers.”
Keaster saw no validity behind an argument that Treasury was trying to provide certainty in the face of a circuit split over the applicability of the common law mailbox rule. The authority for resolving circuit splits lay with Congress or the Supreme Court, not the IRS, he argued.
Counting the Votes
While his planned petition would be narrower, Keaster acknowledged that the case could also be a vehicle for the Supreme Court to take a broader review of Chevron and Brand X as well.
Given the current makeup of the Court, practitioners have speculated that Chevron may be moving closer to falling out of favor with the justices. Chevron was the recent object of scorn from Justice Neil M. Gorsuch in a dissent joined by Justice Clarence Thomas in BNSF Railway Co. v. Loos, Sup. Ct. Dkt. No. 17-1042 (2019). Notably, Chevron deference wasn't argued in that case.
Keaster also cited Gutierrez v. Lynch, 834 F. 3d 1142, (10th Cir, 2016), as evidence of Gorsuch’s opposition to Chevron.
Justice Brett Kavanaugh is also a vocal opponent of the doctrine, claiming it “has no basis in the Administrative Procedure Act.”
The chances of a case being granted certiorari are always low. Still, only four justices are needed to grant a writ, and as an October 2018 Congressional Research Service report notes, in addition to Thomas, Gorsuch, and Kavanaugh, Chief Justice John Roberts Jr., Justice Samuel Alito, and even liberal Justice Stephen Breyer arguably have expressed reservations about an overbroad reading of Chevron.
It may just take the right case to effectuate monumental changes.