In Baldwin v. United States, 2019 U.S. App. LEXIS 11036 (9th Cir. April 16, 2019), in a case of first impression in the appellate courts, the Ninth Circuit has held that a 2011 regulation under section 7502 is valid under the deference rules of Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984), and Nat’l Cable & Telecomms. Ass’n v. Brand X Internet Servs., 545 U.S. 967 (2005), and therefore it invalidates all prior case law in some Circuits (including the Ninth) holding that the common law mailbox rule can be used to prove the IRS’ timely receipt of a document by parol evidence. The Circuit reversed the district court and directed it to dismiss the case because the only evidence offered of timely mailing of a Form 1040X refund claim was the testimony of the Baldwins’ employees that they remember timely posting the envelope containing the claim by regular mail months before the claim was due – evidence that is only relevant if the common law mailbox rule still exists in the tax law. I blogged on Baldwin before the oral argument here.
Baldwin is a tax refund suit. There, the taxpayers reported a loss on their 2007 income tax return, filed on or before the extended due date of October 15, 2008. They wished to file an amended return for 2005, carrying back the 2007 loss to generate a refund in 2005. Under section 6511(d), this had to be done by filing the amended return within three years of the due date of the return generating the loss – i.e., by October 15, 2011. The taxpayers introduced testimony of their employees that the employees mailed the 2005 amended return by regular mail on June 21, 2011 from a Hartford Post Office to the Andover Service Center. But, the IRS claimed it never received the Form 1040X.
The California district court followed Anderson v. United States, 966 F.2d 487 (9th Cir. 1992), in which the Ninth Circuit had held that the enactment of section 7502 in 1954 did not eliminate the common law mailbox rule and still allowed taxpayers to prove by parol evidence that a document not sent by registered or certified mail or a designated private delivery service was actually mailed and so was presumed to have been received by the IRS prior to the due date. The district court credited the testimony of the employees and held that the refund claim was timely filed. The court later awarded the taxpayers a refund of roughly $167,000 and litigation costs of roughly $25,000.
The DOJ appealed the loss to the Ninth Circuit, where it argued that the suit should have been dismissed because the refund claim was not timely filed. The DOJ argued that in August 2011, the IRS adopted a regulation intended to overrule some Circuit court opinions (including Anderson) that had held that the common law mailbox rule still survived the enactment of section 7502. At least one other Circuit had agreed with Anderson; Estate of Wood v. Commissioner, 909 F.2d 1155 (8th Cir. 1990); but several other Circuits had disagreed and held that the common law mailbox rule did not survive the enactment of section 7502. See Miller v. United States, 784 F.2d 728 (6th Cir. 1986); Deutsch v. Commissioner, 599 F.2d 44 (2d Cir. 1979). See also Sorrentino v. Internal Revenue Service, 383 F.3d 1187 (10th Cir. 2004) (carving out a middle position).
As amended by T.D. 9543 at 76 Fed. Reg. 52,561-52,563 (Aug. 23, 2011), Reg. § 301.7502-1(e)(2)(i) provides, in relevant part:
Other than direct proof of actual delivery, proof of proper use of registered or certified mail, and proof of proper use of a duly designated [private delivery service] . . . are the exclusive means to establish prima facie evidence of delivery of a document to the agency, officer, or office with which the document is required to be filed. 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.
Ninth Circuit Opinion
The Ninth Circuit began its analysis with a little history: Prior to 1954, there was no timely-mailing-is-timely-filing provision in the Internal Revenue Code. That meant that the only way to timely file a document was for it to arrive at the IRS on or before the due date. At common law, there is a presumption that a properly-mailed envelope will arrive in the ordinary time for mail to go between its origin and destination. At common law, a party could bring in any evidence (including testimony) to show that the envelope likely arrived at the IRS on or before the due date.
In 1954, Congress added section 7502 to the Code. We all think of it as a provision that allows a mailing made on or before the due date to be treated as timely filed, whether or not the IRS receives the document on, before, or after the due date. But, that is not an accurate summary of the provision. In fact, subsection (a) provides, in general, that if a document is delivered to the IRS by the United States mail after the due date, then the date of the United States postmark on the envelope is deemed to be the date of delivery (i.e., filing). Other rules extend the benefits of subsection (a) to designated private delivery services and electronic filing, but only pursuant to regulations. However, subsection (c) also includes a presumption of delivery that applies in the case of use of certified or registered mail: If an envelope is sent certified or registered mail, then (1) the certification or registration is prima facie evidence that the envelope was delivered to the place to which it was addressed and (2) the date of registration or certification is deemed the date of the postmark for purposes of subsection (a).
In Anderson, the Ninth Circuit had held that subsection (c)’s presumption of delivery language (and the regulations thereunder) did not supplant the common law way to prove delivery on or before the due date. Rather, subsection (c) provided only a safe harbor for proof of delivery if certified or registered mail was used. Where ordinary mail was used, there was no statutory provision presuming or denying proof of delivery, so the common law mailbox rule could still operate to allow proof of timely mailing by any evidence.
In Baldwin, the Ninth Circuit noted that under Chevron Step 2, a court must defer to an agency’s interpretation in a regulation if that interpretation is one of the reasonable ways an ambiguous statute could be interpreted. And in Brand X, the Supreme Court held that, unless an appellate court opinion had said that the statute was unambiguous (and therefore Chevron Step 1 would deny any regulatory input), an agency could issue valid regulations overruling that appellate precedent.
In the case of the 2011 regulation under section 7502, the Ninth Circuit in Baldwin held that an interpretation that section 7502 completely supplanted the common law mailbox rule was one of the reasonable interpretations of that statute and that the Ninth Circuit had not, in its Anderson opinion, rested its holding on the unambiguous nature of section 7502’s language. Therefore, under Chevron and Brand X, the regulation barring the use of the common law mailbox rule was valid.
The taxpayers had two arguments that the Ninth Circuit quickly dismissed:
First, the taxpayers argued that there is a rule of construction that makes repeal of common law rules by statute not to be easily implied. With respect to this argument, the Ninth Circuit noted a contrary rule of construction (one that other Circuits had relied on) that when a statute speaks on an issue and makes an exception, that statutory exception eliminates all nonstatutory exceptions. The Ninth Circuit held that the subsection (c) rules presuming delivery in the case of certified or registered mail could benefit by the latter interpretive rule. Thus, these countervailing statutory rules of construction could lead to two different reasonable interpretations of the statute.
Second, the taxpayers argued that the regulation was improperly being applied retroactively, since they had claimed that they mailed the envelope in June 2011, but the regulation was only adopted in August 2011. But, the Ninth Circuit pointed out that the regulation was effective for all documents mailed after September 21, 2004 (the date the regulation was first proposed), and the court did not find that such retroactive effective date violated section 7805(b)(1)(B), which allows the IRS to make its regulations retroactive to the date they are first proposed.
Several Supreme Court Justices have recently criticized Chevron and Brand X. It is interesting that Judge Watford, who wrote the Baldwin opinion, only predicated the panel’s ruling for the IRS on the basis of reliance on those two opinions. What, then, happens if Chevron and Brand X are overruled? Will the Ninth Circuit’s precedent then revert to Anderson, which allows use of the common law mailbox rule?
Judge Watford also seems to be deliberately vague in his opinion as to the ground on which the district court should dismiss the case on remand. He does not say the dismissal should be for lack of jurisdiction (FRCP 12(b)(1)) or for failure to state a claim (FRCP 12(b)(6)). It would not much matter in this case whether the section 6511 filing deadline were jurisdictional or not, but it might matter in a future case (e.g., one where there was an argument for waiver, forfeiture, or estoppel, but not equitable tolling (see United States v. Brockamp, 519 U.S. 347 (1997) (holding the deadline not subject to equitable tolling, but not discussing whether the deadline is jurisdictional)). Indeed, Judge Watford’s Baldwin opinion really relies on section 7422(a), which requires the filing of a refund claim before a refund suit may be maintained. The opinion states that section 7422(a) also requires a timely claim. In fact, Judge Watford only writes:
The Baldwins then brought this action against the United States in the district court. Although the doctrine of sovereign immunity would ordinarily bar such a suit, the United States has waived its immunity from suit by allowing a taxpayer to file a civil action to recover “any internal-revenue tax alleged to have been erroneously or illegally assessed or collected.” 28 U.S.C. § 1346(a)(1). Under the Internal Revenue Code (IRC), though, no such action may be maintained in any court “until a claim for refund or credit has been duly filed” with the IRS, in accordance with IRS regulations. 26 U.S.C. § 7422(a); see United States v. Dalm, 494 U.S. 596, 609 (1990). To be “duly filed,” a claim for refund must be filed within the time limit set by law. Yuen v. United States, 825 F.2d 244, 245 (9th Cir. 1987) (per curiam).
Judge Watford is the author of the opinion in Volpicelli v. United States, 777 F.3d 1042 (9th Cir. 2015), which we blogged on here and where I was amicus. In that opinion, he held that the then-9-month filing deadline to bring a wrongful levy suit in district court is not jurisdictional and is subject to equitable tolling under recent Supreme Court case law making filing deadlines now only rarely jurisdictional. Note that his language above from Baldwin does not mention the word “jurisdictional” with regard to section 7422(a)’s requirement. Judge Watford may not be wanting to say that section 7422(a)’s administrative exhaustion requirement is jurisdictional, rather than a nonjurisdictional mandatory claims processing rule possibly subject to waiver, forfeiture, or estoppel. It is true that in Dalm (which he cites only with a “see”), the Supreme Court called the requirements of sections 7422(a) and 6511 jurisdictional with respect to a refund suit, but the reasoning of Dalm does not accord with current Supreme Court case law. In 2016, the Seventh Circuit questioned whether Dalm is still good law, though it did not reach the question, writing:
The Gillespies do not respond to the government’s renewed argument that § 7422(a) is jurisdictional, though we note that the Supreme Court’s most recent discussion of § 7422(a) does not describe it in this manner, see Unites States v. Clintwood Elkhorn Mining Co., 553 U.S. 1, 4-5, 11-12 (2008). And other recent decisions by the Court construe similar prerequisites as claims-processing rules rather than jurisdictional requirements, see, e.g., United States v. Kwai Fun Wong, 135 S. Ct. 1625, 1632-33 (2015) (concluding that administrative exhaustion requirement of Federal Tort Claims Act is not jurisdictional); Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154, 157 (2010) (concluding that Copyright Act’s registration requirement is not jurisdictional); Arbaugh v. Y&H Corp., 546 U.S. 500, 504 (2006) (concluding that statutory minimum of 50 workers for employer to be subject to Title VII of Civil Rights Act of 1964 is not jurisdictional). These developments may cast doubt on the line of cases suggesting that § 7422(a) is jurisdictional. See, e.g., United States v. Dalm, 494 U.S. 596, 601-02 (1990).
Gillespie v. United States, 670 Fed. Appx. 393, 394-395 (7th Cir. 2016) (some citations omitted). It was this passage from Gillespie that the DOJ cited as grounds for its need to file a post-oral argument memorandum of law in Tilden v. Commissioner, 846 F.3d 882 (7th Cir. 2017), arguing that the section 6213(a) Tax Court deficiency petition filing deadline is jurisdictional and not subject to waiver. The DOJ won that argument in that case, but it is currently before the Ninth Circuit on the issues of jurisdictional and equitable tolling in companion cases on which we previously blogged here.