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Quirky Mail Service Issue Surfaces Again: The IRS Plays “Gotcha” Rather Than Looking for Solution

Posted on Nov. 13, 2015

I recently wrote about two separate mail issues.  In the Guralnik case, the use of the wrong private delivery service, a better faster one than the IRS had approved, caused a Tax Court petition to arrive without the benefit of the timely mailing rule of section 7502.  In the Mendoza v. Cicernos case, the failure to mail the notice of non-judicial sale to the correct IRS office caused the federal tax lien to remain on the property after foreclosure by the senior lienholder.

On June 12, 2015, the IRS released a Chief Counsel Advisory opinion, CCA-06120638-15 that combines the painful aspects of both prior opinions.  The opinion addresses a situation in which a senior lienholder provided notice to the IRS pursuant to IRC 7425(c).  The issue in the advisory opinion concerns the validity of the notice provided by the senior lienholder.  The advisory opinion concludes that the notice was no good and, therefore, the federal tax lien remains on the property.

As discussed in the Mendoza post, section 7425 requires that the IRS receive notice of a non-judicial sale in the proper office more than 25 days prior to the sale.  In the Mendoza case a problem arose because even though the notice was sent to the IRS more than 25 days prior to the sale, the notice went to the wrong office of the IRS.  The applicable regulation requires that the notice go to the office listed in Publication 4235 and instead Weld County in that case sent the notice to the local IRS office.  The IRS had actual notice but the correct part of the IRS did not receive notice as required by the applicable regulation.

The senior lienholder in the advisory case sent notice of the sale more than 25 days prior to the sale and sent it to the address listed in Publication 4235; however, the senior lienholder used a private delivery service to deliver the notice.  The private delivery service used by the senior lienholder was on the list of approved private delivery services in the applicable Revenue Procedure issued pursuant to section 7502.  What’s the problem if you mail the notice within the right time frame to the right address using an approved private deliver service?  The problem is that when sending a notice of sale pursuant to section 7425(c) the notice must be given, pursuant to regulations prescribed by the IRS, ‘in writing, by registered or certified mail or by personal service.”  The regulations under section 7425 do not authorize the use of a private delivery service and the statute says the notice must be mailed by “registered or certified mail.”

The private delivery services described in section 7502 take the place of “regular” mail.  Nowhere in the regulations has the IRS provided for the private delivery services to take the place of “registered or certified mail.”  The opinion provides that “even if section 7502 could be construed to expand the definition of ‘registered and certified mail’ for purposes of section 7425, no private delivery services are currently treated under section 7502 as equivalent to registered or certified mail.  So, yet another taxpayer is lulled into the private delivery service mistake.

But another argument exists that the advisory opinion also shoots down.  Section 7425 permits personal service of the notice of sale.  What if the delivery of the notice to the IRS by the private delivery service is viewed as personal service rather than a substitute for “registered or certified mail?”  After all, in many instances, the employee of the private delivery service actually walks up the office and hands off the envelope.  Neither the code, the regulations, the IRM provisions nor the relevant publications define what is meant by “personal service.”  In the absence of guidance from any of these sources, the author of the advisory opinion takes the position that the personal service can only occur when the delivery occurs by the submitter of the notice and not by a third party.

The position that the “submitter of the notice” must be the person to effect personal delivery raises interesting questions itself.  Does it need to be the city or county manager if the notice comes to the IRS from a local property tax sale or the head of the property tax office?  Could it be any county employee who could effectively deliver the notice even someone remote from the city or county tax office such as a sheriff?  Does the person delivering the notice need to be a full time employee?  What if the city or county or corporation uses a temp agency employee to deliver the notice or uses leased employees?  This rule not only seems unnecessary to the spirit of the notice but seems difficult if not impossible to administer.

The goal of 7425 is to make sure that the IRS receives the notice in time to take action to protect its lien interest.  The seemingly picky rule requiring delivery to a specific office of the IRS that caused Weld County to trip up in the Mendoza case makes sense because the IRS is a huge organization and notice to one part of it will not necessarily get the information on a time sensitive matter like this to the right place.  Moving from the concern in Mendoza to the concern here, it is necessary to look for some reason that the letter needs to come by certified or registered mail.  Did Congress have in mind that the receipt of a letter in one of those deliver forms would make the IRS sit up and take notice of the contents of the letter faster than it would with regular mail?  At the time Congress passed that law, private delivery services were uncommon.  It is possible that Congress thought registered or certified mail delivery to the IRS would enhance the notice and that is a justification for not allowing the private delivery service to take the place of certified or regular mail but Congress does not appear to have thought of this when passing the statute.

To make itself appear more reasonable, the IRS should justify why it does not want a private delivery service to serve the same purpose as certified mail.  If no reasonable justification exists, the IRS should update the language in the regulation to permit private delivery to work for types of mailing other than just regular mail.  Even if the IRS does not permit private delivery to work in place of registered or certified mail because of a business reason, it should reexamine the statement in the advisory concerning delivery by the submitter of the notice.  Here again, it needs to provide reasoning rather than to just fall back to the most favorable position for the IRS.  The goal is the right answer not tripping up someone with an unnecessary rule.  The IRS only comes out looking bad without a business justification for playing “gotcha.”

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