The IRS And Lack Of A Postmark

The IRS botches things every now and then.

I walked in Friday morning to a botch.

And before leaving Friday I was reading a near-botch that a taxpayer was able to rescue.

Let’s talk about it.

I received a client collection notice for approximately $25 grand. The entire amount represents penalties, and we are appealing the penalties. Generally speaking, an appeal puts a stay on collection activity.

I did what you would do: I called the phone number.

About an hour and a half later (seriously, IRS?) I spoke with an IRS representative.

I explained what happened and inquired about the stay. He asked for a few minutes while he investigated.

He found our appeal arriving in Memphis and then transferring to Kansas City. The file then went cold.

Got it: Kansas City never opened the file. Once Memphis closed, the IRS collection machinery went back online.

This was easy to resolve: I faxed him the appeal while on the phone; he forwarded the appeal; he then granted a stay on collection activity.

Point is: the IRS makes mistakes. Protect yourself.

One of the easiest ways to protect yourself is to certify your mailings. Granted, I would not certify an estimated tax payment, but I would certify more significant transactions with the IRS, such as (paper) filings, responding to correspondence audits or entering the procedural carousel.

Some procedural steps (think notices) have defined response periods. Miss them and you make your advisor’s job much more difficult – if not near impossible.

The granddaddy of defined response periods is the Statutory Notice of Deficiency, sometimes called a “NOD” or a “SNOD” and also known as the 90-day letter.

The 90-day letter means that the IRS intends to assess, a necessary procedural step (generally, there is always an exception) before the IRS can bring its full Collections weaponry to bear. If you want to contest the assessment without paying it first, you had better file with the Tax Court. 

You have 90 days.

Not 91.

Let’s talk about Seely v Commissioner.

The IRS audited Michael and Nancy Seely’s 2013, 2014 and 2015 tax returns. The IRS issued the SNOD. The last day to respond was June 26, 2017.

The taxpayers’ attorney prepared and mailed a Tax Court petition in response to the SNOD.

The Tax Court received the petition on July 17, 2017.

Oh, oh.

Like night follows day, the IRS motioned to dismiss.

The taxpayer will lose this argument 999 times out of 1,000.

But there was something peculiar about the Seely’s petition. It had all the necessary postage but had no discernable postmark. For all practical purposes, it was like it was never mailed.

There is a special rule for this unlikely occasion: the Court looks at extrinsic evidence, and both parties (the taxpayer and IRS) are allowed to present such evidence.

The Seelys came out strong: their attorney filed a declaration with the Court that his office had mailed the petition on June 22, 2017 at a specified mail location.

The IRS came with their argument:

(1)  It takes approximately 8 to 15 days for the Postal Service to deliver mail from the Seeley’s city to Washington, D.C.

(2)  If mailed on June 26, then it would have arrived at the Tax Court no later than Friday, July 14.

(3)  It didn’t. It arrived instead on Monday, July 17.

This argument is standard IRS play.

But the Court allowed for one more factor: unusual volumes of mail or staffing issues due to the intervening July 4^th  holiday.

The Court reasoned that might explain the one day the IRS was disallowing.

The Court decided for the Seelys.

This is a rare taxpayer win.

You know what else would constitute extrinsic evidence and have also handcuffed the IRS?

Certify the mailing with the Post Office.