Taxable Talk

In today’s mail I received some notices from a tax agency.  That’s not unusual: We have many Tax Information Authorizations and Powers of Attorney on file.  And it wasn’t out of the ordinary that all three notices were for the same client.  What was unusual is that these notices were not dated on the same date: These were sent (most likely) at intervals of three weeks, with the most recent notice (probably) being mailed this week, and the other notices being mailed three and six weeks ago.  How can clients timely respond to notices when the Post Office (an agency of the United States Government) does not timely deliver the mail?

Yet under the law a notice mailed regular mail is considered received in one week.  Many state tax agencies don’t have the requirement to send Notices of Deficiency (or the state equivalent) by certified mail.  Unless my client or I have a working crystal ball (and neither of us do) it’s impossible for us to timely respond to these notices.

And the delays aren’t getting better.  A different client of mine who resides overseas just received a notice mailed three months ago asking for a response two months ago!  Yes, Covid has played havoc with overseas mail (and it turns out the notice my client received is incorrect), but I have other examples.  Late last month I mailed a certified letter on behalf of a client to the IRS in Fresno.  Look at the tracking on this:

This was a request for a Collection Due Process Hearing.  It got to Fresno in two days from Las Vegas, but then sat around in Fresno for one week before being delivered to a PO Box…in Fresno.

Unfortunately, government agencies’ assumptions about mail deliveries need to be modified based on today’s realities.  Two years ago, it was reasonable to assume a letter from Las Vegas would be delivered to Fresno within three business days (and that was true pretty much anywhere in the United States).  Today, such an assumption is unwarranted.  Tax agencies need to add additional time for taxpayers to timely respond to notices.

It’s exactly 399 miles from my office to the Post Office in Fresno, California (93779).

On my way out of town on my vacation, I stopped at the Post Office to mail a response to an IRS notice.  This was a request for a Collection Due Process (CDP) Hearing, and it had a deadline of July 28th.  I mailed the response on July 26th (using certified mail, return receipt requested).  I haven’t received the return receipt yet, but the filing was delivered on August 4th (per USPS tracking).  Given all the delays in the IRS reading and responding to mail, am I concerned for my client?  Definitely not.  I have proof of the mailing, and the fact that something a six-hour drive took the Postal Service nine days doesn’t matter–most IRS filings are postmark deadlines.  (It is possible the IRS delays in reading their mail will cause issues, but those are resolvable if I can speak to an individual at the IRS.)

But consider what might have happened if I had just put $1.40 of postage on the envelope and dropped it in the mail.  What might have happened if the postmark got obliterated (or if the mail hadn’t been postmarked)?  My client would lose.  We spent the $3.60 for certified mail (and $2.85 for the return receipt), so my client will have a CDP hearing.

Given all the issues with the Post Office and the IRS, anything sent to the IRS by mail must be sent certified mail (and you have to maintain the proof that it was mailed and received).  I’m expecting quite a few cases where the IRS claims various filings were lost–the volume of paperwork is just too large for this not to happen.  Don’t be part of the problem–use certified mail.  The courts have little to no sympathy if you don’t.

(Yes, there’s an issue with an envelope taking nine days to get from Las Vegas to Fresno.  But that’s another story for another day.)

A client was in IRS Appeals contesting the late filing penalty for his 2012 tax return. His return, which was ineligible for electronic filing, was on extension. The extension was timely electronically filed. The client believes he went to the Post Office and mailed his return on October 15, 2013. The IRS said it was mailed one week later. Unfortunately, in a move his records were lost by the movers. The problem is that if you don’t file timely (within the extension period), it’s as if you never had an extension!

The IRS Account Transcript shows the return was late filed. Using the Freedom of Information Act, we obtained a copy of the Administrative Record for his return; that included a copy of the envelope he mailed the return in. It clearly shows the postage being purchased at a post office on October 15, 2013. The envelope has two postmarks: The original (purchased at a post office) and a second from halfway across the country a week later! Most likely, the Postal Service routed the envelope incorrectly, so it ended up going through the system twice. In any case, I showed the Appeals Officer the copy of the envelope, and he agrees that the return was timely filed (for purposes of the late filing penalty) and my client now owes nothing. (My client had already paid the tax, interest, and the late payment penalty.)

Yes, my client was lucky that the administrative record showed the envelope. Yes, it would have been easier had he still had the certified mail receipt (or had the movers not lost that particular box).

Consider what would have happened if he had not used certified mail (or the envelope had not been shown in the record): He would be writing a check for about $20,000. Certified mail costs $3.30 (a return receipt will add $1.35 or $2.70 to that cost depending on whether you have it emailed or mailed to you). Yes, you have to wait in line at a post office, but that’s well worth it when you compare the alternative.