Our tax attorneys
always use certified mail when sending time-sensitive documents to the Internal Revenue Service
. It costs a few pennies extra and can be a bit of a nuisance, but our caution was proven to be justified by a recent court decision. In Baldwin v. United States
, 2019 U.S. App. Lexis 11036 (9th Cir. April 16, 2019), the taxpayers, a married couple, alleged to have delivered an amended tax return to the IRS by the due date. The IRS claimed they never received the return and denied their refund claim. At trial, the taxpayers' employees testified that they had personally mailed the return to the IRS on the taxpayers' behalf. Generally, under the common law mailbox rule, a court could have accepted the credible oral testimony by the employees as proof the document was delivered. In Baldwin
, the Ninth Circuit rejected the testimony as proof of delivery because the court held the mailbox rule does not apply to tax documents sent to the IRS.
Two insights may be garnered from the Ninth Circuit's decision in Baldwin. First, a taxpayer must send all important or time-sensitive documents to the IRS by registered or certified mail, or perhaps an appropriate private delivery service. Under Baldwin, these are the only suitable method for California taxpayers to establish delivery of documents where the IRS claims to have never physically received them. Second, the decision is likely to be viewed with a level of caution by California taxpayers dealing with the IRS. Baldwin is a stark reminder that under the Chevron doctrine, IRS interpretation of statute may override a court's prior judicial decision.
The case turned on the Ninth Circuit's interpretation of Section 7502 of the Internal Revenue Code. Section 7502 states that a taxpayer can prove delivery of a document to the IRS by showing that the document was sent by registered mail. Prior to Baldwin, the Ninth Circuit had held in Anderson v. United States, 966 F.2d 487 (9th Cir. 1992), that Section 7502 is merely an additional mechanism for taxpayers to prove delivery and does not prevent a court from applying the mailbox rule. However, in Baldwin, the government argued that the IRS interpretation of Section 7502 establish it as the only means of proving a document's delivery where the IRS never receives the document. The court, relying on the United States Supreme Court's holding in Chevron v. Natural Resourced Defense Fund, 467 U.S. 837 (1984), gave deference to the IRS's interpretation, overruling its prior decision in Anderson and effectively nullifying the mailbox rule for tax documents.
The larger issue highlighted in Baldwin is whether taxpayers and their tax attorneys can rely on prior judicial interpretations of the Internal Revenue Code in making critical tax decisions. Currently, under the test established in Chevron, a federal agency's interpretation of a law will be valid, if and only if, Congress has directly addressed the issue in controversy and the federal agency's interpretation is viewed as a reasonable interpretation of the law. A key reading of Chevron is that a federal agency does not have to give deference to prior judicial opinions when interpreting ambiguous law. Such a reading has been substantiated by Nat'l Cable & Telecomms. Ass'n v. Brand X Internet Servs., 545 U.S. 967 (2005), where the Supreme Court ruled, "a court's prior judicial construction of a statute trumps an agency [interpretation]...only if the prior court decision holds that its construction follows from the unambiguous terms of the statute and thus leaves no room for agency discretion." Unless a court states unequivocally that its interpretation can be the only interpretation under the language of the statute, an agency can likely disregard that ruling.
A California taxpayer may wonder whether Chevron
has any impact on his or her dealings with state tax agencies such as the Franchise Tax Board and California Department of Tax and Fee Administration
. The answer is complex. While Chevron
specifically only applies to federal agencies, state judicial systems may construct their own Chevron
deference standards for state agencies. In 2018, Arizona actually became the first state to rewrite its administrative procedure laws such that Arizona courts are not required to defer to an agency's legal interpretations in lawsuits over administrative decisions. The Arizona law prevents the creation of a quasi-Chevron
standard by the state judiciary. California has not passed similar legislation. Nonetheless, California courts have been reticent to apply its own quasi-Chevron
standard. In Yamaha Corp. of America v. State Board of Equalization
, 19 Cal. 4th 1, 78 (1998), the court held that the final word on the question of statutory interpretation always rests with the judiciary. It is likely that California courts have an independent right, if not an independent obligation, to interpret a law without being required to give substantive deference to state agencies in all circumstances.