NTA Blog: A Digital “Mailbox Rule” Is Required As the IRS Steers Taxpayers Toward Self-Help Digital Tools
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As the IRS steers taxpayers toward self-help digital tools, it is necessary to bring the “statutory mailbox rule” into the 21st century. Currently, the statutory mailbox rule in IRC § 7502 does not apply to the electronic transmission of many time-sensitive documents and payments to the IRS. The rule provides that if the requirements set forth in the statute are met, a document or payment is deemed to be filed or paid on the date of the postmark stamped on the envelope. If the postmark date is on or before the last day of the period prescribed for filing the document or making the payment, the document or payment is considered timely filed or paid even if it is received after the due date. Further, IRC § 7502(c) provides that registered or certified mail, or methods deemed substantially equivalent by the Secretary of Treasury, is prima facie evidence of delivery. The rule applies to documents and payments sent through the U.S. Postal Service, designated private delivery services, and electronic return transmitters. However, the statute and regulations thereunder do not extend the rule to other forms of electronic transmission.
Traditionally, taxpayers primarily communicated with the IRS by mail, phone, or face-to-face interactions. However, IRS plans are well under way to increase digital interactions with taxpayers. Such increased digital interactions include the following:
- Faxed Documents.
- The Online Account Application. The IRS has launched and continues to further develop capabilities for the online taxpayer account application. Future capabilities include the ability of taxpayers to “self-correct,” which is expected to enable taxpayers and their authorized representatives to submit documents online.
- Taxpayer Digital Communications. Several organizations within the IRS, including the Taxpayer Advocate Service and Small Business/Self-Employed Exam, are conducting a pilot of the Taxpayer Digital Communication (TDC) Secure Messaging system. TDC enables taxpayers to send and receive electronic webmail, along with certain digital documents, through a secure portal.
- Electronic Payments. Taxpayers can make payments to the IRS in a variety of ways, including such electronic methods as:
Based on discussions with the IRS’s Office of Chief Counsel, it is TAS’s understanding that the IRS’s position regarding digital transmissions of documents and payments does not invoke the mailbox rule of IRC § 7502. Therefore, the date the taxpayer sends a document is irrelevant, even when the taxpayer provides proof of transmittal. The IRS will only look to the date the IRS actually receives it. The rationale behind this decision, as articulated to the National Taxpayer Advocate by the Office of Chief Counsel, is that people can modify the dates on fax machines and computers.
Taxpayers using EFTPS face particularly unfavorable treatment. The EFTPS website displays the following warning: “Payments using this Web site or our voice response system must be scheduled by 8 p.m. ET the day before the due date to be received timely by the IRS. The funds will move out of your banking account on the date you select for settlement.” (Emphasis in original.) This limitation applies to all payments. Assume a taxpayer owes a balance that is due on April 15. If she mails the payment to the IRS before midnight on April 15, the payment will be considered timely, even though it will probably take about a week until the IRS receives, opens, and processes the check. If she submits the payment on EFTPS, the payment will be considered late if she submits the transaction after 8 p.m. on April 14 (28 hours earlier), even though the payment would be debited from her account on April 16 – about one week earlier than if she submits it by mail.
This disparity in the treatment of mailed and electronically submitted payments makes little sense. As compared with a mailed check, an electronic payment is received more quickly, is cheaper to process, and eliminates the risk a mailed check will be lost or misplaced. Yet rather than encouraging taxpayers to use EFTPS, the relative deadlines serve as a deterrence.
The comparatively unfavorable treatment of electronically submitted documents and payments undermines the IRS’s efforts to encourage greater use of digital services. In fact, without an electronic version of the statutory mailbox rule, practitioners might hesitate to send any time-sensitive documents or payments electronically for fear of committing malpractice. Moreover, unrepresented or unsophisticated taxpayers may be harmed because they assume the date of sending a digital document or payment will control. Using a digital method could compromise taxpayer rights and protections, especially the right to challenge the IRS’s position and be heard. It also impacts the taxpayer’s right to a fair and just tax system because the electronic transmission of documents and payments facilitates the timely submission of documents and payments. If the IRS wants to encourage taxpayers to use digital methods of document submission and payment, taxpayers should have the same protections when they submit electronically as they do when they mail a document or check through the U.S. Postal Service or a designated delivery service.
Even the Tax Court in Pearson v. Commissioner, 149 T.C. No. 20 (Nov. 29, 2017), recognized the need to bring the statutory mailbox rule into the 21st century. The court, sitting en banc, held that postage bought over the internet and affixed to an envelope creates a private postmark as of the date of purchase for purposes of the regulations issued under IRC § 7502.
Accordingly, in my 2017 annual report, I made a legislative recommendation to amend IRC § 7502 to address these issues. Specifically, I recommended that Congress amend the statute to direct the Secretary to issue regulations that apply the mailbox rule comparably to documents and payments submitted by a taxpayer regardless of whether they are submitted electronically or by mail. Specifically, the regulations should provide the extent to which the confirmation or receipt of electronic transmission affords the same protections as a postmark from the U.S. Postal Service or another designated delivery service. Further, the regulations should provide the means by which a taxpayer can electronically transmit the document and receive a receipt or confirmation which is prima facie evidence that the IRS received the document or payment on the date reflected on the receipt.
In drafting the administrative guidance and policy regarding fax confirmations, it is important to note that criminal penalties under IRC § 7206 for falsifying records would apply to these electronic submission receipts and confirmations in the same manner as they would to other taxpayer records. Therefore, the IRS should consider allowing taxpayers to use their own personal fax machines and require the taxpayer to make a statement, signed under penalties of perjury, about the accuracy of the date stamp on the fax confirmation if the date of IRS receipt becomes an issue.
The views expressed in this blog are solely those of the National Taxpayer Advocate. The National Taxpayer Advocate is appointed by the Secretary of the Treasury and reports to the Commissioner of Internal Revenue. However, the National Taxpayer Advocate presents an independent taxpayer perspective that does not necessarily reflect the position of the IRS, the Treasury Department, or the Office of Management and Budget.