Filing close to deadline? Get a receipt

Mr. and Mrs. Stocker waited until the day their taxes were due, Oct. 15, 2007. Mr. Stocker went to the post office and handed envelopes containing his 2006 federal taxes, 2006 Michigan taxes and amended 2003 federal taxes to the postal clerk.

Of note, the amended 2003 return claimed a federal tax refund of $64,000 caused by carryback losses. Mr. Stocker mailed the returns containing the 2006 returns by regular mail and the 2003 returns by certified mail – but, due to a mix-up at the accountant’s office, he didn’t get the customer copies of the certified mail receipts and the postal clerk took all the paperwork he had.

The state of Michigan received the tax filing with a postmark of Oct. 15. The Internal Revenue Service conceded that it received the regular mail envelope with a postmark of Oct. 15, but said that the envelope containing the 2003 federal tax return was postmarked Oct. 19. The IRS somehow managed to lose the original envelope, in apparent violation of its own policy. It sent back the return receipt that was attached to the envelope, but forgot to fill it in before sending it back to the Stockers’ tax preparer. The IRS then ruled that the amended return was filed past its deadline, costing the Stockers their tax refund.

The Stockers went to court to appeal the IRS ruling, providing evidence from their accountant, Mr. Stocker and the Michigan Department of Treasury showing it likely that the postmark actually was Oct. 15. The trial court and the U.S. Court of Appeals for the 6th Circuit found that the only acceptable proof that the return was filed timely would have been the postmark on the envelope, which was lost, or a receipt from the post office showing when the certified mail was sent, which the Stockers weren’t able to get.

Judgment: Too late. The $64,000 is toast.

If the Stockers had been in the 3rd, 8th, 9th or 10th Circuits (Hawaii is in the 9th), they at least would have had a chance to prove up their case. But if they had been in the 1st or 2nd Circuits, they also would have been out of luck. The Stockers realized this and asked the U.S. Supreme Court to take a look at the matter to resolve the circuit split. Although a circuit split is a pretty darn good reason for the Supreme Court to weigh in, the reality is that the court doesn’t have the ability to take that many cases and it declined to get involved in this one.

Some looking at the case might find it a case of rampant injustice. What do you make of the IRS saying that it lost the envelope even when its policy was to keep envelopes containing amended returns? What about the fact that someone forgot to fill out the certified mail return receipt and sent it out blank?

But the taxpayer wasn’t without fault either. Mr. Stocker’s one job at the post office should have been to make sure he didn’t leave the building without a mailing receipt for his certified mail in his hot little hand. Why else would he be using certified mail anyway?

These days we need to realize that taxing agencies routinely feel the effects of budgetary squeezes.

Handling errors are going to be made even in the face of the best laid plans, so we as taxpayers must do whatever is in our power to advance our own cause. So when you are facing a potential $64,000 question, like the Stockers were here, spend the extra couple of bucks for a certified mail receipt and don’t leave the post office without it. It’s far cheaper and results in less aggravation than trying to substantiate the mailing by other means, assuming it is allowed – and the Supreme Court may yet say it isn’t.

* Tom Yamachika is president of the Tax Foundation of Hawaii.