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11 March 2014

Tax Return Lost in the Mail? Court Says: You’re Liable

Tax Return Lost in the Mail?  Court Says:  You’re Liable

The deadlines for corporate and partnership taxes are fast approaching. Will you file on time? Be prepared to prove it. The federal government outlines four delivery methods that can officially prove your return was filed on time, even if the IRS claims it was never received. However, forget to keep a receipt or proper documentation and you’re likely out of luck in the eyes of the law.

Bringing shocking clarity to this issue is a recent Supreme Court dismissal of a married couple’s federal income tax refund suit in the Sixth Circuit. In a tragic string of small oversights by the filers, their CPA team, and the IRS itself, it was the filers’ word against the IRS on whether or not an amended return was filed on time. In the end, the Sixth Circuit ruled that the taxpayers failed to prove the amended return was filed within the three years allotted, which resulted in an estimated $64,000 loss [Stocker II 111 AFTR 2d 2013-556 (6th Cir. 2013; cert. denied 12/16/13)].

The Supreme Court’s refusal to review the case further solidifies the seriousness of the issue: Following IRS rules on filing is no joke; resting on your laurels can be a costly mistake.  Therefore, it’s wise to heed the following steps when filing your returns:

1.     Use one of these statutory delivery methods:

a.     USPS Regular First Class Mail

b.    USPS Registered Mail

c.     USPS Certified Mail 

d.    IRS-approved E-Filings

e.     IRS-approved Private Delivery Services including DHL Express same-day service and most Federal Express and UPS services

2.     Make a copy of everything included in the mailing: This includes your check or form of payment.  One San Antonio businesswoman learned this lesson the hard way, as she shared with us. “I sent my tax data certified return receipt. I received the return receipt but the IRS claimed they hadn't received my check, which was included with my paperwork,” she told us. At the very least, a snapshot of the contents—while not proven to hold up in court—couldn’t hurt.

3.     Retain a time-stamped receipt: For regular first class mail, this means making a copy of the envelope once it’s been postmarked (a key step that’s often overlooked). For E-filing, it is the electronic receipt that is sent via email that must be retained. For registered or certified mail and approved private delivery, it means retaining the sender’s receipt. Another key step that’s often overlooked here is to acquire that receipt from your tax preparer if he/she sent the return for you.  

4.      Acquire proof it was delivered: Don’t assume no news is good news. In the Sixth Circuit Court case cited above, the IRS claimed the envelope containing the amended return bore a past-due postmark, although the agency failed to retain the envelope. Additionally, while the taxpayer requested a return receipt when mailing the amended return, that portion of the return-receipt card was erroneously left blank by the IRS when it was returned to the CPA. When possible, be sure to retain proof of delivery by the IRS before the filing date has passed so that any miscommunication may be cleared up in time.

So while you may be pleased to be filing on time, don’t celebrate until the record shows everything has been received. The burden of proof in this case is most certainly—and unfortunately—in your court. 

Image credit: sabphoto / 123RF Stock Photo

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