Small details can be crucial in certain portions of tax practice, and in the case of Organic Cannabis Foundation, LLC, et al, v. Commissioner[1] the problem involved the use of a particular delivery option available from FedEx that was not on the list of IRS approved delivery services.  That fact, combined with the inability of FedEx to make delivery on its initial attempt, combined to deny the taxpayers the ability to contest their issue in the United States Tax Court, their petition being found to have been filed a day late.

Timely Mailing Rule

The main issue goes back to IRC §7502.  Per IRC §7502(a)(1), if a document is postmarked on or before the final date for filing certain documents (such as tax returns and, as in this case, Tax Court petitions) the date mailed shall be treated as the date of delivery when determining if an item has been filed timely.

In order to prove the date of the postmark, IRC §7502 and the regulations under it provide for a limited set of options which can be used to establish the postmark date.  These options are to file the document using:

• Registered mail;[2]

• Certified mail;[3] or

• Specified private delivery services designated by the IRS.[4]

These options represent the only methods allowed under the regulations for a taxpayer to prove a timely postmark was applied to a document.[5]

The IRS provides a list of specific approved private delivery services and taxpayers must select from this list.  At the time of the case in question, the approved list was found in Notice 2004-83.  As of the date this article was written, the current approved list is found in Notice 2016-30.[6]

Use of an Unapproved FedEx Service

In the case in question, the law firm representing the taxpayer sought to file a Tax Court petition to challenge the IRS’s notices of deficiency.  The last date to file the petition was April 22, 2015.

The Ninth Circuit panel describes what happened when the law firm sought to send the petition to the Tax Court:

As the petitions were being finalized on the late afternoon of April 21 — the day before they were due — one of the firm's attorneys asked a secretary to prepare a FedEx shipping envelope addressed for overnight delivery to the Tax Court in Washington, D.C. After logging into her account on the FedEx website, the secretary entered the necessary addressing information and then reviewed the delivery options. She selected the “FedEx 'First Overnight'” delivery option because, “given the attorneys' obvious concerns about meeting the filing deadlines, [she] felt [she] should select the delivery method that would guarantee the earliest possible delivery.” After preparing the appropriately labeled FedEx package, the secretary gave it to one of the attorneys and went home. A paper receipt from the FedEx office in nearby Rancho Cordova states that the single package (which contained both Appellants' petitions) was dropped off at 8:04 P.M. Pacific time on April 21.

The original FedEx label prepared by the secretary stated that the shipping date was “21APR15” and that the package was to be delivered “WED — 22 APR 8:30A” by “FIRST OVERNIGHT.” At some point in processing the package, however, FedEx apparently prepared a new label that bears a notation indicating it was created on “04/22” and that redesignates the package for delivery on “THU — 23 APR 8:30A” by “FIRST OVERNIGHT.” This new label was affixed directly over the prior label, and the package arrived in that form at the Tax Court on the morning of April 23. The limited FedEx tracking information that was later available concerning the package no longer listed any of the details of the package's transit while being handled by FedEx; instead, it merely stated that the “Ship date” was “Wed 4/22/2015” and that the package was delivered at “7:35 am” on “4/23/2015 — Thursday.”

On the morning of April 22 (the due date for the petitions), one of the attorneys asked the secretary who had prepared the FedEx package to check on its status. The secretary checked her email and saw that she had not received the usual automatic notice from FedEx confirming its delivery. She called the Tax Court Clerk's Office and “was told something to the effect that the package had not been received.” She then called FedEx's customer service number and spoke with a representative to whom she provided the package's tracking number. As the secretary later described it, the FedEx representative responded that “the driver's delivery notes stated the driver had tried to deliver but could not because . . . he or she could not get to the door for some plausible reason like construction, or some sort of police action (perhaps the representative said the access was blocked off because of a safety threat).” The record does not indicate that the law firm took any further action that day. When the secretary arrived at the firm the next morning, April 23, she saw that she had an email in her inbox confirming that the package had been delivered that morning at 7:35 a.m. Eastern time.[7]

At the time of the mailing, Notice 2004-83 listed the following services provided by FedEx as qualifying for protection under §7502(f):

• FedEx Priority Overnight,

• FedEx Standard Overnight,

• FedEx 2 Day,

• FedEx International Priority, and

• FedEx International First.[8]

Although FedEx First Overnight did offer the earliest overnight delivery of the overnight options FedEx offered, it was not a service that was on the 2004 approved list, presumably being first offered after that list was finalized.[9]

The Ninth Circuit points out that the law enabling the use of private delivery services restricted the protection only to services approved by the IRS:

Unlike Federal Rule of Appellate Procedure 25(a)(2)(ii), which applies a mailbox rule to the timely delivery of a brief to “a third-party commercial carrier,” § 7502 does not allow taxpayers to use the services of any bona fide commercial courier. Instead, the statute specifies that a particular “delivery service provided by a trade or business” will count as a “designated delivery service” only “if such service is designated by the Secretary for purposes of this section.” I.R.C. § 7502(f)(2). The term “Secretary” means “the Secretary of the Treasury or his delegate,” id. § 7701(a)(11)(B), and here that delegate is the Commissioner (or his further delegate). In addition to requiring a formal designation, the statute states that the IRS may designate a delivery service “only if [it] determines that such service” meets four enumerated statutory criteria designed to ensure that the delivery service is at least as adequate as the U.S. mail. Id. § 7502(f)(2). Specifically, these criteria require that a service be “available to the general public”; that it be “at least as timely and reliable on a regular basis as the United States mail”; that it employ specified methods for showing “the date on which such item was given to such trade or business for delivery”; and that it meet “such other criteria” as the IRS may prescribe. Id. § 7502(f)(2)(A)–(D).[10]

The Court then noted that the IRS had taken steps to designate such approved services:

The year after § 7502(f) was added, the IRS published Revenue Procedure 97-19, which outlined the additional criteria that a delivery service must meet before it can be designated under that section. See Rev. Proc. 97-19, § 4, 1997-1 C.B. 644, 645. This document also made clear that private couriers seeking designation under § 7502(f) would not receive a blanket designation for every service they offered; rather, the IRS announced that “[d]esignation will be determined with respect to each type of delivery service offered by a [courier] (e.g., next business morning delivery, next business day delivery, etc.).” Id. § 3.03. Beginning with Notice 97-26 in 1997, see 1997-1 C.B. 413, the IRS has published lists in the Internal Revenue Bulletin of those services that it has designated under § 7502(f). At the time of the delivery at issue in this case, the operative list of designated services was set forth in IRS Notice 2004-83, which designated particular delivery services offered by only three companies, FedEx, DHL, and UPS. See 2004-2 C.B. 1030. As to FedEx, the notice designated five particular delivery services under § 7502(f), including “FedEx Priority Overnight” and “FedEx Standard Overnight,” but not “FedEx First Overnight.” Id.[11]

But the taxpayer countered that, given the facts of what the service offered, this should be deemed to be the same as the approved overnight FedEx offerings found in Notice 2004-83.  The Ninth Circuit did not agree:

Appellants contend that “FedEx First Overnight” should be deemed to be essentially the same delivery service as “FedEx Priority Overnight” and “FedEx Standard Overnight,” and that therefore the service Appellants used here is actually covered by the then-existing designations in Notice 2004-83. Alternatively, Appellants argue that, because FedEx First Overnight was indisputably eligible for designation on the day they used it, and was formally designated just two weeks later, Appellants should be deemed to have substantially complied with § 7502(f)'s mailbox rule. These arguments cannot be squared with the language of the statute.

Congress did not merely require that a private delivery service meet certain functional criteria concerning the operation of that delivery service; it also pointedly insisted that the service must be “designated by the Secretary for purposes of this section.” I.R.C. § 7502(f)(2) (emphasis added). Given the wide range of documents that are eligible for § 7502(f)'s mailbox rule and the need for clear-cut rules on questions of timeliness, Congress understandably elected to establish a quality-control regime in which the IRS would vet each such service in advance and then issue bright-line designations as to which services are subject to the mailbox rule and which are not. The statutory language also makes clear that there must be separate designations for each “service” offered by a private courier — and not merely a designation of the courier itself — because § 7502(f) expressly distinguishes between the “trade or business” that engages in delivery of packages (e.g., FedEx) and the various “delivery service[s]” by which it does so (e.g., FedEx Priority Overnight). See id. (Secretary may designate a “delivery service provided by a trade or business” if, inter alia, the service records “the date on which [an] item [to be delivered] was given to such trade or business for delivery” (emphasis added)). This additional requirement of separate formal designations of each “service” offered by a given “trade or business” would be read out of the statute if we were to accept Appellants' invitation to stretch the existing designations to cover other similar services offered by a particular courier. And the same would be true if we accepted Appellants' argument that use of a non-designated service should be deemed to substantially comply with the statute.[12]

Thus, the date of actual delivery by FedEx would apply in this case—and all parties agreed it had actually been delivered on the day after the last day for filing the petition.  Thus, the panel concluded, the Tax Court had been correct in finding it had no jurisdiction to hear the case.

Delivery Failure Due to Tax Court Being Inaccessible

The taxpayers argued that even if they had used the wrong service, the fact that FedEx had attempted delivery on the last date for filing but that the driver had tried but failed to make the delivery should offer relief from the fact that actual delivery took place a day later.

The Tax Court’s rules do provide that if the Court is closed or otherwise inaccessible on the last day for filing, that items delivered the next day will be timely.  But the question that the panel looked at was whether the taxpayer had proven the Tax Court was truly inaccessible at the deadline for filing.

The panel found that, even if they accept what the secretary testified FedEx had told her at face value (that there was “some plausible reason” the FedEx driver had for being unable to deliver at the time the driver arrived), that did not show that the Tax Court’s inaccessibility continued for the entire day.  The panel’s opinion notes:

But that says nothing about whether the Tax Court’s Clerk’s Office could have been reached later, during the remainder of the business day. As the Tax Court noted, the nature of the obstacle that FedEx claimed to have encountered was not one that, like “inclement weather, government closings, or other reasons,” would be expected to make it impracticable to reach the clerk’s office for the “entire day.” Nor did Appellants suggest that the clerk’s office was officially closed on April 22; indeed, the Tax Court took judicial notice that “the Court’s Clerk’s Office was open during its normal business hours” that day. A temporary obstacle that is encountered earlier in the day does not, without more, render the clerk’s office “inaccessible” on “the last day for filing.” Fed. R. Civ. P. 6(a)(3) (emphasis added). Rule 6(a)(4) states that, for filing by non-electronic means, “the last day ends . . . when the clerk’s office is scheduled to close.” Fed. R. Civ. P. 6(a)(4) (emphasis added). To render the clerk’s office inaccessible for the “last day,” therefore, an obstacle to access must exist for at least a significant portion of the final period of time preceding the point at which “the clerk’s office is scheduled to close.” Id. Appellants’ evidence made no such showing that the Tax Court Clerk’s Office remained inaccessible for the several hours that followed after FedEx’s unsuccessful attempt to deliver the package. Cf. Justice v. Town of Cicero, 682 F.3d 662, 664 (7th Cir. 2012) (suggesting, in dicta, that if a court’s e-filing system crashed during the last hour of the day, the clerk’s office would be “inaccessible” under Rule 6(a)(3)).

…We therefore hold that, for non-electronic filings (such as those at issue here), a clerk’s office is “inaccessible” on the “last day” of a filing period only if the office cannot practicably be accessed for delivery of documents during a sufficient period of time up to and including the point at which “the clerk’s office is scheduled to close.” Fed. R. Civ. P. 6(a)(3), (4)(B). Because, as the Tax Court noted, Appellants presented no evidence to show that the clerk’s office could not be accessed during the substantial remaining portion of the day after FedEx’s unsuccessful earlier delivery attempt, the extension in Rule 6(a)(3) did not apply.[13]

[1] Organic Cannabis Foundation, LLC, et al, v. Commissioner, CA9, Nos. 17-72874, 17-72877, affirming 153 TC No. 4 (2019), June 18, 2020, https://cdn.ca9.uscourts.gov/datastore/opinions/2020/06/18/17-72874.pdf (retrieved June 19, 2020)

[2] IRC §7502(c)(1)

[3] IRC §7502(c)(2), Reg. §301.7502-1(c)(2)

[4] IRC §7502(f), Reg. §301.7502-1(c)(3)

[5] Reg. §301.7501-1(a), (e)

[6] Notice 2016-30, April 11, 2016, https://www.irs.gov/pub/irs-drop/n-16-30.pdf (retrieved June 19, 2020)

[7] Organic Cannabis Foundation, LLC, et al, v. Commissioner, CA9, Nos. 17-72874, 17-72877, pp. 7-8

[8] Notice 2004-83

[9] The service is on the current approved list found in Notice 2016-30 and, in fact, was added to the list of approved services in Notice 2015-38, issued shortly after the petition in this case was filed.

[10] Organic Cannabis Foundation, LLC, et al, v. Commissioner, CA9, Nos. 17-72874, 17-72877, p. 16

[11] Organic Cannabis Foundation, LLC, et al, v. Commissioner, CA9, Nos. 17-72874, 17-72877, pp. 16-17

[12] Organic Cannabis Foundation, LLC, et al, v. Commissioner, CA9, Nos. 17-72874, 17-72877, pp. 17-19

[13] Organic Cannabis Foundation, LLC, et al, v. Commissioner, CA9, Nos. 17-72874, 17-72877, pp. 13-15