Loonan v. Comm'r of Internal Revenue (In re Estate of Wood)

• Decision Date: 12 April 1989
• Docket Number: Docket No. 48020-86.
• Citation: 92 T.C. 793,92 T.C. No. 46
• Parties: ESTATE OF LEONARD A. WOOD, DECEASED, J.M. LOONAN, PERSONAL REPRESENTATIVE, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: U.S. Tax Court

92 T.C. 793

92 T.C. No. 46

ESTATE OF LEONARD A. WOOD, DECEASED, J.M. LOONAN, PERSONAL REPRESENTATIVE, Petitioner

v.COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 48020-86.

United States Tax Court

Filed April 12, 1989.

P elected special use valuation on its Federal estate tax return. The return was due on March 22, 1982. The envelope containing the return was properly addressed to the Internal Revenue Service office in Ogden, Utah with postage prepaid and was postmarked by the U.S. Postal Service ‘March 19, 1982‘. P, however, did not mail the return by certified or registered mail. R claims he did not receive the return. HELD, section 7502(a) is applicable to this case pursuant to section 7502(a)(2). HELD FURTHER, to show delivery, P may rely on the presumption that a properly mailed document is actually received by the person to whom it is addressed because R did not rebut the presumption. HELD FURTHER, P timely filed his return on March 19, 1982, pursuant to section 7502 and, therefore, timely elected special use valuation. Michael D. Johnson, for the petitioner.

Gail K. Gibson, for the respondent.

WILLIAMS, JUDGE:

The Commissioner determined a deficiency in petitioner's 1981 Federal estate tax of $38,636.54. The issue we must decide is whether petitioner timely elected special use valuation pursuant to section 2032(d). ¹

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. Decedent Leonard A. Wood, a Minnesota resident, died on June 21, 1981, owning farmland valued pursuant to section 2032A at $173,334. At the time the petition was filed in this case, petitioner's personal representative, J.M. Loonan, resided in Easton, Minnesota. A Federal estate tax return was prepared by Mr. Loonan electing the special use valuation and showing no tax due.

The return was due on Monday, March 22, 1982. Mr. Loonan personally brought the return and petitioner's Minnesota estate tax return to the Easton Post Office on Friday, March 19, 1982. The Federal estate tax return, properly electing the special use valuation, and the Minnesota estate tax return were mailed in separate envelopes which were properly addressed to the Internal Revenue Service (‘IRS‘) at Ogden, Utah and Commissioner of Revenue, St. Paul, Minnesota, respectively. The envelopes also had marked on them the address of the law offices of Mr. Loonan as a return address.

At the Post Office Mr. Loonan handed the envelopes to Ms. Marvel Staloch, the Postmistress of the Easton Post Office. She weighed the envelopes, affixed the proper first class postage to them, cancelled the stamps, postmarked the envelopes and placed them in separate bags in the outgoing mail. Both envelopes were postmarked ‘March 19, 1982.‘ While she was doing this, Loonan mentioned to Marvel Staloch that the envelope containing the Federal return had to go out that day. Petitioner's Federal estate tax return properly electing special use valuation was mailed on March 19, 1982, by first class mail.

Easton is a small community, and Ms. Staloch personally knows the residents. No resident complained to Ms. Staloch about lost mail, and Ms. Staloch, who would have been informed of such a loss, was unaware of any lost mail that was posted at the time the estate tax return was mailed.

Michael D. Johnson, attorney for petitioner, corresponded with respondent and inquired several times about the status of the estate tax return mailed for petitioner and asked for tax clearance. Respondent claimed he had not received the return. Petitioner then filed an executed copy of petitioner's original return. Respondent received this copy at the Internal Revenue Service Center at Ogden, Utah on October 2, 1984. Petitioner also remailed the Minnesota estate tax return after being told that the state tax commissioner had not received the state return.

OPINION

Respondent claims that the only return filed by petitioner was an untimely, executed copy. Respondent urges that because the executed copy was untimely filed, petitioner did not elect special use valuation. Sec. 20.2032A-8(a)(3), Estate Tax Regs. Accordingly, respondent determined the value of decedent's farmland to be $321,840 instead of $173,334 as stated on the return resulting in the deficiency in petitioner's Federal estate tax which is at issue. The parties do not dispute the value of decedent's property. If special use valuation has been properly elected, petitioner is entitled to value its property at $173,334; if the property should be valued at its fair market value, its value was $321,840.

The issue that we must decide is whether petitioner's estate tax return was filed on or before March 22, 1982. Respondent argues that the return mailed on March 19, 1982, was not delivered to respondent. A timely mailed return is deemed to be timely filed only if the return is delivered to respondent. Section 7502(a).

Section 7502(a)(1) provides that if a return is DELIVERED by the United States mail to the Internal Revenue office where the return is required to be filed after the date prescribed for its filing, the date of the U.S. postmark stamped on the envelope in which the return is mailed is deemed to be the date the return is filed.

Section 7502(a)(2) provides:

(2) MAILING REQUIREMENTS. -- This subsection shall apply only if --

(A) the postmark date falls within the prescribed period on or before the prescribed date --

(i) for the filing (including any extension granted for such filing) of the return * * *

* * * and

(B) the return * * * was, within the time prescribed in subparagraph (A), deposited in the mail in the United States in an envelope or other appropriate wrapper, postage prepaid, properly addressed to the agency, officer, or office with which the return * * * is required to be filed * * *

Proof of mailing the return -- i.e., proof of placing in the U.S. mail an envelope containing the return and having the proper postage and address -- satisfies the requirements of section 7502(a)(2)(B) but fails to satisfy the requirement of section 7502(a)(2)(A) that the properly mailed envelope be postmarked prior to the due date of the return. Consequently, the relief afforded by section 7502 is not available to a taxpayer who cannot establish the postmark on the envelope. See, e.g., Deutsch v. Commissioner, 599 F.2d 44 (2d Cir. 1979). For section 7502(a)(1) to apply, section 7502(a)(2) requires a postmark.

Petitioner has satisfied the requirements of both section 7502(a)(2)(A) and section 7502(a)(2)(B), and therefore, section 7502(a)(1) is applicable to this case. There appears to be no bar to petitioner's proof of the March 19, 1982, postmark. Cf. Sylvan v. Commissioner, 65 T.C. 548 (1975) (proof of mailing together with time of delivery established timely postmark). While the statute precludes evidence to CONTRADICT a U.S. postmark, Shipley v. Commissioner, 572 F.2d 212, 214 (9th Cir. 1977), any direct proof of the date of the postmark may be offered. Marvel Staloch, the Postmistress of the Easton Post Office, postmarked the envelope containing petitioner's return ‘March 19, 1982.‘ Ms. Staloch's testimony was as credible as physical evidence of the postmarked envelope. The date of the postmark falls within the prescribed period for filing petitioner's estate tax return. This envelope was deposited in the U.S. mail, postage prepaid, and properly addressed to the Internal Revenue Service office in Ogden, Utah. Therefore, section 7502(a)(1) applies in this case.

If petitioner's return was delivered to the Internal Revenue Service office, petitioner's estate tax return will be deemed to have been timely filed pursuant to section 7502(a)(1). Section 301.7502- 1(d)(1), Proced. & Admin. Regs. The heart of this case is, therefore, the evidence offered on the question of whether the return was delivered to respondent.

Respondent points to the rule of section 7502(c) that receipt for a return sent by U.S. registered or certified mail is prima facie evidence that the return was delivered to the Internal Revenue Service office to which it was addressed. No one argues that section 7502(c) applies to this case, but respondent argues that section 7502(c) is the EXCLUSIVE means of proving delivery.

Respondent relies on our opinion in Walden v. Commissioner, 90 T.C. 947 (1988), to argue that only a receipt for registered or certified mail can prove delivery. His reliance is misplaced. In Walden the taxpayers deposited their Federal income tax return in the U.S. mail and did not mail the return by registered or certified mail. The taxpayer in Walden could not prove the date of the postmark on the envelope, and the evidence showed that the return was not received by respondent. Specifically, the return was lost by the U.S. Postal Service prior to delivery to the Internal Revenue Service. This loss was the ‘risk of nondelivery‘ assumed by the taxpayer. Walden does not support the proposition that delivery can be proven only by a receipt for registered or certified mail.

It is important to note that respondent's regulations articulate the risk that a taxpayer takes when mailing a return by first class mail instead of by certified or registered mail. Section 301.7502- 1(c)(2), Proced. & Admin. Regs., explains the taxpayer's risk as ‘the risk that the document will not be postmarked on the day that it is deposited in the mail‘ and provides that this risk ‘may be overcome by the use of registered mail or certified mail.‘ In the case before us this risk was eliminated when petitioner's return was postmarked within the time prescribed for filing the return. The regulations do not, and could not, state that a taxpayer who mails by first class mail cannot offer proof against respondent's claim that the envelope was not received. The prima facie evidence rule of section 7502(c) appears to be a ‘safe harbor‘ within section 7502. In other words, if taxpayers mail by registered or certified mail they are assured of having prima facie...