In Uncategorized on 07/12/2011 at 17:09

Or, If You Mail It, You Have to Nail It

The mailing dates, that is. Proving mailing dates is a critical matter for the IRS. Where most mailing requirements specify certified mail, this is (or should be) a non-issue, as the USPS issues date-stamped receipts and makes on-line tracking easily accessible.

But not in the Section 7623(b) “whistleblower” situation; Congress did not specify how IRS gives notice of determination of a whistleblower claim. This case comes from the time when IRS used ordinary mail. But there was no mailing log kept or PS3817 proof of mailing obtained in the case of Kenneth William Kasper, 137 T.C. 4, filed 7/12/2011.

Kenneth William caught a corporation and its CEO playing games with overtime and the payroll taxes arising therefrom. He filed Form 211, Application for Award for Original Information, a/k/a Whistleblower. Three months later, he got an acknowledgement letter from IRS, stating his claim was bifurcated, one claim being against the corporation, the other against the CEO. IRS claimed they denied both claims three months after that, with a boilerplate letter in each case, asserting that the real reason for denial was confidential under the tax laws, but giving the usual laundry list of possible bases for denial: “(1) The application provided insufficient information; (2) the information provided did not result in the recovery of taxes, penalties, or fines; or (3) the Internal Revenue Service (IRS) already had the information provided or such information was available in public records.” 137 T.C. 4 at p. 4.

In the words of the old song, “it was clear as mud but it covered the ground”.  Only Kenneth William claimed he never got either letter. Kenneth William wrote the IRS eleven months after the alleged denial letters had been mailed, stating the corporation had settled with IRS   and when was he getting his? Oh no, said IRS, we told you a year ago you were out of luck.

Kenneth William immediately petitioned Tax Court. IRS said no jurisdiction, you’re too late, and anyway we never made a determination within the meaning of Section 7623 (those letters aren’t a determination), so if you’re not too late you’re premature.

Wrong on both counts, says Judge Haines. First, the denial letters are determinations. See Cooper, 136 T.C. 30, filed 6/20/11, and see my blogpost “The Whistleblower Blows It”, 6/20/11. I’m following Cooper, says Judge Haines. IRS said “no” to Kenneth William; and that is a determination, at least as to his CEO claim.

Next, as to mailing of the determinations, Kenneth William’s petition is timely as to the CEO, and premature as to the corporation, as IRS can’t prove they mailed either the corporation or the CEO determination to Kenneth William at a time which would make his petition untimely. When Kenneth William wrote IRS asking for his share of the take from the corporation, his letter referenced the CEO claim number, and IRS sent him a copy of the CEO denial letter, not the corporation denial letter. He claims he never got the corporation denial letter.

Judge Haines now scrutinizes the IRS’ whistleblower notification procedures. “During the time relevant to this case, the standard practice within the Whistleblower Office was to prepare a denial letter and scan it into e-Trak, the Whistleblower Office’s computer database. Thereafter, history notes were written or typed, dated, and then entered into e-Trak as an investigation history report. A copy of the denial letter was placed in a paper file. “Standard mailing procedures for denial letters required that the original denial letter be placed by a clerk in an envelope addressed to the whistleblower claimant at his or her last known address and deposited in the Whistleblower Office’s outgoing mail. At the end of each day, a clerk took the outgoing mail to the facilities mailroom, where mail was picked up daily for delivery by the U.S. Postal Service. None of the letters were sent by certified or registered mail, and a mailing log was not kept. “The e-Trak system and the investigation history reports indicate that the Whistleblower Office’s standard procedures were followed in petitioner’s case. Moreover, the denial letters were addressed to petitioner at his last known address and were not returned to the Whistleblower Office by the U.S. Postal Service as undeliverable.” 137 T.C. 4, at pp. 5-6.

Unlike the lien and levy notice provision of Section 6330(d), with its certified mail language, Section 7623(b) doesn’t say how notice of determination must be given. The then current IRS manual was unclear, although the later version, inapplicable to Kenneth William, required certified mailing.

Judge Haines states the IRS argument: “The Government is generally entitled to a rebuttable presumption of delivery upon presentation of evidence of proper mailing. Although the Whistleblower Office did not have a certified mailing requirement at the time the denial letters were issued, respondent [IRS] argues there is a strong inference of delivery when it is shown that the Whistleblower Office complied with its internal procedures for mailing of the denial letters in the regular course of its operations.  A strong inference must arise from more than unsupported conclusory statements of an individual based on his assumption of how mail was handled in the normal course of business in his office. “Respondent argues that the standard operating procedures within the Whistleblower Office were followed to prove that the denial letters were mailed. The Whistleblower Office’s e-trak (sic) system was described. The e-Trak system is a computer record which indicates that a denial letter was sent but does not confirm where it was sent, to whom it was sent, or whether it was a part of the Whistleblower Office’s outgoing mail. Nor was there a mailing log.” 137 T.C. 4, at pp. 12-13. (Citations omitted).

These “unsupported conclusory statements” came from the declaration of one Bradley DeBerg, at the time the chief of the IRS whistleblower office in Ogden, UT, in support of IRS’ motion to dismiss.

Judge Haines gives Mr. DeBerg and IRS short shrift. “Although evidence of standard practice will be afforded appropriate weight as the circumstances of each case require, we cannot find that compliance with standard practices within the Whistleblower Office, standing alone,  permits a finding that the denial letters in question were mailed to petitioner…. The date a determination is mailed is of critical importance to establish our jurisdiction to review a taxpayer’s case. We will hold we do not have jurisdiction when a taxpayer does not meet the 30-day requirement. And as we have emphasized in cases involving our jurisdiction: ‘In this setting, we must require * * * [the Commissioner] to prove by direct evidence the date and fact of mailing the notice to a taxpayer.’ Magazine v. Commissioner, 89 T.C. 321, 326 (1987).” 137 T.C. 4, at p. 14.

So sorry, IRS, Kenneth William’s CEO petition is timely, because you never provided direct evidence that you denied anything until you replied to his inquiry as to the CEO claim and he promptly petitioned. And as to his corporation claim, you still haven’t told him anything, so he can’t petition until you do.

Takeaway- If taxpayers need good records, so does IRS.

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