Federal Appeals Court allows NC taxpayer to sue IRS for refund, sets standard for ‘mailbox rule’
- The 4th U.S. Circuit Court of Appeals will allow a taxpayer from North Carolina to proceed with a lawsuit seeking a 2013 federal tax refund. Judges rejected government arguments that the suit should be dismissed.
- In addressing the case, the three-judge appellate panel set a 4th Circuit standard regarding the "common-law mailbox rule." Courts within the circuit cannot presume that documents sent by first-class mail have arrived on time.
A business owner from North Carolina can move forward with his lawsuit seeking a 10-year-old federal tax refund. The 4th U.S. Circuit Court of Appeals rejected government objections Friday and ruled that the case of Stephen Pond v. United States can proceed.
At the same time, the court ruled that Pond cannot rely on a “common-law mailbox rule” to boost his case. The three-judge panel set a standard for the 4th Circuit that a 1954 federal law has supplanted the common-law rule. Because Pond submitted tax forms by first-class mail rather than registered or certified mail, a court in the 4th Circuit cannot presume that his tax form was delivered on time.
Judge Julius Richardson’s unanimous opinion spells out the case’s details.
“Stephen Pond is a taxpayer seeking a refund on his 2013 taxes,” Richardson wrote. “The IRS audited Pond’s business and revealed an alleged overpayment. But the IRS misinterpreted its own audit, concluding that Pond had underpaid. So the IRS told Pond that he owed more taxes. He paid up, including interest.”
“Only later did Pond’s accountant discover the IRS’s mistake,” Richardson added. “Properly understood, the audit revealed that Pond had overpaid. So Pond timely requested a refund on his 2012 taxes. He says that, at the same time and in the same envelope, he also requested a refund on his 2013 taxes because the 2012 error caused him to also pay too much in 2013. The IRS gave Pond a refund for 2012. But the IRS says that it did not receive a timely refund request for the 2013 tax year.”
“And suits seeking to force the government to issue a refund are barred by sovereign immunity unless the plaintiff first files a timely request. So the government argues that we lack jurisdiction over the claim,” Richardson wrote.
Pond disagreed. He argued that he was entitled to a legal presumption of timely delivery under the common-law rule. Even without the presumption, Pond argued that “he plausibly alleged timely physical delivery of his request,” Richardson wrote.
U.S. District Judge Loretta Biggs rejected both arguments and ruled in the government’s favor. The appellate panel upheld Biggs’ ruling on the common-law rule. But the three-judge panel says Pond can continue to argue that his refund request arrived on time. “So his claim survives the government’s motion to dismiss and may proceed,” Richardson wrote.
Pond first tried to request his refund in July 2017. The 4th Circuit opinion details the multiple attempts Pond made to resolve the 2013 refund dispute, including periods during which “[m]ore months went by, and Pond still heard nothing.” He filed suit only after learning that his case had been closed after the statute of limitations for a refund request had passed.
The legal case does not hinge on IRS mistakes or delays. Instead Pond must prove that his 2013 refund request arrived on time.
In dealing with that question, the 4th Circuit tackled Pond’s appeal to the common-law mailbox rule. Judges considered the impact of 26 U.S. Code § 7502.
“May a taxpayer invoke the preexisting common-law mailbox rule now that Congress enacted the new statutory mailbox rule in § 7502?” Richardson asked. “The answer depends on whether the statute merely supplements the common-law mailbox rule or else supplants it altogether.”
“And the courts of appeals have split on the question. The Second and Sixth Circuits both say that the statute supplanted the common-law rule. The Eighth and Tenth Circuits, however, both say the statute merely supplemented the common-law rule.”
“We agree with the Second and Sixth Circuits that the statute has supplanted the common-law rule,” Richardson concluded.
Despite that ruling, which sets a precedent for the 4th Circuit, Pond can continue to make his case for timely delivery.
“Is Pond out of luck just because he cannot rely on a presumption of delivery? No,” Richardson wrote. “He can still proceed if he has plausibly alleged that his claim was physically delivered to the IRS. The district court held that Pond ‘is unable to show’ physical delivery and that his allegations of physical delivery are ‘implausible.’”
“We disagree. Affording the complaint all reasonable inferences, Pond adequately alleged physical delivery,” Richardson added.
Richardson and fellow Judges Robert Bruce King and Diana Gribbon Motz sent the case back to a trial court to address Pond’s claim of timely delivery.