Leather v. Commissioner

United States Tax Court
T.C. Memo 1991-534; 1991 Tax Ct. Memo LEXIS 583; 62 T.C.M. (CCH) 1087; T.C.M. (RIA) 91534 (1991)

ELI5:

Rule of Law:

Evidence of a routine office procedure for mailing documents, known as habit evidence, is insufficient to prove that a document was actually deposited in the U.S. mail. To benefit from a presumption of delivery, a taxpayer must provide direct evidence of the time, place, and manner of the actual mailing.

Facts:

Flexible Ink, Inc. was incorporated on June 19, 1986, with Helen S. Leather as the sole shareholder and president.
At the suggestion of her daughter, Leslee Hippert, a practicing attorney, Leather decided the corporation should elect S corporation status.
On July 19, 1986, Leather signed a Form 2553, Election by a Small Business Corporation, prepared by Hippert.
On July 23, 1986, Hippert placed the signed form in a stamped, addressed envelope and put it on a shelf in her law office where outgoing mail was collected daily.
There is no direct evidence that the specific envelope containing the Form 2553 was ever deposited in a U.S. mailbox or taken by a postal employee.
The corporation filed tax returns as an S corporation for 1986, 1987, and 1988, reporting losses each year.
Leather claimed these pass-through losses on her individual income tax returns for those three years.

Procedural Posture:

Flexible Ink, Inc. filed Forms 1120S for the years 1986, 1987, and 1988.
Because the IRS had no record of an S election, it converted these returns to Forms 1120 on its records.
The Commissioner of Internal Revenue issued statutory notices of deficiency to Helen S. Leather for the years 1986, 1987, and 1988, disallowing the pass-through losses she claimed from the corporation.
Leather, the petitioner, filed a petition in the United States Tax Court to challenge the Commissioner's determination.

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Issue:

Is evidence of an office's routine mailing procedures sufficient to prove that a Form 2553 was timely filed with the Internal Revenue Service when the IRS has no record of receiving the form?

Opinions:

Majority - Cohen, J.

No. Evidence of an office's routine mailing procedures is insufficient to establish that a document was filed. The controlling circumstance is the lack of evidence that the form was actually deposited in the U.S. mail. Filing requires delivery, and while proof of mailing can create a rebuttable presumption of delivery, there can be no such presumption without direct proof of the mailing itself. The taxpayer's reliance on 'habit evidence' regarding her attorney's office procedures for handling mail does not constitute the direct proof of mailing required by law. The burden of proving the S election was made falls on the taxpayer seeking its benefits, and she has failed to satisfy that burden.

Analysis:

This decision reinforces the strict evidentiary requirements for proving the filing of documents with the IRS. It establishes that courts will not infer the act of mailing from a party's general business practices or habits, especially when the agency has no record of receipt. The case serves as a crucial reminder for legal practitioners and taxpayers to use methods that provide concrete proof of mailing, such as certified mail with a return receipt, for critical filings. This holding solidifies the distinction between evidence of mailing procedures and direct evidence of the act of mailing, placing a high burden on the filer to prove the 'crucial step' of deposit into the U.S. mail.

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