Taxpayers can use direct and circumstantial evidence to show timely filing.

In 1993, the Lewises filed for an automatic extension to file their 1992 federal tax return. They maintained they had mailed the extension request, along with a $5,000 payment, sometime before noon on April 15, 1993, in a specially designated box at a U.S. post office. The taxpayers also claimed they had mailed their California state tax return at the same time. The IRS said the application had not been received until April 26, 1993, considered it late and denied the extension request.

When the Lewises filed their return in September, the IRS assessed a late filing penalty and put a lien on the taxpayers' bank account. When the taxpayers fried a refund suit in district court, the IRS filed a motion to dismiss the case, arguing the taxpayers could not prove a timely postmark, because they had no "direct" evidence, such as a certified or registered mail receipt.

The Lewises admitted they had no direct evidence but did prove that the California Franchise Tax Board had received their payment on April 16, 1993, and that both the check made out to the state and the check to the IRS were dated April 15, 1997. The taxpayers also showed they later had mailed a different form to the IRS by registered mail, which was signed for by the IRS Ogden, Utah, center as received on one date but was stamped "received" seven days later.

The IRS also had no direct evidence in the case, because it had lost the envelope containing the extension request. The IRS did, however, try to prove late filing by using U.S. Postal Service statistics. The statistics showed it should have taken two to six days for the extension request to get to the IRS Ogden center, but a date stamp used by the IRS showed that the bag containing the taxpayers' extension request was "received" April 26, 1996--11 days later. The IRS also presented as proof an IRS declaration stating it was the practice of its Ogden center to stamp all mail in a given bag as received on the date the bag was delivered by the Postal Service rather than the date the envelope was opened.

Result: For the taxpayers. The district court denied the IRS motion to dismiss and said any taxpayer may present, as proof of timely filing, both direct and indirect evidence to show that a timely postmark was stamped on the return or other form. The court found the Lewises had enough evidence to convince a fact finder at trial that their envelope was postmarked on April 15, 1993. The court thought it was unfair to distinguish between taxpayers who mail their returns through a postal window and those who use the special box for tax returns at the post office. The court also thought it was unfair that a taxpayer is so disadvantaged because the IRS lost an envelope.

* Lewis v. U.S. (DC ECalif, 9/24/96).

Edited by Maria Luzarraga Albanese, JD, LLM, editor, AICPA client newsletters.

TAX FILES

* President Clinton signed a bill to temporarily renew the excise taxes that finance the Airport and Airway Trust Fund. The legislation reinstates the aviation trust fund taxes and continues them through September 30. It also gives the Treasury Department the authority to deposit into the trust fund any tax revenues collected by the airlines during the 1996 fourth quarter that were not remitted to the federal government during that period.

* William V. Roth, Jr. (R-Del.), chairman of the Senate Finance Committee, said he was committed to passing a major tax-cut bill this year. Roth said he didn't agree with the recent suggestions by House Majority Whip Tom DeLay (R-Texas) that tax cuts be delayed until after a balanced budget amendment is enacted.