1. Case Introduction

Howard Baldwin and Karen Baldwin are a couple who own a production company called KEMB. In 2005, the film “Soul” produced by this company won the Oscar for Best Actor. When the couple filed their 2007 federal income tax, they reported a business loss of $2.5 million. According to relevant regulations, these losses can be carried forward to 2005, and the Baldwins can enjoy a tax refund accordingly. The IRS requires them to file an amended 2005 return before October 15, 2011.

The Baldwins said they sent an amended 2005 return by first-class mail in June 2011, but the IRS said it had not received it. The Baldwins sent another return, which the IRS received in July 2013. But the IRS rejected their refund because it was past the Oct. 15, 2011 deadline.

2. Focus of the Dispute

The Baldwins filed a lawsuit in the Central District Court of California. They wanted to rely on the “mailbox rule” in US case law to presume that the IRS received the tax return they mailed in June 2011. According to the “mailbox rule”, if a party can provide evidence that the mail has been mailed, including witness testimony or circumstantial evidence, it can be presumed that the mail has been mailed on time unless the recipient has sufficient evidence to prove that he or she did not receive it. Two employees of the Baldwins testified that they mailed the return on June 21, 2011. Based on this testimony, the Central District Court of California ruled that the Baldwins mailed the return on time and were eligible for a tax refund in accordance with the “mailbox rule”.

3. Final Decision

The IRS was dissatisfied with the ruling and appealed to the Ninth Circuit Court of Appeals. After hearing the case, the latter held that the Central District Court of California did not take into account Section 7502 of the U.S. Revenue Code. This section stipulates that the “mailbox principle” does not apply when sending documents to the IRS. According to the supporting interpretation documents of the U.S. Treasury Department, the proof of delivery by registered mail or private courier service is sufficient to prove that the documents have been sent, and witness testimony alone is not enough. The Ninth Circuit Court of Appeals ruled that because the Baldwins could not provide proof of delivery and the tax refund application was overdue, they could not enjoy the $167,000 tax refund and had to bear $25,000 in litigation fees.

4. Implications for “Going Global” Enterprises

Experts pointed out that taxpayers must strictly abide by procedural regulations when dealing with the tax bureau in order to legally assert their rights and interests. “The devil is in the details. If you ignore these procedural details, your rights and interests may not be protected.”