© 2020 Arizent. All rights reserved.

Supreme Court upholds decision to abide by IRS on mailbox rule for tax refund claims

Register now

The Supreme Court let stand an appeals ruling that precluded a tax refund to movie producers Howard and Karen Baldwin, deferring to an Internal Revenue Service regulation that ended the common-law mailbox rule for refund claims, even though Justice Clarence Thomas reversed his position on an earlier case.

In refusing Monday to agree to hear the case in Baldwin v. U.S., the justices upheld Thomas’s ruling in the earlier case. The Baldwins are film producers whose credits include the Academy Award-winner Ray, a 2004 movie about the life of Ray Charles. They had overpaid their 2005 taxes and filed to obtain a refund of $167,633. The couple mailed their amended return and other tax documents to the IRS on June 21, 2011, well before the limitations period deadline of Oct. 15, 2011. The IRS claimed it never received the return and denied the Baldwins’ refund claim as untimely.

The Baldwins sued for the refund, and won at trial in the District Court for the Central District of California, which relied on the common law “timely mailing” rule. In the meantime, the IRS issued a new regulation in August 2011, after the Baldwins had mailed in their claim, that ended the common-law mailbox rule for refund claims. On appeal, the Ninth Circuit Court of Appeals reversed the district court ruling, deciding that under the Brand X doctrine, it had to defer to the IRS’s new regulation over the court’s own prior precedent.

In reaching the decision not to hear the case, Justice Thomas (pictured) voted in favor of granting cert, despite the fact that he had authored the Brand X decision relied on by the Ninth Circuit. Under the 2005 Supreme Court case, federal courts must defer to federal agencies’ reasonable statutory interpretations, even when those interpretations contradict a previous court ruling interpreting the same statute and even when those agencies’ regulations were written subsequent to the court’s interpretation.

Thomas agreed with several arguments put forth by the New Civil Liberties Alliance (NCLA) in its petition and reply brief regarding the Brand X doctrine, and the due process havoc it wreaks. As Thomas explained, “Brand X appears to be inconsistent with the Constitution, The Administrative Procedure Act, and traditional tools of statutory interpretation. “

The NCLA objected to the Supreme Court’s refusal to grant certiorari to hear the case. “The Supreme Court had an excellent opportunity to uphold the Constitution,” said NCLA litigation counsel Adi Dynar in a statement Monday. “Instead, it left the deeply flawed Brand X doctrine in place. Their decision not to take the Baldwins’ case and not to reconsider the Brand X doctrine will negatively affect judicial independence for years to come. Brand X will now continue to dilute the legitimacy and finality of lower court decisions, turning their interpretations of federal statutes into mere advisory opinions whenever they go against the agency. NCLA will look to bring this issue back up in a different case.”

For reprint and licensing requests for this article, click here.