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CERTIFIED MAIL: HOW SAVING $4.25 CAN TURN OUT TO BE VERY EXPENSIVE

March 02, 2006

Certified mail with return receipt adds an extra $4.25 to the cost of mailing a letter ($3.75 if you get your return receipt electronically). In return, it can take thousands of dollars off of your tax bills, you legal bills, and your malpractice premiums. A decision by the Iowa Supreme Court last week provides a textbook illustration of how much it can cost you to skimp on that $4.25.

A Polk County couple had overpaid their Iowa taxes for 1996 by $7,685. When you have 90% or more of your Iowa taxes paid by the April 30 due date, you get an automatic extension until October 31. Their accountant's records show that he prepared the return in September 1997, delivered them to the client for signature, and charged them $1.70 for the postage (returns typically weigh too much to get by with a single first-class stamp), indicating that the accountant mailed the return.

Unfortunately, the Iowa Department of Revenue had no record of ever receiving the return. The taxpayers realized that they had never received the refund and filed a duplicate in the summer of 2001. The Department denied the refund, saying that the statute of limitations for claiming the refund expired October 31, 2000.

The taxpayer sued for a refund, claiming they had claimed it with a timely return filed in September 1997. The Iowa Supremes said that the taxpayer failed to provide sufficient evidence that the return had been mailed in 1997:

We begin with the statutory rule that deems a document filed upon proof of mailing—section 622.105. The only evidence that the [taxpayer’s] 1996 state income tax return was deposited in the United States mail on or before its due date was the testimony of [the accountant], the sender, that under normal office practice, the return, having been signed on September 18, 1997, would have been deposited in the United States mail on that date or the following day. Although there is credible evidence in addition to [the accountant's] testimony that a document was readied for mailing in September 1997 on the [taxpayer’s] behalf (the office record showing the [taxpayer’s] were billed $1.70 for postage in September 1997), there is no record indicating the document was deposited in the United States mail.

Saving the extra expense of certified mail ended up having the following costs:

-The $7,685 refund, lost forever.

-Somebody has to pay for the Brick Gentry law firm (the former firm of the current Director of the Department of Revenue) to fight the case up through the Iowa Supreme Court.

-The accountant's malpractice carrier may consider the case at his next premium renewal date.

-The accountant's client may not be pleased with the result.

The Moral? Go to the post office, use certified mail, return receipt requested, and save the postmark receipt and return receipt in a safe place. Better yet, use electronic filing and save the whole runaround.

Cite: RANDALL LANGE and SHERRI LANGE VS. IOWA DEPARTMENT OF REVENUE, no. 2 /04-1298 (February 24, 2006)

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