Item Not Received- Buyer vs Seller Protection, do both get money back?

[jangeltrain]

Hi, 

I sold an item through G&S to a buyer, purchased shipping through PayPal/USPS and shipped on July 6. On July 10 tracking said the package was delivered. In the meantime, the funds were deposited in my PP account and transferred to my bank.

Today the buyer contacted me and said that she never received the package, and that she contacted USPS and they informed her the item was lost in the mail. She asked for a refund. 

Since I'm out the original item, I'd rather not refund her full the amount, especially because I can't say for sure if the item was really lost. If she disputes the charge, will PP take the amount from me (which is now in my bank, not my PP balance)? I have proof of shipping and delivery. If the item really was lost, would USPS give proof of that? And in the case that it's really lost, will PP let me keep the payment and also refund her? 

[DPCreations]

Online tracking shows the package was delivered; this means it was officially delivered.  You did add the tracking number as part of the transaction details, right?

Just let the buyer know that the package was officially delivred and buyer needs to work with local post office.

You have seller protection specifically for situations like this; all should be well.

Do not enter into explanations or negotiations with buyer; the package was officially delivered.  That's it.