Bounced Email gets delivered to SmartHosts admin not the user who sent

[Vince0000]

Hi guys...

I have a problem where my bounced mail for addresses that don't exist get sent to my Relay Hosts admin not returned to my local users...

I read it may be because I'm masquerading the Envelope so I disabled the masquerade Envelope, and Masquerade all feature but it still doesn't work.

My setup is like this...

Internet <---- Domain.com <----> ThisLocation.Domain.com

All mail I send is at ThisLocation.Domain.com and if it is to be delivered outstide I masquerade it as Domain.com
Everything is working great except all failed messages gets returned to my manager at Domain.com not back to my users on ThisLocation.Domain.com

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Also, I tried Postfix and can't duplicate the Masquerade feature in sendmail where you do FEATURE(NO_LOCAL_MASQUERADE) so ONLY outgoing mail gets masqueraded... I've read that I don't think it's possible and i have to possibly run 2 instances of Postfix to accomplish this... Does anyone have experience with that? My example above explains how I need to masquerade the mail but Postfix masquerades everything locally also so this solution doesn't work for me but I think I would like to try postfix if that would work.

Thanks in advance for all your comments!
Vince