Reversing the Tax Court, the Ninth Circuit held that a partnership filed its return when, in response to an IRS revenue agent's letter, it faxed the agent a signed copy of the return, which the partnership claimed it had submitted more than three years earlier but the IRS said it had not received. Consequently, the court held, a Final Partnership Administrative Adjustment (FPAA) issued to the partnership was barred by the statute of limitation.
Facts: Seaview Trading LLC, a limited liability company, was classified as a partnership for federal tax purposes and subject to audit procedures under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), P.L. 97-248.
In 2005, Seaview received a letter from an IRS agent saying the Service had not received the LLC's 2001 Form 1065, U.S. Return of Partnership Income. Seaview's accountant faxed the agent a signed copy of the return, which Seaview claimed to have filed in 2002. The IRS then selected Seaview's 2001 tax year for examination and requested more information, including all signed copies of its 2001 return. In 2007, Seaview's attorney mailed another signed copy of the 2001 Form 1065 to an IRS attorney.
In 2010, the IRS issued Seaview's tax matters partner the FPAA, disallowing all income, loss, and expense amounts for 2001. The IRS reiterated that it had no record of the 2001 return's having been filed. Seaview petitioned the Tax Court, challenging the adjustment of its claimed losses.
The Tax Court held that Seaview did not file a tax return for 2001, either when it faxed the copy to the IRS agent or mailed it to the IRS attorney, because it did not submit it in the manner and to the place prescribed in the Code or regulations. Moreover, the Tax Court held, the copies of the Form 1065 it sent the IRS agent and IRS attorney did not constitute a return under the tests of Beard, 82 T.C. 766, 777 (1984), aff'd, 793 F.2d 139 (6th Cir. 1986), one of which is that a return must purport to be a return. When Seaview's accountant faxed the 2001 return copy and its attorney mailed it, the Tax Court found that Seaview did not intend by so doing to file the return but, rather, to indicate that it had been previously filed.
Seaview appealed the Tax Court's decision to the Ninth Circuit.
Issues: Seaview argued in the Ninth Circuit that a return is filed when it is delivered to and received by an IRS official who requests it, as it did when it sent its 2001 return to the revenue agent in 2005. That started the three-year limitation period, Seaview argued, for the IRS to make an assessment under Sec. 6229 (subsequently repealed with the replacement of TEFRA audit procedures by those of the Bipartisan Budget Act, P.L. 114-74, for partnership returns filed after Dec. 31, 2017). Thus, Seaview contended, the limitation period had expired before the IRS adjusted its losses in its October 2010 FPAA.
The IRS again argued that Seaview had never filed its 2001 return. Therefore, it contended, under former Sec. 6229(c)(3),
the limitation period never began.
Holding: The Ninth Circuit held that Seaview had filed its 2001 partnership return in 2005 when it faxed a copy of the return to the IRS agent. Thus, it reversed the Tax Court's judgment and remanded the case for proceedings consistent with its holding.
The Ninth Circuit noted that "filed" and "filing" are not defined in the Code but that Sec. 6230(i) states that partnership returns "shall be filed or made at such time, in such manner, and at such place" as regulations provide. Regs. Sec. 1.6031(a)-1(e) specifies the time for filing as on or before the 15th day of the fourth month after the end of the partnership's tax year and the place as the service center identified in the form or its instructions or in a relevant revenue procedure or publication. However, the court found, the regulation does not address delinquent returns, and no regulation prohibits a delinquent return's filing by its delivery to a requesting IRS official, the court stated.
For a delinquent return, according to the Ninth Circuit, whether the return was filed should be based on the ordinary meaning of the term "filing." Based on Supreme Court and Tax Court precedent, as well as its own precedent in Hanson, 2 F.3d 942 (9th Cir. 1993), the Ninth Circuit concluded that under the ordinary meaning of the word "filing," a delinquent partnership return is filed for purposes of former Sec. 6229(a) when an IRS official authorized to obtain and receive a partnership's tax return notifies the partnership of the delinquent return and requests it, the partnership provides it in the manner requested, and the IRS official receives it. Thus, it held that Seaview had filed its Form 1065 for 2001 when the IRS agent received it in September 2005 and that the FPAA in October 2010 was untimely.
As for the IRS's argument that the copy of Seaview's return did not constitute a return under the four Beard tests, the Ninth Circuit found it met each of the tests. Citing Coffey, 150 T.C. 60 (2018), the panel found that because the revenue agent requested the return and received the faxed copy, that copy "unambiguously purports to be a 'return.' " Although the copy did not bear an original signature, it was nonetheless signed under penalty of perjury by Seaview's majority partner. It also contained sufficient data for the IRS to calculate a tax liability and represented "an honest and reasonable attempt to satisfy the requirements of the tax law," the court held.
Observations: An extensive dissenting opinion called the majority's holding "astonishing and unprecedented."
The dissent stated that Sec. 6230(i) and Regs. Sec. 1.6031(a)-1(e) provide a "straightforward statutory and regulatory framework" for proper filing, one "informed by long-standing, binding precedent" and requiring taxpayers' "meticulous compliance" to obtain the benefit of the three-year statute of limitation in which the IRS may assess tax. In its "atextual" distinction between a timely and delinquent return for purposes of prescribing the manner and place for filing, however, the majority was "left with a regulatory gap of its own making," the dissent stated, which the majority filled by "manufacturing (one might just as easily say legislating) out of whole cloth its own filing regime." According to the dissent, "Lawbreakers everywhere may rejoice when they learn that by not complying with one part of a statute or regulation, the rest of the statute or regulation is rendered 'silent.' "
- Seaview Trading, LLC, No. 20-72416 (9th Cir. 5/11/22), rev'g and remanding T.C. Memo. 2019-122
— Paul Bonner is a JofA senior news writer.