9th Cir Reverses Tax Court's Finding That Return Supplied During an IRS Examination is Not a Filed Return

According to Procedurally Taxing, in Seaview Trading, LLC v. Commissioner, the 9^th Circuit looked at the age-old tax question of when is a return is considered filed for the purposes of starting the assessment statute of limitations. 

In Seaview, the taxpayer, a partnership, believed it had filed its 2001 partnership tax return in July 2002, but the IRS had no record of the filing. In 2005, the IRS commenced an audit of the taxpayer’s 2001 return. The IRS agent conducting the exam notified the taxpayer that the IRS had no record of the taxpayer filing a 2001 partnership income tax return (Form 1065) and requested a signed copy. 

In response, the taxpayer faxed a signed copy of the return to the agent. The IRS later relied on the information on the faxed to propose an additional assessment against the taxpayer. The final partnership administrative adjustment (FPAA) proposing an assessment was issued in 2010, which was more than four years after the taxpayer faxed a signed copy of the return to the revenue agent. 

The Tax Court in TC Memo 2019-122 took a draconian view holding that the taxpayer did not “file” a tax return when it faxed a copy to the IRS agent. Furthermore, the Tax Court found that the 2001 return faxed to the agent did not even qualify as a “return” reasoning that the taxpayer did not intend to file a return when it faxed the return to agent because the taxpayer included a copy of the certified mail receipt showing a July 2002 mailing date. 

Since the tax return faxed to a revenue officer was not a tax return filing nor a return, the Tax Court found that the final partnership administrative adjustment (FPAA) issued in 2010 was not barred by the limitations period under section 6229(a).  The IRS had unlimited time to assess as no return was filed.    

The taxpayer appealed to the Court of Appeals for the 9^th Circuit. On May 11, 2022, the 9^th Circuit rendered its decision and reversed the decision of the Tax Court. A copy of the 9^th Circuit decision is located here.  

The Ninth Circuit stated that “Based on the ordinary meaning of “filing,” we hold that a delinquent partnership return is “filed” under § 6229(a) when an IRS official authorized to obtain and process a delinquent return asks a partnership for such a return, the partnership delivers the return to the IRS official in the manner requested, and the IRS official receives the return.” 

Since the Tax Court had concluded that the signed copy of the Form 1065 faxed to agent was not a return under the Beard test, See Beard v. Commissioner, 82 T.C. 766, 777 (1984), the 9^th Circuit went on to analyze this issue. The 9^th Circuit found that the Form 1065 that Seaview faxed to agent met all the Beard criteria and therefore was a return.   

The IRS may decide to limit its acquiescence of this decision to the 9^th Circuit and continue to fight this issue in other circuits.  It may decide to seek en banc review encouraged by the dissent or to seek Supreme Court review if it has an adequate conflict.  There will be more to come about this case as the IRS reacts to the decision and plots its path forward.

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