The Tax Times: SCOTUS Not Review Partnership's $35.5M Late Filed Loss With RA As Not Filed

Tuesday, January 9, 2024

SCOTUS Not Review Partnership's $35.5M Late Filed Loss With RA As Not Filed

According to Law360, the U.S. Supreme Court declined on January 8, 2024 to review the Internal Revenue Service's rejection of a partnership's $35.5 million tax loss, letting stand a Ninth Circuit ruling that the partnership never properly filed its delinquent tax return at a service center.

The justices denied an August petition by Seaview Trading LLC to review the circuit court's 10-1 finding that Seaview never filed a return for 2001 because the partnership didn't file it at an IRS service center.

Seaview argued in its petition that the Ninth Circuit's March ruling incorrectly allowed the IRS to bypass a three-year statute of limitations and reject Seaview's loss in 2010. The government has only three years to issue a partnership adjustment, but the clock doesn't start ticking until a return is considered filed, a designation the Ninth Circuit misconstrued, Seaview said, when it ruled that Seaview's repeated submissions directly to IRS agents starting in 2004 didn't count.

If the Ninth Circuit's decision were allowed to stand, Seaview told the justices, the ruling "would produce Kafkaesque madness throughout the tax system" by allowing the IRS to pursue taxpayers "no matter how many times taxpayers hand their returns to IRS agents at the IRS' direction."

Seaview Gave Copies Of Its Partnership Return For 2001 To
An IRS Agent In 2005 And An IRS Lawyer In 2007 Does Not Constitute "Filing" A Return, The Government Argued.

Those transmissions failed to comply with the regulation specifying that partnership returns must be filed at an IRS service center, Treasury Regulation Section 1.6031(1)-1(a)(1), the government said.

The government also rejected Seaview's claim that the appellate ruling bucked years of IRS advice to taxpayers that delinquent returns should be filed with the IRS agent who requests the return. The IRS has never endorsed the view that partnerships are not required to file their taxes at service centers, even if they are filed late, the government said. Seaview based its argument for Supreme Court review on a misreading of agency guidance documents, the government said.

Even the top of the IRS' webpage on late-filed returns instructs filers to "file your past due return the same way and to the same location where you would file an on-time return," the government said.

PRACTICE TIP: When representing a taxpayer who is being audited for an unfiled tax year, file the late return with the service center first and then provide the Revenue Agent with a copy of the same.

Have An IRS Tax Problem?