9th Circuit Holds That Copy of Unfiled Return Delivered to Examining Agent is Filing of Return for Statute of Limitations Purposes (5/12/22; 3/11/23)

Caveat, by Order filed 11/10/22, the Ninth Circuit vacated this decision discussed below and ordered rehearing en banc. 9th Cir. here; TN here. On 3/10/23, the Ninth Circuit en banc held that the "copy" of the allegedly timely filed return was not a filing to start the statute of limitations.  See Seaview Trading, LLC v. Commissioner, 62 F.4th 1131 (9th Cir. 3/10/23), CA9 here, and GS here. and my blog on it, 9th Circuit En Banc Holds That Filing Tax Returns for State of Limitations Purposes Means Proper Filing as Prescribed in Regulations (Federal Tax Procedure Blog 3/11/23), here.

In Seaview Trading, LLC v. Commissioner, 34 F.4th 666 (9th Cir. 5/11/22), CA 9 here and GS here, the Court (majority panel) held that filing for starting a relevant statute of limitations (there TEFRA § 6229(a), for partnership return) is (from the summary)

when (1) an IRS official authorized to obtain and receive delinquent tax returns informs a partnership that a tax return is missing and requests that tax return, (2) the partnership responds by giving the IRS official the tax return in the manner requested, and (3) the IRS official receives the tax return, then the partnership has "filed" a tax return for purposes of § 6229(a).

The relevant facts and law, highly summarized, are: (1) pursuant to the regulations and procedures, the partnership return was required to be filed timely at the relevant IRS service center; (2) the IRS service center did not receive a timely filed 2001 partnership return; (3) the partnership did not timely file (or could not prove that it timely filed) an original 2001 partnership return (see JAT Note #2 below); (4) the IRS in due course audited the partnership for 2001; (5) in the course of the audit, the IRS agent requested and received a copy of the 2001 partnership return and had that copy in his possession by January 2006; and (6) in October 2010 (more than three years after the agent had the return in his possession for use in the audit), the IRS issued the partnership FPAA, noting that no return was filed but that a copy of the return was provided "during the examination;" the FPAA reduced the reported loss of $35 million to zero. [As an aside, likely a bullshit tax shelter, but that is only inference from the large loss disallowed.]

The partnership filed a petition in the Tax  Court. The Tax Court held that "(1) Seaview did not "file" the tax return by faxing a copy to the IRS revenue agent or by mailing a copy to the IRS counsel, and (2) in any case, the copies of the 2001 Form 1065 sent to the IRS in 2005 and 2007 were not "returns." Seaview and the IRS then settled all their disputes but preserved Seaview's right to appeal the Tax Court's denial of summary judgment."

The issue was whether a return (said to be a copy of the original return) delivered to an agent in the audit was a delinquent filing or whether the delinquent return must be filed with the service center. The Court held that the regulations requiring filing with the service center applied only to timely filed returns, that there are no regulations applying to filing delinquent returns and that "no IRS regulation prohibits the filing of untimely returns with a requesting IRS official." Based on that, the Court held "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."

The majority also held that the copy of the return delivered to the agent was the return for filing purposes.  The Tax Court applied the Beard test.  Of course, had the return been filed with the service center, there is question that it would have been a return.  The Tax Court held otherwise because in providing a purported "copy" the partnership had not intended to file a return.  But, the Ninth Circuit holds that the issue is resolved by simply applying the Beard test to the return the IRS agent received whether or not it was intended to be a filing of the return.

The dissent thoroughly attacks the majority's reasoning in over 50 pages (Slip Op. pp. 25 ff.)  I find the dissent more persuasive, particularly in noting possibility of conflicts with other circuits.

 JAT Notes:

1. Purists will fault me for quoting the summary above. Still, I think they should be at least persuasive authority even if prepared by staff, for surely the authoring judge or the authoring judge's (likely all participating judges or  their clerks) read the summary. See Supreme Court Opinion Syllabus as Persuasive Authority? (Federal Tax Procedure Blog 2/8/21), here. In any event, I think it suffices here.

2. I think there may be some passing in the night. The majority assumes that the auditing agent was authorized to receive "delinquent" returns. I am not sure that is right. The majority cites no authority at all for that proposition. I think the agent asked for a copy of the original return. The agent did not ask for the taxpayer to file an original delinquent return with him rather than with the service center.

 3. It is not clear to me why the partnership could not prove the original filing which presumably it alleged. In the statement of facts, the majority states that,  in September 2005, in response, the partnership's accountant faxed a signed partnership return with a "certified mail receipt purporting to show its delivery to the IRS." If that CMRRR were correct and timely, the filing date would have been date. § 7502. The Tax Court addressed that obliquely as follows (2019 T.C. Memo. 122, here, Slip Op. 11):

The situation in the present case is similar. When Seaview's accountant faxed a purported copy of the return to Agent Johnson in 2005, he enclosed a copy of certified mail receipt purporting to show that the return had been previously filed in 2002. Seaview's accountant thus led respondent to believe that the return had been previously filed in 2002. Therefore, Seaview did not intend to file a return when it faxed a copy to Agent Johnson.

If that is correct and the CMRRR facially showed timely filing but was not correct, then something like affirmative misrepresentation may have been made to mislead the agent into believing that a timely filing had occurred.

4. Still, there should be a procedure to do something with a delivery to an auditing agent -- either have  the agent send the return for processing (with filing when delivered to the proper office) or advise the taxpayer (here the partnership) that the return needs to be filed.

5. Maybe, if there is a conflict with one or more other circuits, DOJ will petition for certiorari.  This is another good case for the Supreme Court, with its penchant for mischief in tax cases, to take certiorari and fire one of  its limited bullets in a case where there is not too much  mischief that it can create.  If the IRS does not get the result it wants, it can fix its procedures (perhaps as a regulation simple as saying that delinquent returns must be filed with the service center and even that returns (original or delinquent returns delivered to an agent in audit shall not be deemed unless the returns are actually filed with the proper office).