9th Circuit En Banc Holds That Filing Tax Returns for Statute of Limitations Purposes Means Proper Filing as Prescribed in Regulations (3/11/23)

In Seaview Trading, LLC v. Commissioner, 62 F.4th 1131 (9th Cir. 3/10/23) (en banc), CA9 here and GS here,  the Ninth Circuit rejected its panel opinion analysis at 34 F.4th 666, here, and held that sending a to an IRS agent a “copy” of a tax return the partnership claimed it previously filed timely CMRRR was not a filing for purposes of starting the partnership period of limitations.

I reported on the previous panel opinions earlier: 9th Circuit Holds That Copy of Unfiled Return Delivered to Examining Agent is Filing of Return for Statute of Limitations Purposes (Federal Tax Procedure Blog 5/12/22; 3/11/23), here. In that blog, I used the Court’s Summary of the panel opinion. I will do so here (at least key excerpts) for the en banc holding, and repeat what I said earlier that, although the Ninth Circuit cautions that the summary, prepared by staff, is not part of the opinion, the summary, like a Supreme Court syllabus, is not a nothingburger. See Supreme Court Opinion Syllabus as Persuasive Authority? (Federal Tax Procedure Blog 2/8/21), here. I include only the core holdings of the majority.

SUMMARY*

* This summary constitutes no part of the opinion of the court. It has been prepared by court staff for the convenience of the reader.

Tax

       Affirming the Tax Court’s decision concluding that the Internal Revenue Service’s notice of final partnership administrative adjustment was timely, the en banc court held that neither Seaview Trading LLC’s faxing a copy of their delinquent 2001 tax return to an IRS revenue agent in 2005, nor mailing a copy to an IRS attorney in 2007, qualified as a “filing” of the partnership’s return, and therefore the statute of limitations did not bar the IRS’s readjustment of the partnership’s tax liability.

 * * * * *

        26 U.S.C. § 6230(i) (2000), which was applicable during the period in question, provided that a partnership’s return “shall be filed . . . at such time, in such manner, and at such place as may be prescribed in regulations.” The implementing regulations, 26 C.F.R. § 1.6031(a)-1(e)(2001), in turn, provided that “[t]he return of a partnership must be filed with the service center prescribed in the relevant IRS revenue procedure, publication, form, or instructions to the form” and that “[t]he return of a partnership must be filed on or before the fifteenth day of the fourth month following the close of the taxable year of the partnership.” The Tax Court held that Seaview never “filed” its 2001 return because it failed to send the return to [*4] the designated place for filing under Treasury Regulation § 1.6031(a)-1(e)(1))—namely, the IRS’s Ogden Service Center. The en banc court agreed.

       The en banc court explained that Seaview did not meticulously comply with the regulation’s place-for-filing requirement because neither the IRS revenue agent nor the IRS attorney to whom Seaview sent copies of its 2001 return qualified as a designated place for filing. And at no point was Seaview’s return ever forwarded to the designated place for filing at the Ogden Service Center. The en banc court concluded that because Seaview did not meticulously comply with the regulation’s place-for-filing requirement, it was not entitled to claim the benefit of the three-year limitations period. Rather, having never properly filed its return, Seaview was instead subject to 26 U.S.C. § 6229(c)(3) (2000), which allows taxes attributable to partnership items to be assessed “at any time.”

JAT Comments:

1. My sense is that this is the right decision. Note that the original panel had only two Circuit judges, the third being a district court judge sitting by designation. The district court judge joined with Judge Bumatay for the panel opinion. Thus, Judge Bumatay was the only Circuit judge agreeing with his panel holding that receipt of the “copy” by the agent was a filing of the return. On the en banc rehearing holding that the agent’s receipt of the “copy” was not a filing, only Judge Bumatay dissented. The other 10 Circuit judges agreed with the en banc decision.

2. The only quibble I have about the en banc majority opinion is its emphasis on "meticulous" compliance with filing requirements which it picks up from the 1930 decision in Lucas v. Pilliod Lumber Co., 281 U.S. 245, 249 (1930) (“there must be ‘meticulous compliance by the taxpayer with all named conditions in order to secure the benefit of the [statute of limitations] limitation.’”). (See Slip Op. 11.) I think the more straightforward statement is that the taxpayer must comply with the filing requirements, regardless of what the Supreme Court said in 1930. Specifically, is there any reasonable space between compliance with the filing requirements and meticulous compliance with the filing requirements?

3. Although I claimed that a syllabus or summary is not a nothingburger, I think the summary could have better stated the facts in the first paragraph. (That is merely to say that one needs to parse the Summary (or Syllabus) to make sure it conveys important nuance from the opinion.) My “red-lined” revision of the first Summary paragraph for more nuance is:

       Affirming the Tax Court’s decision concluding that the Internal Revenue Service’s notice of final partnership administrative adjustment was timely, the en banc court held that neither Seaview Trading LLC’s faxing a claimed copy of their allegedly timely filed by CMRRR delinquent 2001 tax return to an IRS revenue agent in 2005, nor mailing a copy to an IRS attorney in 2007, qualified as a “filing” of the partnership’s return, and therefore the statute of limitations did not bar the IRS’s readjustment of the partnership’s tax liability.

As before, there are still some open questions about what the partnership’s accountant sent to the IRS agent. See the prior blog at Comment ¶ 3. The partnership represented that it was sending a “copy” of the return that it claimed it previously filed CMRRR. Per the Tax Court opinion, “the revenue agent received the returns thinking [based on the accountant’s explicit representation] that they had already been filed.”  T.C. Memo. 2019-122 at *11, here (Note: I am not sure why the quote uses the plural but haven't tried to chase that down). If that representation were true (a big if), the partnership would have timely filed under the timely mailing, timely filing rule § 7502 whether or not the IRS received or properly filed the return. In this litigation, per the en banc opinion (p. 9, emphasis supplied), “Seaview initially claimed that it included its 2001 partnership return in that envelope, which contained the tax return of another related entity, but Seaview concedes on appeal that it cannot prove the IRS received its 2001 return as part of that mailing.” This is ambiguous as to whether the envelope contained two returns—this partnership and the related entity’s—or one return—the related entity. If the taxpayer can prove it included this partnership’s return, I would think it would qualify for § 7502’s timely mailing, timely filing rule. Note that under the regulations, returns sent CMRRR are deemed filed on date of timely mailing whether or not the IRS receives them. (See discussion of § 7502 in my Federal Tax Procedure Book (Practitioner Edition 2022), here, pp. 140-144 (particularly ¶ 4 on pp. 141-142). But as I say, the opinion is ambiguous as to whether this partnership return was in that envelope. Seaview conceded “it cannot prove the IRS received its 2001 return as part of that mailing.”

Practice Point: This points up a potential problem with the timely mailing timely filing rule. It is the taxpayer’s obligation to prove that there was a mailing of the relevant return. The return receipt on CMRRR does not on its face prove what was in the envelope (if anything). In this case, the parties apparently conceded sufficient doubt that the envelope with the CMRRR contained the partnership return. In this regard it is the better part of wisdom to send separate returns in separate envelopes. Once the IRS determined that the particular envelope contained a related party return, the fair inference is that it did not contain the partnership's return.

Nevertheless, when the agent received the return receipt showing that the IRS received something properly addressed for filing with an express representation that the taxpayer had filed it timely, I am not sure he would or should have been required to forward an allegedly already filed return for filing.