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Full 9th Circ. Decided that Failure to File Return With the Appropriate Service Center Is Not a Filing That Starts the Statute of Limitations

Full 9th Circ. Decided that Failure to File Return With the Appropriate Service Center Is Not a Filing That Starts the Statute of Limitations


On May 13, 2021 we posted 9th Cir Reverses Tax Court's Finding That Return Supplied During an IRS Examination is Not a Filed Return where we discussed that 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 9th Circuit went on to analyze this issue. The 9th Circuit found that the Form 1065 that Seaview faxed to agent met all the Beard criteria and therefore was a return. 

Now according to Law360, the full Ninth Circuit ruled on March 10, 2023 that the IRS timely disallowed a partnership's $35.5 million loss as the partnership's failure to strictly comply with filing rules meant the agency's readjustment deadline didn't pass, overruling a three-judge panel.

The Ninth Circuit majority ruled that the Tax Court was correct in finding that the IRS' 2010 tax adjustment was timely because of Seaview's failure to comply with Treasury Regulation Section 1.6031(a)-1(e)(1) 

Under that regulation, Seaview was required to send its returns to a service center in Utah, rather than providing copies of those returns to an IRS agent and attorney, the majority said.

"Because Seaview Did Not Meticulously Comply With The Regulation's Place-For-Filing Requirement, It Is Not
Entitled To Claim The Benefit of The Three-Year
Limitations Period," The Opinion Said.

"Having never properly filed its return, Seaview is instead subject to the provision allowing taxes attributable to partnership items to be assessed 'at any time.'"

But U.S. Circuit Judge Patrick J. Bumatay disagreed. The IRS has long encouraged taxpayers to file untimely returns with IRS officials who ask for them, and the majority's decision "throws our tax system into disarray" as "taxpayers can no longer trust what the IRS has told them about how to file delinquent tax returns," Judge Bumatay said.

"Based on the ordinary meaning of 'filing,' we should have held that a delinquent partnership return is 'filed' 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," Judge Bumatay added.

The Ninth Circuit case focused on what constitutes a tax return that is properly filed with the IRS. The three-judge panel said in its May decision that copies of returns the partnership gave the agency in 2005 and 2007 constituted filings of those returns that kicked off the three-year statute of limitations under Internal Revenue Code Section 6229(a).

Internal guidance at the IRS contradicts the agency's assertions that the partnership's returns had to be filed with the Utah service center for them to be treated as having kick-started the statute of limitations, the three-judge panel found.

But the Ninth Circuit majority disagreed that IRS documents cited by Seaview support its arguments that its returns were properly filed. Moreover, the partnership misses the mark in arguing that the place-of-filing rules apply only to timely filings, as the regulation's "place-for-filing requirement contains no carveout for delinquent returns," the majority said.

As U.S. Circuit Judge Bridget S. Bade said in her dissent in the panel decision, "nothing in the text of the regulation indicates that compliance with the place-for-filing requirement is conditioned upon compliance with the time-for-filing requirement, such that filing at the designated place somehow becomes optional whenever a taxpayer files its return late," the majority added.

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Read more at: Tax Times blog

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