Background

At issue before the Tax Court and the Ninth Circuit were section 6229(a) and Treas. Reg. section 1.6031(a)-1(e). Section 6229(a) established that “the period for assessing any tax imposed . . . for a partnership taxable year shall not expire before the date which is three years after the later of— (1) the date on which the partnership return for such taxable year was filed, or (2) the last day for filing such return for such year[.]” Seaview Trading, LLC v. Commissioner, 34 F.4th 666, 671 (9th Cir. 2022). Alternatively, Treas. Reg. section 1.6031(a)-1(e) “establishes two conditions necessary to comply with the filing command: the tax return must be (1) filed by April 15 and (2) sent to the IRS service center. Under a straightforward reading of § 1.6031(a)-1(e), the only way to comply with its command is to satisfy both conditions.” Id. at 673 n.2.

Tax Court

The Tax Court dispute focused on the statute of limitations period for a Final Partnership Administrative Adjustment ("FPAA") issued in October 2010. Seaview thought that Seaview filed a 2001 Partnership tax return (“Form 1065”) in 2002, but the IRS had no record of receiving the 2001 Form 1065 from Seaview - despite that Seaview had a certified mail receipt from July 2002 to confirm that Seaview sent the 2001 Form 1065 in July 2002. By contrast, the IRS recognized that Seaview purportedly provided a fax of a copy of Seaview’s 2001 Form 1065 in September 2005. Two months earlier, in July 2005, the IRS asked Seaview to send the copy of the 2001 Form 1065 to the IRS. The IRS also recognized that Seaview sent a signed copy to an IRS attorney in 2007 of what purportedly was a tax return.

Before the Tax Court, the IRS successfully argued that the copies of what purportedly were tax returns sent in 2005 and 2007 by Seaview were not tax returns in either year. Further, the IRS successfully claimed that the losses and expense amounts provided in the documentation from Seaview in 2005 and 2007 were disallowed. Although Seaview’s challenge to the IRS’s position regarding the FPAA was unsuccessful before the Tax Court, the parties settled at the Tax Court and Seaview preserved its right to appeal.

Ninth Circuit

Seaview appealed the Tax Court decision to the Ninth Circuit. The Ninth Circuit reviewed the Tax Court’s legal conclusions de novo. At issue for the Ninth Circuit was what constituted the “filing” of a tax “return” for the purpose of the statute of limitations under the Tax Code. Seaview’s primary argument was that the IRS’s FPAA, which resulted in losses as well as expense amounts being disallowed, from 2010 was untimely because Seaview’s returns were filed, at the latest, in 2005. Alternatively, the IRS maintained that Seaview’s tax returns were never filed despite the apparent efforts of Seaview in 2002, 2005, and 2007.

In reaching its decision, the Ninth Circuit largely relied on a four factor test which has historically determined what constitutes a “return” under the law in Beard v. Commissioner, 82 T.C. 777 (1984). The Ninth Circuit has observed that:

Although the I.R.C. does not provide a statutory definition of "return," the Tax Court developed a widely-accepted interpretation of that term in Beard v. Commissioner, 82 T.C. 766 (1984), aff'd, 793 F.2d 139 (6th Cir. 1986). In order for a document to qualify as a return: "(1) it must purport to be a return; (2) it must be executed under penalty of perjury; (3) it must contain sufficient data to allow calculation of tax; and (4) it must represent an honest and reasonable attempt to satisfy the requirements of the tax law." … The Beard definition is consistent with the purpose of a return, which is not only to get tax information in some form, but "to get it with such uniformity, completeness, and arrangement that the physical task of handling and verifying returns may be readily accomplished.”

United States v. Hatton (In re Hatton), 220 F.3d 1057, 1060-61 (9th Cir. 2000).

Further, while discussing Treas. Reg. section 1.6031(a)-1(e), the Ninth Circuit recognized that Treas. Reg. section 1.6031(a)-1(e), “doesn't expressly establish how taxpayers are to file delinquent returns. Nothing in the text says that the time and place requirements apply to untimely returns … So, at most, the regulation is silent on filing procedures for late returns.” Seaview Trading, LLC v. Commissioner, 34 F.4th 666, 672 (9th Cir. 2022). The Ninth Circuit continued by setting aside the argument that Seaview sent an untimely 2001 Form 1065 in September 2005.

Relatedly, the Ninth Circuit provided a helpful analogy to rebut a position made by the dissent. There, the Ninth Circuit states:

The dissent posits a hypothetical traffic statute, which it claims undermines our plain-meaning interpretation of § 6229(a) ... But the hypothetical only proves our point. The dissent’s hypothetical statute, unlike § 1.6031(a)-1(e), contains two independent commands: (1) to STOP at all STOP signs, and (2) to obey posted speed limits … Violation of either command violates the law ... Indeed, even under the dissent's hypothetical, what is a driver supposed to do if a police officer directs the driver to blow through a STOP sign? Can the driver be cited for complying with the police officer’s command rather than stopping at the STOP sign? That's closer to the scenario here—the IRS directed Seaview to submit its partnership return directly to the agent and Seaview complied. But the IRS still argues that Seaview never complied with filing the return.

Seaview Trading, LLC v. Commissioner, 34 F.4th 666, 673 n.2 (9th Cir. 2022).

The dissent responded by asserting:

The majority attempts to distinguish this hypothetical from § 1.6031(a)-1(e) by arguing that the hypothetical traffic statute "contains two independent commands," which, to the majority, means that "[v]iolation of either command violates the law," while § 1.6031(a)-1(e) "establishes two conditions necessary to comply with the filing command." Maj. Op. 15 n.2. The majority seems to overlook that the punctuation and structure used in the hypothetical traffic statute are precisely the same as that used in § 1.6031(a)-1(e), which also contains separate, independent time and place commands separated by periods and subsection headings. See 26 C.F.R. § 1.6031(a)-1(e). I agree with the majority's recognition that to satisfy § 1.6031(a)-1(e), a partnership must comply with both time and place provisions, Maj. Op. 15 n.2, which is why Seaview failed to file a return in this case, because it complied with neither. The same, of course, is true of the hypothetical traffic statute: to comply with the statute, a driver has to obey speed limits and stop at stop signs. Once again, the majority reasons that because Seaview did not obey the regulation, it is not subject to the regulation. Maj. Op. 15 n.2.

The majority also asks "what is a driver supposed to do if a police officer directs the driver to blow through a STOP sign? Can the driver be cited for complying with the police officer's command . . . ?" Maj. Op. 15 n.2. The hypothetical question of whether instruction from a police officer might be a defense to traffic liability is, of course, not before us. 

Id. at 684 n. 4.

Nevertheless, the Ninth Circuit maintained that when an IRS revenue agent asked Seaview to send a copy of the 2001 Form 1065 in July 2005, the IRS effectively established the filing procedures for the relationship between Seaview and the IRS for this dispute.

The Ninth Circuit reversed the Tax Court’s decision that no tax return was filed by Seaview. The Ninth Circuit held that “when (1) an IRS official authorized to obtain and receive delinquent 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, the partnership has ‘filed’ a tax return for purposes of § 6229(a).” Id. at 669. The Ninth Circuit concluded that those three elements were satisfied with respect to Seaview in this dispute with the IRS. Put differently, element one was satisfied in the July 2005 meeting between the IRS and Seaview after the IRS revenue agent made a request to Seaview for the 2001 Form 1065 in July 2005, element two was satisfied in September 2005 after Seaview sent the fax of the 2001 Form 1065 as requested by the IRS, and element three was satisfied when the IRS received the fax of Seaview’s 2001 Form 1065. Consequently, the three-year statute of limitations period began in 2005, expired in 2008, and the IRS sent an untimely FPAA in 2010 to Seaview as the three-year statute of limitations period under section 6229(a) had run. Thus, the Ninth Circuit concluded that because Seaview satisfied the Beard test and satisfied the elements set forth in its holding, the case was reversed and remanded to the Tax Court.