Seaview Trading, LLC v. Commissioner of Internal Revenue

• Decision Date: 11 May 2022
• Docket Number: 20-72416
• Citation: 34 F.4th 666
• Parties: SEAVIEW TRADING, LLC, AGK Investments, LLC, Tax Matters Partner, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

34 F.4th 666

SEAVIEW TRADING, LLC, AGK Investments, LLC, Tax Matters Partner, Petitioner-Appellant,

v.COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.

No. 20-72416

United States Court of Appeals, Ninth Circuit.

Argued and Submitted October 18, 2021 San Francisco, California

Filed May 11, 2022

Lisa S. Blatt (argued), Sarah M. Harris, J. Matthew Rice, and Kimberly Broecker, Williams & Connolly LLP, Washington, D.C.; David W. Foster and Armando Gomez, Skadden Arps Slate Meagher & Flom LLP, Washington, D.C.; for Petitioner-Appellant.

Anthony T. Sheehan (argued) and Arthur T. Catterall, Attorneys; David A. Hubbert, Acting Assistant Attorney General; Tax Division, United States Department of Justice, Washington, D.C.; for Respondent-Appellee.

Professor T. Keith Fogg, Director; Janice Rovner Feldman, Volunteer Attorney; Tax Clinic at the Legal Services Center of Harvard Law School, Jamaica Plain, Massachusetts; for Amici Curiae Center for Taxpayer Rights and Federal Tax Clinic at the Legal Services Center of Harvard Law School.

Before: Bridget S. Bade and Patrick J. Bumatay, Circuit Judges, and William K. Sessions III,^* District Judge.

Opinion by Judge Bumatay ;

Dissent by Judge Bade

BUMATAY, Circuit Judge:

Imagine you get a letter from an Internal Revenue Service official saying that the IRS never received the tax return you thought you filed four years ago. In response, you fax a copy of your return to the IRS official. Two years go by, you then talk with an IRS lawyer, who again asks you for the same return. After that conversation, you send another copy of the return.

Three more years pass. You then get a notice that the IRS has decided to adjust your tax liability. The result: you owe the IRS a lot more money.

How can this be?—you ask. The IRS normally has only three years to adjust your taxes after you've filed your return. Not so fast, says the IRS. The two times you sent copies of the return to its officials didn't count. You never mailed a return to an IRS service center ; so, the return was never "filed." And since you never "filed" a return, the IRS explains that it can still come after you at any time.

But that's not what the IRS has said elsewhere. The IRS has alerted taxpayers many times that they can properly "file" their returns by sending late returns to IRS officials who ask for them. In fact, the IRS has said doing so is the preferred way to send late returns.

That is exactly what happened here. Seaview Trading, LLC twice responded to inquiries from IRS officials about the whereabouts of its 2001 partnership tax return. And both times, Seaview promptly delivered the return to the officials. Rather than consider the return "filed," the IRS claims Seaview never filed a return. This logic defies the statutory text, applicable regulations, IRS policies and practices, and common sense. For those reasons, we reverse.

I.

Seaview Trading, LLC, a California-based limited liability company, is classified as a partnership for federal tax purposes. In 2001, Robert Kotick was Seaview's majority partner, owning over 99% of the company. Robert's father, Charles, was the minority partner. Seaview believed it filed its partnership tax return—also known as a Form 1065—for the 2001 tax year back in July 2002. In its Form 1065 for 2001, Seaview reported a $35,459,542 loss from a tax-shelter transaction. Seaview claims it mailed the return to the IRS service center in Ogden, Utah—the correct place to send timely returns. But the IRS has no record of receiving such a filing. Even though Seaview has produced a certified mail receipt for the return's mailing, it concedes that it cannot prove that the IRS received its 2001 return in 2002.

In March 2004, the IRS began auditing Robert Kotick's individual taxes for 2001 and 2002. As part of that audit, Kotick provided the IRS an unsigned copy of Seaview's 2001 Form 1065. The IRS did not audit Seaview as part of Kotick's review since partnerships require a separate audit.

In July 2005, an IRS revenue agent sent Seaview a letter notifying the partnership that the IRS had not received its 2001 federal income tax return. Attached to that letter was a request to "[p]lease produce the following information and documents":

1. Did Seaview Trading file a Form 1065 (U.S. Return of Partnership Income) or other Federal Income tax return for its taxable year 2001? If so, what type of form did it file, what service center was the return filed with, and when was the return filed?

2. Provide copies of all retained copies of the return referred to in paragraph 1, above.

3. Provide copies of all receipts and other proof of mailing of the return referred to in paragraph 1, above.

In response, in September 2005, Seaview's accountant faxed the IRS revenue agent a signed copy of Seaview's 2001 Form 1065 return, along with the certified mail receipt purporting to show its delivery to the IRS. In the cover letter to the IRS revenue agent, Seaview's accountant stated: "As we discussed, I have attached the 2001 tax return for Seaview Trading LLC as well as the certified mailing."

A month later, the same IRS revenue agent informed Seaview that its 2001 return had been selected for examination and requested further information. Once again, the IRS letter requested "[a]ll retained copies of the signed 2001 Form 1065 Federal income tax return of Sea View [sic] Trading and any amendments thereto." The IRS also requested documents related to specific entries on Seaview's 2001 Form 1065.

As part of its examination, the IRS interviewed Seaview's accountant in January 2006. During the interview, the IRS noted that the accountant had "previously provided" Seaview's signed 2001 tax return and introduced the Form 1065 as an exhibit. In June 2007, the IRS also interviewed Robert Kotick. Again, the IRS acknowledged that it "obtained from [Seaview's accountant] a Form 1065 prepared for Seaview Trading, LLC, for its tax year 2001." The IRS also entered the Form 1065 as an exhibit for the interview. In July 2007, Seaview's counsel mailed another signed copy of the 2001 tax return to an IRS attorney "[p]ursuant to [their] prior conversation."

More than three years later, in October 2010, the IRS issued Seaview a Final Partnership Administrative Adjustment for the 2001 tax year. In that notice, the IRS stated that "[p]er Internal Revenue Service records, no tax return was filed by [Seaview] for 2001," but said, "[d]uring the examination," the partnership provided "a copy of a 2001 tax return which taxpayer claimed to have filed." The IRS then determined that "none of the income/loss/expense amounts reflected on the 2001 unfiled tax return provided by [Seaview was] allowable." It then informed Seaview that it would adjust its 2001 reported loss from over $35 million to zero dollars.

In March 2011, Seaview petitioned the Tax Court to challenge the adjustment of its partnership losses. Seaview moved for summary judgment asserting that the 2010 tax adjustment was time-barred under the three-year statute of limitations. See 26 U.S.C. § 6229(a) (2000), repealed by Bipartisan Budget Act of 2015, Pub. L. No. 114-74, 129 Stat. 584, 625, § 1101(a). The Tax Court disagreed. It 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.

Seaview now appeals. We review the Tax Court's resolution of a summary judgment motion and interpretations of the Tax Code de novo. Sollberger v. Comm'r , 691 F.3d 1119, 1123 (9th Cir. 2012) ; Meruelo v. Comm'r , 691 F.3d 1108, 1114 (9th Cir. 2012).

II.

Seaview challenges the IRS's adjustment of its partnership losses, which it says came too late. Seaview contends that a tax return is "filed" when it is delivered to and received by an IRS official who requests it. So the limitations clock began, it argues, when Seaview delivered its return to an IRS revenue agent in September 2005. If so, the three-year limitations period long expired by the time the IRS adjusted Seaview's losses in October 2010. See 26 U.S.C. § 6229(a) (2000). The IRS, on the other hand, insists that Seaview never filed its 2001 tax return and so the statute of limitations never started running. See id. § 6229(c)(3).

So the question in this case: What counts as a tax return "filing" for statute of limitations purposes under the Tax Code? We hold 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 § 6229(a) purposes.

A.

A partnership must file a return of partnership income every year. 26 U.S.C. § 6031. The Tax Equity and Fiscal Responsibility Act of 1982 ("TEFRA"), Pub. L. No. 97-248, §§ 401–407, 96 Stat. 324, 648–71, established special audit and litigation procedures for certain partnerships. See 26 U.S.C. §§ 6221 – 6234 (2000) ; see also Seaview Trading, LLC v. Comm'r , 858 F.3d 1281, 1284 (9th Cir. 2017).¹ For partnerships subject to TEFRA, the IRS has three years to adjust a partnership's income:

[T]he period for assessing any tax imposed ... for a partnership taxable year shall not expire before the date which is 3 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[.]

26 U.S.C. § 6229(a) (2000). But if a taxpayer never files a return, the clock never begins to run. Instead, "in the case of a failure by a partnership to file a return for any taxable year, any tax attributable to a partnership item ... may be assessed at any time."...