Analysis of and reflections on recent cases and rulings.

AuthorBeavers, James A.

Practice & Procedures

Meaning of 'filed' defined for purposes of delinquent partnership returns

The Ninth Circuit held that for purposes of the limitation period for adjustments of partnership losses under former Sec. 6229(a), a delinquent partnership return has been "filed" when an IRS official authorized to obtain and receive delinquent returns informs a partnership that a tax return is missing and requests that tax return, the partnership provides the tax return in the manner requested, and the IRS official receives the tax return.


Seaview Trading LLC is classified as a partnership for federal tax purposes. In 2001, Robert Kotick was Seaview's majority partner, owning over 99% of the company. For 2001, Seaview prepared a Form 1065, U.S. Return of Partnership Income, that reported a $35.5 million loss from a tax-shelter transaction.

Seaview believed it filed this return in July 2002, having mailed it to the proper IRS service center in Ogden, Utah. The IRS, however, had no record of receiving Seaview's 2001 return. Although Seaview had a certified mail receipt for the return's mailing, it conceded that it could not prove that the IRS received its 2001 return in 2002.

In March 2004, the IRS opened an audit of Robert Kotick for 2001 and 2002. During the audit, Kotick gave the IRS an unsigned copy of Seaview's 2001 Form 1065. Because partnership returns are required to be audited separately, the IRS did not audit Seaview as part of its audit of Kotick.

In July 2005, an IRS revenue agent sent Seaview a letter that notified the LLC that the IRS had not received its 2001 federal partnership income tax return. The IRS, in an attachment to the letter, asked Seaview if it had filed a return and, if so, what type of return was filed and when and at which service center Seaview filed it. It also requested that the LLC provide all retained copies of the return, as well as copies of receipts and other proof of mailing for the return. In September 2005, Seaview's accountant faxed the IRS revenue agent a signed copy of Seaview's 2001 Form 1065 return, along with a certified mail receipt for its mailing.

In October, the IRS sent Seaview a letter telling the LLC that it had been selected for audit. Again, the IRS asked for a copy of the 2001 return. It further asked for any amendments to the return and documents related to certain entries on Seaview's return.

As part of its examination of the LLC, the IRS interviewed Seaview's accountant in January 2006 and interviewed Kotick in June 2007. During both interviews, the IRS acknowledged it had received Seaview's signed 2001 tax return and introduced the Form 1065 as an exhibit for both interviews. In July 2007, Seaview's counsel mailed another signed copy of the 2001 tax return to an IRS attorney at the attorney's request.

In October 2010, the IRS issued Seavicw a Final Partnership Administrative Adjustment (FPAA) 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 Service determined that "none of the income/loss/expense amounts" shown on Seaview's 2001 unfiled tax return were allowable. Thus, the IRS adjusted the 2001 reported loss from over S35 million to zero.

Seaview challenged the IRS's adjustment in Tax Court. The LLC, having provided an IRS revenue agent a copy of the 2001 return in 2005, moved for summary judgment, asserting that the return had been filed in 2005 and, consequently, the 2010 tax adjustment was time-barred under the three-year statute of limitation.

The Tax Court denied the motion. The court held that 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. It further held that the copies of the 2001 return Seaview sent the IRS in 2005 and 2007 were not returns because neither Seaview's accountant nor its attorney intended to file a return when they sent the copies. Accordingly, the copies were not a return under the tests in Beard, 82 T.C. 766 (1984), because they did not purport to be a return. Seaview appealed the Tax Court's denial of summary judgment to the Ninth Circuit.

The Ninth Circuit's decision

The Ninth Circuit held that the IRS's notice of FPAA in 2010 was untimely, determining that Seaview's 2001 tax return was filed in 2005, when the IRS agent requested the missing return, Seaview delivered it, and the IRS acknowledged receipt during the auditing process in connection with the FPAA. The court found that while a timely return must be sent to a...

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