You Be The Tax Judge: When The IRS Has Your Return But Says You Never Filed

The votes are in. A majority of you—60%—said: Yes. When an IRS agent specifically requests a return and receives it, that should count as filing.

You weren’t alone in that thinking. In fact, some federal judges agreed with you. But the final ruling went the other way.

In Seaview Trading, LLC v. Commissioner, 62 F.4th 1131 (9th Cir. 2023), the Ninth Circuit Court of Appeals, sitting en banc, ruled that providing a copy of a tax return to an IRS employee during an examination did not constitute filing the return for purposes of starting the three-year statute of limitations.

The court concluded that Seaview had never properly filed its 2001 partnership return. That meant the IRS could disallow the partnership’s $35.5 million loss even though it issued its notice of final partnership administrative adjustment years after receiving copies of the return.

Filing A Return Isn’t Just About The IRS Receiving It

Generally, the IRS has three years from the date a return is filed to assess additional taxes, subject to certain exceptions. But what happens if the IRS has a copy of your return, uses it to conduct an exam, and then says you never filed it? That was Seaview’s argument.

Seaview initially claimed that its 2001 partnership return had been mailed to the IRS in July 2002, in an envelope that also contained another entity’s return. The partnership even had a certified mail receipt showing it had sent an envelope to the IRS Service Center in Ogden, Utah.

But there was a problem. The receipt established that an envelope had been mailed, not what was inside it. Seaview couldn’t prove that its return had been included and received by the IRS. The partnership conceded that point on appeal, leaving it to rely on what happened later.

In July 2005, an IRS revenue agent informed Seaview that the agency had no record of its 2001 return and asked for a copy and proof of mailing. Seaview’s accountant complied, faxing the return and the certified mail receipt to the agent in September 2005. The partnership also provided another copy to an IRS attorney in July 2007.

The IRS received the information, examined Seaview’s tax year, and eventually issued an adjustment disallowing the loss in October 2010. Seaview argued that the clock began when the IRS received the return in 2005—or, at the latest, in 2007.

But the court focused on where the return had been delivered. Under the regulations applicable to Seaview’s return, the partnership was required to file at the designated IRS Service Center in Ogden, Utah. Neither the revenue agent in South Dakota nor the IRS attorney in Minnesota was an authorized filing location.

Importantly, neither IRS employee forwarded the copy they received to the designated Service Center, and Seaview didn’t send another copy there either. The Ninth Circuit concluded that the return was never properly filed.

Why The Court Sided With The IRS

In an opinion by Judge Paul Watford, the majority relied on the longstanding principle that taxpayers must comply with the statutory and regulatory filing requirements to receive the benefit of the statute of limitations.

The court cited earlier Supreme Court precedent requiring “meticulous compliance” with the conditions for obtaining that protection. In this case, that meant filing the return in the proper location. But Seaview argued that the rules governing where returns must be filed applied to timely returns but not necessarily to delinquent returns submitted at the request of an IRS representative.

The court rejected that distinction, finding that the filing requirements applied to both timely and late returns.

Seaview also pointed to IRS guidance suggesting that taxpayers could submit delinquent returns directly to IRS representatives. The Internal Revenue Manual instructed examiners to request delinquent returns and provided procedures for forwarding them for processing. That seemed to support Seaview’s position. After all, the partnership had done what the revenue agent asked.

The majority wasn’t persuaded. The court explained that the Internal Revenue Manual does not have the force of law and does not create enforceable rights for taxpayers. Even assuming the IRS employee should have forwarded the return and failed to do so, that failure did not satisfy Seaview’s filing obligations.

Seaview Actually Won The First Appeal.

Seaview initially won in the Ninth Circuit. In May 2022, a three-judge panel reversed the Tax Court and ruled in Seaview’s favor. The majority held that submitting the delinquent return to an IRS official who had specifically requested it was enough to start the limitations period, which would have made the IRS’s October 2010 adjustment too late.

But the IRS sought rehearing, and the Ninth Circuit agreed to reconsider the case en banc, which generally means “before the full court.” The Ninth Circuit, based in San Francisco, is large and covers nine western states—Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington—as well as Guam and the Northern Mariana Islands. Because of its size, the Ninth Circuit ordinarily hears en banc cases with 11 judges rather than its entire active bench. In March 2023, the en banc court reversed the earlier decision and sided with the IRS.

(For more about Circuit Courts, see this previous article.)

Seaview next asked the U.S. Supreme Court to review the case, but the justices denied its petition in January 2024, leaving the en banc ruling in place.

So, if you voted yes, you were in good company. Judge Patrick Bumatay agreed with you twice: first when he wrote the 2022 panel decision for Seaview, and again when he dissented from the en banc reversal.

The Dissent: How Can The IRS Ask For A Return And Then Say It Wasn’t Filed?

Bumatay dissented from the en banc decision, arguing that the majority’s interpretation was inconsistent with the IRS’s own guidance and practices, writing, “Today, our court throws our tax system into disarray.”

He noted that the IRS had instructed taxpayers to submit delinquent returns to its employees and directed those employees to process them. Seaview did what it was asked. Yet because the IRS employees who received the returns didn’t forward them to the designated Service Center, the government argued that the partnership had never filed.

Under the majority’s approach, Bumatay warned, taxpayers could comply with an IRS employee’s request, believe they had satisfied their filing obligations, and later discover that the statute of limitations had never begun. He would have held that a delinquent partnership return was filed when an authorized IRS representative requested it, the taxpayer supplied it in the requested manner, and the representative received it.

And Then There’s the $35.5 Million Loss

There’s another detail worth noting. The loss at issue wasn’t an ordinary business operating loss. It arose from a tax-shelter transaction. By the time Seaview challenged the adjustment, it had conceded it wasn’t entitled to claim the $35.5 million loss. That meant the case wasn’t about whether the loss was deductible, but whether the IRS had waited too long to disallow it.

If Seaview had properly filed its return and started the limitations period, the government would have been barred from making the adjustment after the applicable deadline, regardless of the deduction’s merits.

That’s the point of a statute of limitations. It provides finality, even when the underlying tax position may be wrong. But that protection depends on the limitations period actually beginning. In this case, the Ninth Circuit found that it never did.

What Does This Mean For Taxpayers?

There are a few lessons here, particularly for taxpayers who discover that the IRS has no record of a return or are asked to provide delinquent returns during an examination.

First, handing a return to an IRS employee is not necessarily the same as filing it. Even when the IRS specifically requests the return, taxpayers should ensure they satisfy the applicable filing requirements.

Second—and stop me if you’ve heard this from me before—keep good records. As Seaview learned, being able to show that something was mailed to the IRS isn’t necessarily the same as establishing that a particular return was filed. Documenting both the filing method and the return being submitted can be especially important if the IRS later claims it never received the return.

Third, if the IRS requests a copy of a missing or delinquent return, it’s important to distinguish between providing information for an examination and formally filing a return. Those may require separate steps. A taxpayer should confirm the appropriate filing procedures rather than assume that sending a copy to an examiner resolves both issues.

Finally, this case involved the partnership audit and assessment procedures under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), which governed the IRS’s examination of Seaview’s tax-shelter transaction for the 2001 tax year. Congress repealed those procedures in 2015 and replaced them with a new partnership audit regime generally effective beginning in 2018. The broader lesson about complying with filing requirements, however, remains relevant.

What The Case Does—and Doesn’t—Say

The ruling doesn’t mean that a tax return must always be delivered to a specific IRS Service Center to be considered filed. Applicable rules may authorize other filing methods or locations, including electronic filing and, in certain circumstances, hand delivery to authorized IRS personnel. Nor does the decision mean the IRS can simply disregard a properly filed return.

Rather, the court held that the employees who received Seaview’s return were not authorized to accept it for filing under the applicable regulations, and the copies never reached a designated filing location.

The takeaway is that when it comes to filing tax returns, where and how you submit the return can matter just as much as whether the IRS actually receives it.