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Partnership Argues Return Was Filed, IRS Adjustments Were Untimely

JAN. 4, 2021

Seaview Trading LLC et al. v. Commissioner

DATED JAN. 4, 2021
DOCUMENT ATTRIBUTES

Seaview Trading LLC et al. v. Commissioner

[Editor's Note:

Appellee brief.

]

SEAVIEW TRADING, LLC, AGK Investments, LLC, Tax Matters Partner,
Petitioner-Appellant,
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent-Appellee.

In The United States Court of Appeals
for the Ninth Circuit

ON APPEAL FROM THE UNITED STATES TAX COURT

Brief of Petitioner-Appellant

DAVID W. FOSTER
ARMANDO GOMEZ
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
1440 New York Avenue, N.W.
Washington, DC 20005
(202) 371-7000
(202) 393-5760

LISA S. BLATT
Counsel of Record
SARAH M. HARRIS
J. MATTHEW RICE
KIMBERLY BROECKER
WILLIAMS & CONNOLLY LLP
725 Twelfth Street, N.W.
Washington, DC 20005
(202) 434-5000
(202) 434-5029 (fax)
lblatt@wc.com

Corporate Disclosure Statement

Under Federal Rule of Appellate Procedure 26.1, appellant states that in the 2001 tax year at issue in this appeal, Seaview Trading, LLC, was owned by Robert A. Kotick, who owned his interest through AGK Investments, LLC, and Charles M. Kotick, who owned his interest through KMC Investments, LLC.

Charles M. Kotick has since passed away, and Seaview Trading, LLC, is now owned solely by Robert A. Kotick, through AGK Investments, LLC, 807080A LLC, and BN-Three Corp.

No publicly held corporation owns 10% or more of Seaview Trading, LLC.

LISA S. BLATT

DATED: JANUARY 4, 2021


TABLE OF CONTENTS

INTRODUCTION

STATEMENT OF JURISDICTION

STATEMENT OF THE ISSUE

RELEVANT STATUTES AND REGULATIONS

STATEMENT OF THE CASE

A. IRS's Filing and Auditing Process for Returns

B. Seaview's 2001 Partnership Return

C. The IRS's Receipt of Multiple Copies of Seaview's Return and the 2010 Notice of Final Partnership Administrative Adjustment

D. Procedural History

STANDARD OF REVIEW

SUMMARY OF ARGUMENT

ARGUMENT

I. Seaview Repeatedly “Filed” a Return

A. Seaview “Filed” Its Return Under the Plain Meaning of Filing

B. Statutory Purpose Supports Seaview's Interpretation

C. IRS Policy and Practice Confirm Seaview's Interpretation

D. The IRS's and Tax Court's Contrary Reasoning Lacks Merit

II. Seaview Filed “Returns” in 2005 and 2007

CONCLUSION

TABLE OF AUTHORITIES

Cases:

Allen v. Schnuckle, 253 F.2d 195 (9th Cir. 1958)

Ardbern Co. v. Comm'r, 120 F.2d 424 (4th Cir. 1941)

Artuz v. Bennett, 531 U.S. 4 (2000)

Beard v. Comm'r, 82 T.C. 766 (1984)

Church of Scientology v. United States, 920 F.2d 1481 (9th Cir. 1990)

Connor v. Comm'r, T.C. Memo. 1977-121 (1977)

Crum v. Comm'r, 635 F.2d 895 (D.C. Cir. 1980)

Dingman v. Comm'r, 101 T.C.M. (CCH) 1562 (2011)

Estate of McClanahan v. Comm'r, 95 T.C. 98 (1990)

Florsheim Bros. Drygoods Co. v. United States, 280 U.S. 453 (1930)

Fowler v. Comm'r, 155 T.C. No. 7 (Sept. 9, 2020)

Friedmann v. Comm'r, 82 T.C.M. (CCH) 381 (2001)

Green v. Comm'r, T.C. Memo. 1993-152 (5th Cir. 1994)

Gross v. FBL Fin. Servs., Inc., 557 U.S. 167 (2009)

In re Harold, 588 B.R. 484 (Bankr. E.D. Mich. 2018)

In re Hatton, 220 F.3d 1057 (9th Cir. 2000)

In re Hindenlang, 164 F.3d 1029 (6th Cir. 1999)

In re Moroney, 352 F.3d 902 (4th Cir. 2003)

In re Payne, 431 F.3d 1055 (7th Cir. 2005)

In re Quezada, No. 19-51000, 2020 WL 7310680 (5th Cir. Dec. 11, 2020)

In re Smith, 828 F.3d 1094 (9th Cir. 2016)

Jones, Bell, Abbott, Fleming & Fitzgerald LLP v. United States, 781 F. App'x 619 (9th Cir. 2019)

Meruelo v. Comm'r, 691 F.3d 1108 (9th Cir. 2012)

Metals Ref., Ltd. v. Comm'r, T.C. Memo. 1993-115 (1993)

Morton v. Ruiz, 415 U.S. 199 (1974)

Nigro v. Sullivan, 40 F.3d 990 (9th Cir. 1994)

O'Bryan Bros. v. Comm'r, 127 F.2d 645 (6th Cir. 1942)

Rotkiske v. Klemm, 140 S. Ct. 355 (2019)

Sameena Inc. v. U.S. Air Force, 147 F.3d 1148 (9th Cir. 1998)

Seaview Trading, LLC v. Comm'r, 858 F.3d 1281 (9th Cir. 2017)

Sebelius v. Cloer, 569 U.S. 369 (2013)

Shea Homes, Inc. & Subsidiaries v. Comm'r, 834 F.3d 1061 (9th Cir. 2016)

United States ex rel. Accardi v. Shaughnessy, 347 U.S. 260 (1954)

United States v. Briggs, 592 U.S. ___, 2020 WL 7250099 (2020)

United States v. Caceres, 440 U.S. 741 (1979)

United States v. Lombardo, 241 U.S. 73 (1916)

United States v. Newell, 578 F.2d 827 (9th Cir. 1978)

United States v. Sourapas, 515 F.2d 295 (9th Cir. 1975)

W.H. Hill Co. v. Comm'r, 64 F.2d 506 (6th Cir. 1933)

Zellerbach Paper Co. v. Helvering, 293 U.S. 172 (1934)

Statutes and regulations:

26 U.S.C.

§ 701

§ 6031 (2000)

§ 6091(a) (2000)

§ 6222(a) (2000)

§ 6226 (2000)

§ 6229 (2000)

§ 6229(a) (2000)

§ 6229(b) (2000)

§ 6229(c)(3) (2000)

§ 6230(i) (2000)

§ 6501(a) (2000)

§ 6501(b)(3) (2000)

§ 6698 (2000)

§ 6751(b)(1)

§ 7482(a)(1)

26 C.F.R.

§ 1.6031(a)-1(e) (2001)

§ 1.6031(a)-1(e)(1) (2001)

§ 1.6031(a)-1(e)(2) (2001)

§ 1.6091-1 (2001)

§ 1.6091-1(b) (2001)

§ 301.7701-3(a)

§ 301.7701-3(b)(1)(ii)

§ 601.601(d)(2)

Act of July 21, 1952, Pub. L. No. 82-594, 66 Stat. 818

Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. No. 97-248, 96 Stat. 324

The Bipartisan Budget Act of 2015, Pub. L. No. 114-74, 129 Stat. 584

Miscellaneous:

Am. Bar Ass'n Section of Taxation, Effectively Representing Your Client Before the IRS (7th ed. 2018)

File, Black's Law Dictionary (5th ed. 1979)

Bryan T. Camp, Theory and Practice in Tax Administration, 29 Va. Tax Rev. 227 (2009)

IRS, Chief Counsel Advice No. 199933039, Filing Delinquent Returns Directly With Revenue Officers (Aug. 20, 1999)

IRS, Internal Revenue Manual (2005)

§ 4.4.9.5.7

§ 4.4.9.5.8

§ 4.4.9.5.14

§ 4.4.9.7.3

§ 4.12.1.1.3

§ 4.12.1.4.2

§ 4.12.1.5.3

§ 4.12.1.13

IRS, Instructions for Form 1065 (2001)

IRS Policy Statement 5-133, Delinquent Returns — Enforcement of Filing Requirements (Aug. 4, 2006)

IRS Practice Unit, Overview of Statute of Limitations on the Assessment of Tax (Apr. 10, 2020)

File, Webster's Third New International Dictionary (1961)


INTRODUCTION

Congress gave the Internal Revenue Service (IRS) only three years from the date when partnerships “file[ ]” their tax returns to object and propose different tax liability. 26 U.S.C. § 6229 (2000). That three-year period balances the IRS's need to conduct time-consuming examinations with taxpayers' interests in finality and avoiding the unfair surprise of unexpected tax liability years later.

The Tax Court below swept those principles aside in holding that the tax return at issue has never been filed. The IRS undisputedly asked for, and repeatedly received, a return from the taxpayer (appellant Seaview Trading, LLC) in the official course of a standard IRS audit. Those submissions were late, or “delinquent,” because they post-dated the filing deadline for the relevant tax year. But the three-year limitations period applies to every return the IRS receives in the normal course of an audit, whether timely sent or not. Three years came and went from each of the taxpayer's submissions here. This case thus presents the question whether the IRS can impose liability based on a return the IRS received, but simultaneously claim that the return was never filed.

The answer should be no. The limitations clock starts once a taxpayer submits its return in the manner the IRS prescribed. The Tax Code does not define what it means to “file” a return, and allows the Treasury Secretary to promulgate regulations prescribing the form and manner of filings. Here, the Tax Court held that because regulations require taxpayers to file returns with the relevant service center (here, the Ogden, Utah center), that is the only way a taxpayer can ever file a return.

But those regulations address only how taxpayers must timely file their returns. The regulations do not address what happens in cases like this one, when taxpayers miss that deadline and the return becomes delinquent. In the face of that silence, the question is simply whether a taxpayer “filed” a return under the ordinary meaning of that term. Following IRS instructions to provide a return directly to an IRS official for placement in the record undoubtedly falls within the ordinary meaning of “filed.” A mountain of official IRS pronouncements are on point: IRS policies and procedures addressing delinquent returns instruct taxpayers to follow IRS agents' instructions, dissuade taxpayers from mailing delinquent returns directly to service centers, and instruct IRS agents to accept as filed any delinquent returns they obtain. Applying the ordinary meaning of “filed” here, the three-year limitations period started, at the latest, on September 23, 2005, when Seaview submitted its delinquent return to the IRS in the manner the IRS requested. The Tax Court's contrary view is unpersuasive, and would endow the IRS with the breathtaking power to go after any taxpayer at any time.

Equally untenable is the Tax Court's alternative holding below that even if Seaview “filed” something with the IRS, Seaview did not file “returns.” Under that view, even when a taxpayer sends the IRS a signed and complete copy of the very form the IRS requires for tax returns, that document is still not a “return” if the taxpayer believes that it filed a return at an earlier date. But there is no other word for what the taxpayer could have filed in this circumstance. The law is clear that whenever a taxpayer submits a document that walks, talks, and acts like a “return,” that document is indeed a “return.” Taxpayers should not have to recant their belief that they already followed the law in order for the IRS to accept that a document is a “return.”

STATEMENT OF JURISDICTION

The Tax Court had jurisdiction under 26 U.S.C. § 6226 (2000). The Tax Court filed its opinion on September 16, 2019, 1-ER6-17, and entered its final decision on May 15, 2020, 1-ER2-4. Appellant timely filed a notice of appeal on August 7, 2020. 2-ER282-85. This Court has jurisdiction under 26 U.S.C. § 7482(a)(1).

STATEMENT OF THE ISSUE

Whether the three-year limitations period under 26 U.S.C. § 6229 (2000) for the IRS to adjust Seaview's 2001 partnership tax return expired before the IRS adjusted that return in October 2010.

RELEVANT STATUTES AND REGULATIONS

Pertinent statutory and regulatory provisions are enclosed in an addendum to this brief.

STATEMENT OF THE CASE

A. IRS's Filing and Auditing Process for Returns

1. This case involves a tax partnership. The Tax Code sets a three-year deadline for the IRS to adjust a partnership's income for a given taxable year. Congress pegged that deadline to when the partnership files its return:

Except as otherwise provided in this section, the period for assessing any tax imposed by subtitle A with respect to any person which is attributable to any partnership item (or affected item) 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 (determined without regard to extensions).

26 U.S.C. § 6229(a) (2000).1

Thus, the IRS ordinarily has three years from the partnership's filing of the return to issue final adjustments to that return (e.g., changes to listed profits or losses that determine tax liability). The IRS makes those changes in a determination called a “Final Partnership Administrative Adjustment.”

The Tax Code also addresses what happens when a taxpayer never files a return; in that situation, the clock does not run. Thus, “[i]n 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.” Id. § 6229(c)(3) (2000).

Whether the partnership has “filed” its return is thus central to whether any ensuing IRS determinations about tax liability are timely. But the Tax Code nowhere defines the term “filed” or prescribes how taxpayers must accomplish a “filing.” Instead, the Tax Code states that each partnership return “shall be filed or made at such time, in such manner, and at such place as may be prescribed in regulations.” 26 U.S.C. § 6230(i) (2000). Similar provisions apply to individual taxpayer returns. E.g., id. § 6091(a) (2000) (delegation to IRS to prescribe filing procedures); id. § 6501(a) (2000) (three-year limitations period for assessments).

2. Treasury regulations, in turn, specify “[p]rocedural requirements” for the time, place, and manner of filing partnership returns. See 26 C.F.R. § 1.6031(a)-1(e) (2001). With respect to the “Time for filing,” the regulation states that “[t]he return of a partnership must be filed on or before the fifteenth day of the fourth month following the close of the taxable year of the partnership.” Id. § 1.6031(a)-1(e)(2). With respect to the “Place for filing,” the regulation states that “[t]he return of a partnership must be filed with the service center prescribed in the relevant IRS revenue procedure, publication, form, or instructions to the form (see § 601.601(d)(2)).” Id. § 1.6031(a)-1(e)(1); see id. § 1.6091-1(b) (2001) (same for filing returns of partnership income).

Those regulations do not address filing procedures for delinquent returns, i.e., untimely returns that taxpayers submit when the IRS did not receive a return at the prescribed place and in the prescribed manner before the deadline for that tax year. Delinquent returns are commonplace. E.g., Jones, Bell, Abbott, Fleming & Fitzgerald LLP v. United States, 781 F. App'x 619 (9th Cir. 2019) (affirming tax penalty for late filing of partnership return).

However, the Internal Revenue Manual — the agency's detailed procedural instructions for IRS agents — addresses delinquent returns at length. When a return is delinquent, the IRS agent conducting the examination must ask the taxpayer to “deliver the returns promptly to the examiner along with a written statement under penalty of perjury, giving all the facts which caused the delay.” Internal Revenue Manual § 4.12.1.4.2 (2005) (emphasis added).

The Manual painstakingly dictates how the IRS must process these delinquent returns. Upon receipt, IRS agents must “[d]ate stamp the delinquent return,” or at least annotate it “Received, the date received, and the examiner's name and title.” Id. § 4.4.9.5.7. Then, IRS agents must “[m]ake a copy of the delinquent return,” write “EXAM HAS ORIGINAL DELINQUENT RETURN — PROCESS THE COPY AS AN ORIGINAL,” id. § 4.4.9.5.8, and “[f]orward . . . the copy of the return . . . to Case Processing Support no later than the day after the return [wa]s received,” id. § 4.4.9.5.14. After that, Case Processing Support must send the return “to the appropriate campus,” i.e., the service center where the taxpayer would have filed a return had the taxpayer filed properly before the filing deadline. Id. § 4.4.9.7.3.

If the IRS agent conducting the examination cannot secure a delinquent return, the IRS agent can instead prepare a “Substitute for Return”: “When it has been determined that a taxpayer is liable for filing a return, and upon due notice from the Service fails to do so, a Substitute for Return will be prepared” using all internally available information. Id. §§ 4.12.1.13; 4.12.1.5.3. This substitute return does not trigger the three-year limitations period for tax liability assessments; because the IRS cannot rely on information in a return, the assessment may take more than three years. 26 U.S.C. § 6501(b)(3) (2000).

Finally, in addition to trying to obtain a delinquent return, where a partnership fails to timely file a return, the IRS must impose a penalty absent reasonable cause for the late filing. 26 U.S.C. § 6698 (2000). Under the statutes in effect in 2002, the penalty was $50 per month — for a maximum of five months — multiplied by the number of persons who were partners during any part of the taxable year. Id. The penalty provision reinforces Congress's expectation that the IRS would promptly investigate missing returns and collect penalties for non-compliant partnerships, instead of allowing a partnership to fail to file a return indefinitely.

B. Seaview's 2001 Partnership Return

Seaview is a limited liability company that the IRS treats as a partnership for federal tax purposes. See 1-ER8; 26 C.F.R. § 301.7701-3(a), (b). As a partnership, Seaview itself “shall not be subject to the income tax.” 26 U.S.C. § 701. Instead, the Tax Code makes Seaview's partners “liable for income tax only in their separate or individual capacities,” and requires partners to pay the taxes associated with their shares of the partnership. Id.

During 2001, Seaview had two state-law partners: AGK Investments, LLC, and KMC Investments, LLC. See 1-ER8, 2-ER249, 2-ER251. Robert Kotick fully owned AGK, which held a 99.15% membership interest in Seaview. 1-ER8; 2-ER249. Robert's father, Charles, fully owned the other partner, KMC, which held the remaining 0.85% membership interest in Seaview. 1-ER8, 2-ER251. For tax purposes, the IRS generally does not treat entities like AGK and KMC, which have a single owner, separately from their owner. 26 C.F.R. § 301.7701-3(b)(1)(ii). AGK and KMC accordingly did not have to file their own returns reporting income from Seaview. Instead, Robert and Charles Kotick reported Seaview's partnership items on their own individual returns. See 26 U.S.C. § 6222(a) (2000).

Even though partnerships like Seaview pay no income tax as entities, each partnership must file an informational tax return setting forth its profits and losses, called a Form 1065. See id. § 6031 (2000). This process builds in redundancy: not only does each individual partner report their proportionate share of the partnership's profits and losses, but the partnership also reports the full profits and losses at the entity level. The partnership filing makes it easier and more efficient for the IRS to audit partnerships.

Absent an extension, Seaview had to file its 2001 partnership return (or Form 1065) at the IRS service center located in Ogden, Utah by April 15, 2002. See IRS, Instructions for Form 1065 (2001), https://www.irs.gov/pub/irs-prior/i1065--2001.pdf; 26 C.F.R. § 1.6031(a)-1(e) (2001). Seaview believes that its partnership return was mailed to the Ogden service center on July 3, 2002, see 1-ER9 n.7, but Seaview cannot prove that the IRS received the return with that mailing.

C. The IRS's Receipt of Multiple Copies of Seaview's Return and the 2010 Notice of Final Partnership Administrative Adjustment

In 2004, Robert Kotick, Seaview's majority owner, gave the IRS a copy of Seaview's 2001 Form 1065 partnership return when the IRS asked for it while auditing Mr. Kotick's individual taxes for the 2001 and 2002 taxable years. That individual audit examined income and deductions relating to various entities that Mr. Kotick reported on his individual returns, including amounts attributable to his investments in AGK and Seaview. Thus, the IRS requested a copy of Seaview's 2001 partnership return, and Mr. Kotick duly provided an unsigned copy to the IRS agent conducting that audit. The IRS preserved this partnership return in Mr. Kotick's file. See 2-ER244-52.2

The auditing agent understood that Seaview had filed its 2001 partnership return in 2002. She repeatedly informed IRS colleagues that the statute of limitations for “the partnership . . . will be expired on 7/2/05.” 2-ER238-39. But the IRS did not act on Seaview's 2001 partnership return. The IRS completed its audit of Mr. Kotick on March 30, 2005. 2-ER243.

On July 27, 2005 — nearly a month after the July 2, 2005 date that the IRS agent had identified as the IRS's deadline for acting against Seaview — a different IRS agent contacted Seaview. That agent's letter for the first time informed Seaview: “Our records indicate that we have not received your federal income tax return(s) for the [2001 tax year].” 2-ER231. The letter asked: “Did Seaview Trading file a Form 1065 . . . 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-ER233. Consistent with the IRS's official procedures for obtaining delinquent returns, the letter asked Seaview to “[p]rovide copies of all retained copies of the return.” 2-ER233. The letter listed the “requestor” as a specific IRS agent and included contact information for reaching that agent. 2-ER232.

Thus, on September 23, 2005, Seaview sent the IRS another copy of Seaview's 2001 partnership return. See 2-ER220-30. Seaview's accountant, Jeffrey Sedacca, sent the return to the requesting IRS agent, using the contact information the agent had provided on the request form. Sedacca noted that Seaview's submission was “[a]s we discussed,” and enclosed a copy of Seaview's 2001 return signed by Robert Kotick. 2-ER220, 2-ER222-29.

The IRS confirmed receipt of this return. In October 2005, the IRS notified Seaview that it was opening an audit of “your partnership's federal tax return” for 2001. 2-ER218. The IRS followed up with informational requests that left no doubt that the IRS had already received Seaview's 2001 return and was making official use of that return. 2-ER209-17. For instance, the IRS requested “[a]ll books, records, papers, documents, and other data supporting” specific entries in Seaview's return:

(1) “[T]he following amounts shown on Schedule L of Form 1065 prepared for Sea View Trading's taxable year 2001: (a) Other Assets of $40,289,301 (line 13); (b) Nonrecourse Loans of $35,300,000 (line 18); and (c) Partner's Capital Account of $4,989,301 (line 21)”;

(2) “[T]he $35,531,605 'Common Trust Fund Timing Difference' reported on line 7a of Schedule M-1 of the 2001 Form 1065”; and

(3) “[T]he $4,954,434 of 'Capital Contributed During the Year' reported on Line 2 of Schedule M-2 of the 2001 Form 1065.” 2-ER216.

Thereafter, the IRS produced copies of Seaview's 2001 return in its possession. In November 2005, the IRS served Seaview's accountant, Jeffrey Sedacca, with a summons for a sworn interview regarding “[a]ll matters respecting the filing of the original of the Form 1065[,] attached.” 2-ER199. In January 2006, during Mr. Sedacca's interview, the IRS noted that Mr. Sedacca had “previously provided” Seaview's return to the IRS, 2-ER-161, 2-ER164, and introduced that return as an exhibit, see 2-ER119-126.

Nonetheless, in April 2007, the IRS prepared a substitute return, i.e., an IRS-created document estimating profits and losses that the IRS creates absent a taxpayer-supplied return. 2-ER25; supra p. 8. But the IRS has never relied on (or even mentioned) this substitute return at any point since.

Instead, in June 2007, the IRS again acknowledged that it already had “obtained from Mr. Sedacca[ ] a Form 1065 prepared for Seaview Trading, LLC, for its tax year 2001.” 2-ER67. This time, the IRS made that statement when interviewing Mr. Kotick. 2-ER67. The IRS again introduced the return as an exhibit. 2-ER67.

Finally, on July 24, 2007, Seaview again sent the IRS “a copy of the Seaview Trading, LLC's retained copy of its 2001 Form 1065.” 2-ER44. This time, Seaview's counsel submitted the return “[p]ursuant to” a conversation with IRS counsel, 2-ER44, and sent the signed copy to the IRS attorney assisting with the audit. 2-ER44-52.

Three more years passed. Then, on October 26, 2010, the IRS issued Seaview a Final Partnership Administrative Adjustment notice, i.e., an adjustment of profits and losses that meant that Seaview's partners would owe more taxes. 2-ER31-43. The IRS adjusted Seaview's 2001 partnership return to disallow a $35,496,542 loss listed on the “copy” of the 2001 “return provided by the taxpayer,” which the IRS characterized as “unfiled.” 2-ER39. The IRS also disallowed all of Seaview's income and expenses for 2001. 2-ER39, 2-ER31-43. Although the IRS's adjustment states the IRS's position that “no tax return was filed” by Seaview “for 2001,” the IRS expressly used the 2001 “return provided by the taxpayer” — not the substitute return — to assess Seaview's liability. 2-ER39.

Thus, to recap, the timeline was as follows:

Timeline from 2002-2010

D. Procedural History

In January 2011, Seaview timely filed petitions in the Tax Court challenging the IRS's $35 million adjustment. Robert Kotick brought one petition; AGK brought another. See 2-ER286-88 (Kotick); 2-ER289-92 (AGK). Seaview believed Mr. Kotick was the proper party to bring the petition because Seaview believed it was statutorily exempt from the audit procedures of the Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. No. 97-248, 96 Stat. 324 (TEFRA). But if Seaview was subject to TEFRA, AGK — Seaview's tax matters partner — was the proper party to bring the petition.

Mr. Kotick's case progressed first; the Tax Court stayed proceedings in AGK's case. See 2-ER286-88, 2-ER289-92. Mr. Kotick argued as a threshold matter that the IRS's final assessment was invalid because Seaview was exempt under TEFRA from the partnership audit. See Seaview Trading, LLC v. Comm'r, 858 F.3d 1281, 1283 (9th Cir. 2017). But the Tax Court disagreed. This Court affirmed the Tax Court's dismissal of the case for lack of jurisdiction, holding that because Seaview was not exempt from the partnership audit, only AGK had standing to bring the petition. Id. at 1288.

This case — brought by AGK, on Seaview's behalf — proceeded. Seaview argued that the IRS had acted too late in October 2010. The Tax Court denied Seaview's motion for summary judgment. The court held that Seaview never “filed” its return because Seaview did not send its 2005 and 2007 returns to the IRS service center where taxpayers file returns before the tax deadline. See 1-ER12-15. The court alternatively held that, though Seaview sent the IRS multiple copies of its Form 1065, these were not “return[s].” 1-ER15-17. Because Seaview believed it had already filed its return in 2002, the court reasoned, Seaview “did not intend to file a return” when Seaview submitted a “copy” of its return, so Seaview's submissions never triggered the three-year limitations period. 1-ER16.

Seaview entered a stipulation of settled issues with the IRS, forgoing remaining arguments to appeal the Tax Court's rulings. 2-ER19-22. The IRS stipulated that it would not penalize Seaview for any alleged underpayment of tax, 2-ER253-54, because the IRS agent failed to comply with mandatory procedures in 26 U.S.C. § 6751(b)(1) for enforcing penalties. On May 15, 2020, the Tax Court entered a final decision holding that the IRS's October 2010 final adjustment was timely and valid. 1-ER2-4. This appeal followed.

STANDARD OF REVIEW

This Court “review[s] decisions of the Tax Court on the same basis as decisions in civil bench trials in district court.” Shea Homes, Inc. & Subsidiaries v. Comm'r, 834 F.3d 1061, 1066 (9th Cir. 2016) (internal quotations omitted). This Court reviews de novo the Tax Court's “[c]onclusions of law, including the Tax Court's interpretation of the Internal Revenue Code.” Meruelo v. Comm'r, 691 F.3d 1108, 1114 (9th Cir. 2012) (internal quotations omitted).

SUMMARY OF ARGUMENT

The Tax Court erred in holding that the three-year limitations period under 26 U.S.C. § 6229 for the IRS to act on Seaview's 2001 tax return did not run before October 2010. Seaview repeatedly submitted its return to the IRS, in the official manner the IRS requested, well over three years before the IRS used that return to initiate further tax liability against Seaview.

1. Under section 6229, the three-year limitations period for IRS action starts running when a partnership “file[s]” its return. But section 6229 does not define the term “file.” Tax regulations prescribe the time, place, and manner for taxpayers to “file” returns before the tax-year deadline, but the regulations are silent about how to file delinquent returns like those at issue. The regulations certainly do not tell taxpayers to disregard instructions from IRS agents about how to submit delinquent returns when the IRS engages with taxpayers during an official audit, as the IRS did here. Given that silence regarding delinquent returns, the ordinary meaning of the term “file” — to deliver a document to an official for reference and placement into the record — governs when a delinquent return is “filed.” Thus, each time Seaview gave its 2001 return to the IRS in the form and manner the IRS requested, for the IRS's official use in collecting taxes, Seaview “filed” the return.

That conclusion comports with the purpose of the filing requirement, which is to facilitate IRS determinations about a given taxpayer's tax liability. And that conclusion comports with the purpose of the limitations period, which gives the IRS a full three years from the filing of a return to examine the return. The IRS here repeatedly accepted Seaview's return, confirmed receipt, placed the return in its files, had the full three years to examine the return, and actually used that submitted return to determine tax liability. It is Kafkaesque for the IRS to claim that a taxpayer has not “filed” the very return that the IRS used to adjust tax liability.

The IRS's own policies and practices further support the conclusion that taxpayers “file” delinquent returns when taxpayers submit those returns to IRS agents in the manner requested. IRS policies and practices encourage taxpayers to file delinquent returns in the precise manner that Seaview did here: by following IRS agents' instructions and sending returns straight to them. Taxpayers reasonably rely on these policies. The IRS should not be able to assess liability years after the limitations period should have run after ignoring its own internal rules. The IRS's and Tax Court's contrary position misreads the relevant regulations and precedent and would eviscerate the Tax Code's three-year limitations period.

2. Seaview also filed a “return.” On their face, Seaview's submitted copies of its Form 1065 purport to be returns (indeed, it is unclear what else they could be). They report Seaview's tax data using the prescribed form, signed under penalty of perjury. Seaview sent these returns per the IRS's requests, in an attempt to assist the IRS with its inquiry. And the returns obviously gave the IRS all of the information needed to review Seaview's potential tax liability; the IRS expressly relied on the submitted returns to make adjustments for tax liability purposes. The IRS's and Tax Court's position illogically allows a taxpayer's subjective belief that the taxpayer already filed a return to transform ensuing submissions into legal nullities.

ARGUMENT

I. Seaview Repeatedly “Filed” a Return

Ordinary meaning, statutory purpose, and the IRS's policies all point in the same direction: a delinquent tax return is “filed” under 26 U.S.C. § 6229, and the IRS's three-year clock begins, when the taxpayer sends that return to the IRS in the form and manner the IRS requests. Seaview “file[d]” its 2001 return multiple times. Seaview repeatedly sent its return to the IRS in the manner the IRS requested, to facilitate the IRS's official inquiries, and the IRS repeatedly acknowledged receipt. Because these filings occurred more than three years before the IRS adjusted Seaview's tax liability in October 2010, the IRS acted too late. The IRS's and Tax Court's contrary interpretation has no basis in the statute or regulations, defies IRS practice, and would perversely encourage abusive IRS behavior towards taxpayers.

A. Seaview “Filed” Its Return Under the Plain Meaning of Filing

1. Statutory interpretation begins with the text. As stated, section 6229 ties the three-year limitations period for assessing tax liability to when a partnership “filed” its return, but does not define what filing entails. Another provision, 26 U.S.C. § 6230(i) (2000), empowers the Treasury Secretary to promulgate regulations prescribing the “time,” “manner,” and “place” with respect to which partnership returns “shall be filed.”

The Treasury Secretary has promulgated regulations setting the “time,” “manner,” and “place” for filing returns. But those regulations govern only procedural requirements for filing partnership returns before the tax-year deadline. One regulation, 26 C.F.R. § 1.6031(a)-1(e)(1), directs the partnership to file its return “with the service center prescribed in the relevant IRS revenue procedure, publication, form, or instructions to the form” — here, Ogden, Utah. Section 1.6031(a)-1(e)(2) in turn directs the partnership to file the return “on or before the fifteenth day of the fourth month following the close of the taxable year of the partnership” — here, April 15, 2002. Likewise, section 1.6091-1 reinforces the same default rule “[f]or the place for filing returns of partnership income” by cross-referencing 26 C.F.R. § 1.6031(a)-1(e). See 26 C.F.R. § 1.6091-1(b) (2001). In sum, these regulations tell taxpayers what to do in ordinary circumstances, before the tax filing deadline passes. Under those regulations, because Seaview did not file its partnership return in Ogden, Utah by April 15, 2002, Seaview failed to file a timely return.

The regulations plainly do not govern delinquent returns, and thus do not address whether Seaview “filed” its delinquent return by sending multiple submissions of its Form 1065 to IRS agents after the tax-year deadline. The Tax Code expressly acknowledges that taxpayers will file delinquent returns, for instance by providing that the three-year limitations period runs from the later of “the date on which the partnership return . . . was filed” or “the last day for filing.” 26 U.S.C. § 6229(a) (2000). By definition, delinquent returns cannot comply with section 1.6031(a)-1(e)'s regulatory deadline to file “on or before the fifteenth day of the fourth month following the close of the taxable year of the partnership.” The regulations certainly do not purport to override instructions that taxpayers receive from IRS agents who contact them about submitting delinquent returns.

This regulatory framework makes sense: the regulations prescribe uniform, default rules to help the IRS process the flood of filings that the IRS receives before the tax-year filing deadline. But the regulations leave it to the IRS — including the IRS agents handling a particular audit — to prescribe the most effective way to obtain delinquent returns.

2. Because the Tax Code does not define “filing” or prescribe how taxpayers “file” delinquent returns, the ordinary meaning of those terms governs whether Seaview's 2005 and 2007 submissions to the IRS were “filings.” See, e.g., Gross v. FBL Fin. Servs., Inc., 557 U.S. 167, 175 (2009) (absent statutory definitions, ordinary meaning governs). Under the ordinary meaning of the term “file,” Seaview manifestly filed its return by submitting the return to the IRS in the form and manner that IRS agents prescribed, for inclusion in the IRS's official record.

Contemporaneous dictionaries confirm that the ordinary meaning of “file,” as used in section 6229, is “[t]o deliver an instrument . . . to the proper officer . . . for the purpose of being kept on file by him as a matter of record and reference in the proper place.” File, Black's Law Dictionary (5th ed. 1979); see File, Webster's Third New International Dictionary (1961) (“file” means “to fill out and submit (an income tax return) to the appropriate office”).

In keeping with that ordinary meaning, the Supreme Court has long held that something is “'filed,' as that term is commonly understood, when it is delivered to, and accepted by, the appropriate court officer for placement into the official record.” Sebelius v. Cloer, 569 U.S. 369, 376 (2013) (quoting Artuz v. Bennett, 531 U.S. 4, 8 (2000)); see United States v. Lombardo, 241 U.S. 73, 76 (1916) (“A paper is filed when it is delivered to the proper official and by him received and filed.”). Likewise, this Court has held that “'[f]iled' may reasonably be defined to mean 'issuance of a receipt' or 'received.'” Nigro v. Sullivan, 40 F.3d 990, 996 (9th Cir. 1994) (citing Lombardo, 241 U.S. 73 and Allen v. Schnuckle, 253 F.2d 195, 196-97 (9th Cir. 1958)).

“Filing” is what taxpayers routinely do when they provide delinquent returns to the IRS in the form and manner the IRS requested. And filing is exactly what Seaview did here. Start with the 2005 filing. On July 27, 2005, an IRS agent contacted Seaview. 2-ER231-34. The Internal Revenue Manual required an IRS agent to ask Seaview to file a delinquent return. See Internal Revenue Manual § 4.12.1.4.2 (2005). Consistent with the Manual, an IRS agent asked Seaview to provide him directly with “copies of all retained copies of the return.” 2-ER233. On September 23, 2005, Seaview's accountant submitted a signed return to the requesting IRS agent, with a cover letter stating: “As we discussed, I have attached the 2001 tax return for Seaview Trading LLC.” 2-ER220-30. The IRS received this return. IRS officials followed up with specific requests based on entries in the return. E.g., 2-ER216. The IRS included a copy of the return in a summons to Seaview's accountant. 2-ER195-208, 2-ER-199. And the IRS acknowledged receipt of the return during two sworn interviews. 2-ER67, 2-ER161, 2-ER164.

Were that not enough, take the 2007 filing. On July 24, 2007, after speaking with IRS counsel, Seaview's counsel submitted another signed copy of Seaview's return, this time mailing the copy to an IRS attorney who was assisting with the audit. 2-ER-44-52. Seaview's cover letter stated: “Pursuant to our prior conversation, enclosed is a copy of the Seaview Trading, LLC's retained copy of its 2001 Form 1065.” 2-ER44.

In short, the IRS requested, received, accepted, and relied on Seaview's return in the normal course with respect to delinquent returns. The IRS deemed that return “unfiled,” 2-ER39, but the IRS cannot have it both ways. The IRS cannot rely on a return for the official purpose of determining tax liability, yet disclaim that the return was ever filed in the first place.

B. Statutory Purpose Supports Seaview's Interpretation

Statutory purpose reinforces that Seaview's repeated submissions to the IRS of its Form 1065 constituted “filings.” “[T]he main purpose of the requirement that taxpayers file income-tax returns [is] to spare the tax authorities the burden of trying to reconstruct a taxpayer's income and income-tax liability without any help from him.” In re Payne, 431 F.3d 1055, 1057 (7th Cir. 2005). The “filing” of a return triggers section 6229's three-year limitations period for the IRS to act because that filing enables the IRS to begin determining the appropriate tax treatment for that taxpayer. See 26 U.S.C. § 6229(a) (2000). Conversely, section 6229's three-year limitations period does not run in the event a taxpayer “never files” a return, because, under those circumstances, “the 3-year general rule does not provide the IRS with sufficient time to identify and audit” the taxpayer. See Internal Revenue Service Practice Unit, Overview of Statute of Limitations on the Assessment of Tax, at 10 (Apr. 10, 2020), https://www.irs.gov/pub/irs-utl/int_c_115r.pdf.

With respect to delinquent returns, interpreting “filing” to mean following the procedures that IRS agents prescribe for submitting missing returns thus vindicates statutory objectives. Taxpayers submit returns directly to the IRS agents conducting the tax audit, ensuring that those IRS agents have the full three-year statutory period to evaluate the return.

Take this case: IRS agents asked Seaview to return copies of its 2001 return to those specific agents, not to the Ogden, Utah service center. 2-ER44, 2-ER220, 2-ER231-34. That made sense, because those IRS agents were the very people determining whether to adjust Seaview's return and assess further tax liability. Sending the returns directly to those specific IRS agents also avoided delays from sending the returns to the Ogden service center and the uncertainty whether the IRS's internal routing system would send the filings to those agents. And sending the returns directly to those IRS agents enabled the IRS to confirm receipt, which the IRS did on multiple occasions. 2-ER67, 2-ER161, 2-ER164, 2-ER195-208, 2-ER-199, 2-ER216.

C. IRS Policy and Practice Confirm Seaview's Interpretation

IRS policies and practices reinforce that taxpayers “file” delinquent returns by submitting them to IRS agents in the form and manner the IRS agents prescribe. To start, the Internal Revenue Manual and policy guidance instructed IRS agents to accept returns that taxpayers submit to IRS agents pursuant to IRS inquiries. See Internal Revenue Manual § 4.12.1.1.3 (2005).

Not only that, the IRS has long encouraged taxpayers to send delinquent returns directly to the IRS agent conducting an audit. See id. § 4.12.1.4.2; IRS, Chief Counsel Advice No. 199933039, Filing Delinquent Returns Directly With Revenue Officers (Aug. 20, 1999), https://www.irs.gov/pub/irs-sca/9933039.pdf (IRS, Chief Counsel Advice No. 199933039). The IRS has even promised to accept “[a]ll delinquent returns submitted by a taxpayer, whether upon his/her own initiative or at the request of a Service representative.” IRS Policy Statement 5-133, Delinquent Returns — Enforcement of Filing Requirements (Aug. 4, 2006), https://www.irs.gov/irm/part1/irm_01-002-001#idm140099600018288.

The IRS has practiced what it preaches in many other cases, treating returns that taxpayers give to IRS agents as “filed.” For example, in Estate of McClanahan v. Comm'r, 95 T.C. 98, 100-01 (1990), after the IRS informed a married couple that it lacked income-tax returns for the years 1977-1983, the IRS let the couple file the delinquent returns at a meeting with an IRS agent. Similarly, in Connor v. Comm'r, T.C. Memo 1977-121, at *3 (1977), after the IRS informed a taxpayer that it was investigating him for failure to file income taxes, the IRS accepted the taxpayer's delinquent returns for 1967-1971 after the taxpayer delivered those returns to an IRS agent.

Courts have recognized and enforced the IRS's practice. The court in In re Harold, 588 B.R. 484 (Bankr. E.D. Mich. 2018), “reject[ed] the argument of the IRS that a return can never be filed with a revenue officer” based on an IRS agent's testimony that “taxpayers sometimes did personally give her a return or mail it directly to her.” Id. at 493. And in Dingman v. Commissioner, 101 T.C.M. (CCH) 1562 (2011), the Tax Court held that a taxpayer had “filed” returns without sending them to the service center, because the returns were “received by an IRS office with authority to receive and process” them, and the IRS did so. Id. at *13. The Tax Court below confined Dingman to “hand-delivery of returns arising under the facts present in that case,” 1-ER14, but, as noted, Dingman reflects routine IRS practice.

Thus, when IRS agents asked Seaview to send them Seaview's return directly, the IRS's policies and practices provided that Seaview properly “filed” the returns at those times by complying with IRS agents' instructions.

D. The IRS's and Tax Court's Contrary Reasoning Lacks Merit

The Tax Court instead held that, despite repeatedly providing the IRS with the return that the IRS used to make $35 million in income adjustments, Seaview failed to “file” a return. By the Tax Court's reasoning, Seaview should have defied the IRS agents' instructions because Seaview could only start the IRS's three-year limitations clock by sending its returns to the IRS's Ogden service center. Under that perverse approach, even though Seaview sent its returns directly to IRS agents, the IRS can “assess[ ]” Seaview's tax liability “at any time” — even decades after the taxable year. 1-ER11-15. That interpretation would end-run the three-year limitations period and permit the IRS to mislead individuals and partnerships alike who submit delinquent returns by following IRS agents' instructions.

1. The Tax Court's holding rests on the false premise that 26 C.F.R. § 1.6031(a)-1(e) sets forth the exclusive means of filing all returns, including delinquent partnership returns. See 1-ER12-15. But, as noted, those regulations only prescribe procedures for taxpayers to follow to file returns before the filing deadline — not delinquent returns. And the regulations do not purport to override specific instructions from IRS agents about how to submit a return. Those regulations thus do not address how Seaview was supposed to file its 2001 return after the initial deadline passed and the IRS indicated that it had no record of Seaview's return. Supra pp. 6-7, 22-23.

Moreover, the notion that partnerships can only file delinquent returns at an IRS service center would make a hash of the tax regulations. Neither the IRS nor the Tax Court explained how Seaview could comply with the regulatory requirement of filing its return “on or before the fifteenth day of the fourth month following the close of the taxable year of the partnership” under 26 C.F.R. § 1.6031(a)-1(e)(2) once that date passed. And, under this interpretation of the regulations, the Internal Revenue Manual and many other IRS policies have been giving taxpayers unlawful advice for decades by telling taxpayers to give their delinquent returns to IRS agents. See infra pp. 33-35. Those IRS policies and procedures are strong evidence that the IRS's current litigating position is untenable.

2. The Tax Court relied on inapposite and unsound out-of-circuit authority for the proposition that “a revenue agent is not a designated filing place.” 1-ER13 (citing W.H. Hill Co. v. Comm'r, 64 F.2d 506 (6th Cir. 1933), Green v. Comm'r, T.C. Memo. 1993-152 (5th Cir. 1994), and Metals Ref., Ltd. v. Comm'r, T.C. Memo 1993-115 (1993)). None of those cases interprets the word “filed” as used in the Tax Code.

Rather, this line of cases rests on a pair of Sixth Circuit decisions that pre-date the relevant statutory framework and hark to a markedly different tax collection and assessment system. In W.H. Hill Co. v. Commissioner, the Sixth Circuit held that a taxpayer did not file its delinquent return by giving the return to the “commissioner” rather than the “collector,” reasoning that “there seems to us to be a radical difference between lodging a paper, designated a return, with the commissioner, and filing the same paper with the collector.” Id. at 507-08. O'Bryan Brothers v. Commissioner, 127 F.2d 645 (6th Cir. 1942), held that a company did not file its return by delivering it to an internal revenue agent conducting an audit because the law required “that returns shall be filed with the collector.” Id. at 647 (internal quotation marks omitted).

Those holdings do not translate to, much less control, today's statutory scheme. The Sixth Circuit's reasoning reflected peculiarities of the pre-1950 tax system. Collectors were the only officials who could properly receive and file returns, because they could “immediately enter[ ] [the amount of tax] upon the appropriate list” and “[make] collection . . . in due course,” whereas the IRS Commissioner lacked equivalent authority. W.H. Hill, 64 F.2d at 507; see Bryan T. Camp, Theory and Practice in Tax Administration, 29 Va. Tax Rev. 227, 241 (2009). But Congress abolished the collector position in the 1950s, and no modern-day equivalent exists. See Act of July 21, 1952, Pub. L. No. 82-594, 66 Stat. 818, 823. Today, sending a delinquent return to an IRS service center would just (circuitously) route the return to the IRS agent conducting an audit. Cf. IRS, Chief Counsel Advice No. 199933039.

The IRS's reliance on this caselaw is particularly odd because, if these cases governed, they would call the current tax regulations into question. If only “collectors” can receive returns, Treasury had no business promulgating regulations instructing taxpayers to file returns with service centers.

3. It defies credulity that the regulations compel taxpayers to file delinquent returns at the designated IRS service center when for decades the IRS has officially advised taxpayers otherwise. The IRS's failure to follow those internal procedures in this case raises serious due-process concerns that further undercut the IRS's and Tax Court's interpretation.

To start, the IRS has represented at every turn that it accepts, as filed, all delinquent returns that the IRS receives from taxpayers. The IRS's Policy Statement represents to taxpayers that “[a]ll delinquent returns submitted by a taxpayer, whether upon his/her own initiative or at the request of a Service representative, will be accepted.” IRS Policy Statement 5-133 (emphasis added). Likewise, the Internal Revenue Manual instructed IRS agents, upon discovering that the IRS lacked a record of a timely filed return, to “[a]dvise the taxpayer to deliver the returns promptly to the examiner” and to explain the delay. Internal Revenue Manual § 4.12.1.4.2 (emphasis added).

IRS Chief Counsel Advice further explains that “revenue officers in the performance of their assigned duties can request that taxpayers file their delinquent returns with the revenue officer instead of mailing the delinquent return to the applicable Service Center.” IRS, Chief Counsel Advice No. 199933039 (emphasis added). Citing “practical adverse consequences [that] may result if the taxpayer files with the Service Center rather than the revenue officer,” the Advice concluded: “[I]t is generally in the taxpayer's best interests to file the delinquent return directly with the revenue officer instead of mailing it to the appropriate Service Center.” Id. (emphasis added).

A leading practitioners' guide thus sums up the IRS's practice as follows: “The Service often accepts delinquent returns as filed.” Am. Bar Ass'n Section of Taxation, Effectively Representing Your Client Before the IRS, Ch. 14.1.5 (7th ed. 2018). Not only that: “One advantage to filing the delinquent returns directly with the Revenue Agent or Officer is that the Agent or Officer can choose to accept the returns as filed, eliminating the possibility of a later audit.” Id.

Moreover, the IRS reassures taxpayers that if they submit delinquent returns directly to IRS agents, the agents will forward a copy to the proper service center where taxpayers would have filed a timely return. Internal Revenue Manual §§ 4.4.9.5.14 (agents must “[f]orward . . . the copy of the return . . . to Case Processing Support”), 4.4.9.7.3 (Case Processing Support must send return to appropriate service center). Here, had the IRS agent complied with the Manual and forwarded Seaview's return, even the IRS could not dispute that Seaview would have filed its return long before 2010, making the IRS's assessment plainly untimely. “An innocent taxpayer should not be penalized because the [IRS] neglects to tell his right hand what his left is doing.” Crum v. Comm'r, 635 F.2d 895, 900 (D.C. Cir. 1980).

Given these longstanding policies, it is astonishing for the IRS to claim that the only way for taxpayers to file delinquent returns is to send the return to the service center. The upshot of that view is taxpayers err in complying with IRS agents' requests to send their delinquent returns directly to those agents. Surely, the IRS should not get to exploit its own failure to send those returns to the service center, then fault taxpayers for failing to send returns there. “[F]air dealing between the Government and a taxpayer would require the agent to whom the returns were improperly tendered for filing to advise the taxpayer as to the official and place where the returns should be filed.” Ardbern Co. v. Comm'r, 120 F.2d 424, 426 (4th Cir. 1941).

Further, the IRS ran roughshod over principles of fair notice, due process, and rational administrative action by encouraging reliance on the IRS's practices and procedures, then failing to follow them in order to belatedly pursue massive tax liability. “Where the rights of individuals are affected, it is incumbent upon agencies to follow their own procedures.” Morton v. Ruiz, 415 U.S. 199, 235 (1974); see generally United States ex rel. Accardi v. Shaughnessy, 347 U.S. 260 (1954). “An agency's failure to follow its own regulations tends to cause unjust discrimination and deny adequate notice.” Sameena Inc. v. U.S. Air Force, 147 F.3d 1148, 1153 (9th Cir. 1998) (internal quotation marks omitted).

This principle — the so-called Accardi doctrine — requires agencies to follow their internal manuals and guidance, not just formal regulations. While manuals and guidance may not be binding law, an agency's failure to follow its manuals and guidance denies adequate notice to people who have relied on these materials, contravening foundational procedural guarantees. Thus, “an administrative agency is required to adhere to its own internal operating procedures.” Church of Scientology v. United States, 920 F.2d 1481, 1487 (9th Cir. 1990); see Morton v. Ruiz, 415 U.S. 199, 235 (1974) (Bureau of Indian Affairs must comply with own internal procedures).

This Court accordingly has held the IRS to its internal documents in other cases, for instance holding that the IRS could not use evidence against a taxpayer that the IRS obtained in violation of the self-incrimination warnings that an Internal Revenue press release required IRS agents to give. United States v. Sourapas, 515 F.2d 295, 298 (9th Cir. 1975); cf. United States v. Caceres, 440 U.S. 741 (1979) (no due-process issue if IRS violated provision of its Manual that taxpayer did not rely on).

This is a textbook case for making the IRS play by its own rules. Given the IRS's strong statements telling taxpayers to send delinquent returns to IRS agents, the IRS can hardly claim that taxpayers should not rely on the IRS's policies. And allowing the IRS to disclaim its Manual, policy statements, and specific instructions promising to accept delinquent returns sent to IRS agents self-evidently prejudices taxpayers who face potentially mammoth, years-too-late assessments. Further favoring a remedy, holding the IRS accountable for violating its own rules would deter future violations of IRS policy for future taxpayers. Cf. United States v. Newell, 578 F.2d 827, 834-35 (9th Cir. 1978). The IRS should not be permitted to engage in this strategic behavior against millions of taxpayers within this circuit.

4. The IRS's and Tax Court's interpretation of what it means to “file” a return would also eviscerate section 6229's three-year limitations period. “The length of a limitations period reflects a value judgment concerning the point at which the interests in favor of protecting valid claims are outweighed by the interests in prohibiting the prosecution of stale ones.” Rotkiske v. Klemm, 140 S. Ct. 355, 361 (2019) (internal quotation marks omitted). There is no question the IRS made full use of the three years that Congress allotted for assessing tax liability. Yet, under the IRS's and Tax Court's interpretation, the three-year limitations period set by Congress for the IRS to assess tax liability still has not run, because Seaview has repeatedly sent its returns to IRS agents, but not to the IRS's Ogden, Utah service center. See 1-ER12-15.

If this Court blesses the IRS's misdirection in this case, the IRS could evade the limitations period with impunity. Indeed, the logic of the IRS's position dictates that the IRS could have waited until 2050 or 2150 to act. Congress gave the IRS only three years from the time of filing to ensure that the IRS had adequate time to process tax information, but also to prevent the IRS from surprising taxpayers by reopening dormant matters. United States v. Briggs, 592 U.S. ___, ___, 2020 WL 7250099 at *3 (2020) (recognizing that “one primary purpose of limitations statutes in the civil context is preventing surprises to defendants” (internal quotations and alterations omitted)).

Not only that, Congress provided that if the IRS needed an extension beyond that three-year period to finish its work, the IRS could obtain an extension — but only with the taxpayer's consent. See 26 U.S.C. § 6229(b) (2000). If the IRS wanted more time to examine Seaview's returns at any point during the course of its audit, the IRS could and should have asked for Seaview's consent to an extension. Allowing the IRS to declare at will that taxpayers who followed an IRS agent's instructions still have not “filed” would eviscerate the extension process and disregard its consent requirement. This Court should “enforce the value judgment[ ] made by Congress.” Rotkiske, 140 S. Ct. at 361.

II. Seaview Filed “Returns” in 2005 and 2007

The Tax Court alternatively adopted the IRS's flabbergasting contention that, even though Seaview repeatedly submitted its 2001 Form 1065 when the IRS requested Seaview's “return,” those submitted returns were not “returns” after all. What else they could be is a mystery. And this Court's precedent forecloses the IRS's and Tax Court's position that something is not a “return” simply because the taxpayer subjectively believes that it already filed a return.

1. This Court applies the four-part test from Beard v. Commissioner, 82 T.C. 766 (1984), to determine whether a document qualifies as a “return.” A “return” must (1) “purport to be a return”; (2) “be executed under penalty of perjury”; (3) “contain sufficient data to allow calculation of tax”; and (4) “represent an honest and reasonable attempt to satisfy the requirements of the tax law.” In re Hatton, 220 F.3d 1057, 1060-61 (9th Cir. 2000) (internal quotation marks omitted). The returns Seaview submitted to the IRS in September 2005 and July 2007 meet this test.

a. Seaview unambiguously purported to send the IRS “returns” in September 2005 and July 2007. In September 2005, IRS agents asked Seaview for a copy of its 2001 “return,” 2-ER211, and Seaview's accountant, Jeffrey Sedacca, responded by enclosing “the 2001 tax return for Seaview Trading LLC.” 2-ER220. Likewise, Seaview's counsel in July 2007 submitted to the IRS “a copy of the Seaview Trading, LLC's retained copy of its 2001 Form 1065” after a conversation with an IRS lawyer. 2-ER44. Those descriptions were accurate: the enclosures consisted of filled-out Form 1065s detailing Seaview's profits and losses for 2001. 2-ER45-52, 2-ER222-29. Seaview thus purported to submit a “return.” See In re Hindenlang, 164 F.3d 1029, 1034 (6th Cir. 1999).

Unsurprisingly, the IRS treated these submissions as “returns.” In November 2005, when summoning Mr. Sedacca for an interview, the IRS referred to “the filing of the original of the Form 1065[,] attached.” 2-ER199. In January 2006, the IRS acknowledged that Mr. Sedacca had “previously provided” Seaview's return to the IRS, and described the return as “the retained copy of the Form 1065 for Seaview Trading, LLC for 2001.” 2-ER161-64; see 2-ER119-26. In June 2007, the IRS again acknowledged that it had “obtained from Mr. Sedacca[ ] a Form 1065 prepared for Seaview Trading, LLC, for its tax year 2001.” 2-ER67. If these documents did not purport to be the “return” the IRS had requested, one wonders why the IRS repeatedly described them as such.

b. Seaview's Form 1065s were signed under penalty of perjury. 2-ER45, 2-ER222. It is irrelevant that Seaview submitted copies. There is no “wet-ink signature” requirement for a document to be a “return.” In re Harold, 588 B.R. at 494-95; see generally Zellerbach Paper Co. v. Helvering, 293 U.S. 172, 180 (1934). If any doubts existed about authenticity, the IRS removed them by authenticating Robert Kotick's signature during his June 7, 2007 interview. 2-ER68.

c. Seaview's submissions unquestionably contained sufficient data for the IRS to calculate tax liability, because that is how the IRS used these submissions. The IRS determined that Seaview could not claim a loss of $35,496,542 for 2001, i.e., the precise amount of loss that Seaview reported on line 22 of every single copy of Seaview's Form 1065. Compare 2-ER39, with 2-ER45, 2-ER222. And the IRS made clear that this number came directly from “the copy of the 2001 . . . tax return” that Seaview provided to the IRS, which the IRS characterized as “unfiled.” 2-ER39.

d. Seaview's submitted Form 1065s represented honest and reasonable attempts to satisfy the requirements of the tax law. “A taxpayer's state of mind is immaterial” to whether a return is reasonable. Fowler v. Comm'r, 155 T.C. No. 7, 2020 WL 5414861 at *3 (Sept. 9, 2020). Seaview's submissions plainly constituted an attempt to properly report income and deductions. The forms comprehensively detailed Seaview's income, assets, and deductions for 2001. The context of these submissions underscores the “honesty and reasonableness of the taxpayer's conduct.” In re Smith, 828 F.3d 1094, 1097 (9th Cir. 2016). In both 2005 and 2007, Seaview submitted copies of its return at the IRS's behest, to show that Seaview had prepared and filed its 2001 return, and to facilitate the IRS's audit.

To be sure, the IRS prepared a substitute return in April 2007. But that development raises questions about the IRS's conduct, not Seaview's. By then, the IRS had two copies of Seaview's return. If the IRS wanted to rely on a substitute return, the Internal Revenue Manual required IRS agents to inform Seaview that the forms Seaview had provided were not “returns.” Internal Revenue Manual § 4.12.1.13 (“When it has been determined that a taxpayer is liable for filing a return, and upon due notice from the Service fails to do so, a Substitute Return will be prepared by Examination.”) (emphasis added). Not only did the IRS never provide that notice; the IRS then did not rely on this substitute return. Instead, months after preparing the substitute return, the IRS inexplicably requested and received yet another copy of Seaview's return in July 2007, 2-ER44-52, then took no steps to adjust that return for more than three years.

If the IRS did not believe that Seaview's multiple submissions of its self-identified “returns” provided the IRS with sufficient information to determine Seaview's tax liability, the IRS's reliance on the “return provided by the taxpayer” for its Final Partnership Administrative Adjustment is dumbfounding. 2-ER39. That the IRS contended in the adjustment that the tax return was “unfiled” has nothing to do with whether the so-called “copy of the 2001 unfiled tax return” provided sufficient information — plainly it did. See In re Quezada, No. 19-51000, 2020 WL 7310680, at *4 (5th Cir. Dec. 11, 2020). Nor does the IRS's contention have anything to do with whether Seaview honestly and reasonably provided the return to assist the IRS — plainly it did. This Court and others have concluded that forms are not “returns” only in materially different circumstances, where taxpayers filed putative “returns” well after the IRS assessed tax liability and thus failed to ease the IRS's burdens in assessing liability. E.g., Smith, 828 F.3d at 1097; Hatton, 220 F.3d at 1061; In re Moroney, 352 F.3d 902, 906 (4th Cir. 2003).

In sum, Seaview's submissions of copies of its returns were “returns.” They purported to be Seaview's 2001 returns. They appeared on the exact forms the IRS requires for partnership returns. Robert Kotick, on Seaview's behalf, signed those submissions under penalty of perjury. They reported Seaview's profits and losses in detail. The IRS not only repeatedly referred to these submissions as Seaview's returns, but actually used them to make an official determination to pursue Seaview for additional tax liability.

2. The IRS and Tax Court embrace a perverse definition of a “return.” Even if the IRS asks for a copy of a “return,” receives that document, authenticates it, and uses it to make an official tax determination, that document is not a “return” if taxpayers subjectively believe that they already filed a return. Under that view, any later submissions do not count as a “return” — so the IRS can receive infinite copies of returns, yet assess tax liability unless and until the taxpayer abandons that good-faith belief. 1-ER16. That position flouts a wealth of precedent and encourages chicanery.

The taxpayer's subjective intent in submitting copies of a return does not convert a “return” into a legal nullity. This Court applies the Beard test, which focuses on whether a submitted document fulfilled “the purpose of a return,” that is, whether the IRS received the return “with such uniformity, completeness, and arrangement that the physical task of handling and verifying returns may be readily accomplished.” Hatton, 220 F.3d at 1061 (internal quotation marks omitted); see Florsheim Bros. Drygoods Co. v. United States, 280 U.S. 453, 462 (1930). What matters is whether the taxpayer made an objectively good-faith attempt to comply with the tax laws, not the taxpayer's subjective belief about the taxpayer's compliance with tax laws.

The Tax Court (at 1-ER15-16) relied on Friedmann v. Commissioner, 82 T.C.M. (CCH) 381 (2001), but that decision does not concern whether the documents were “returns.” There, a taxpayer sent an IRS agent copies of returns that the IRS had no record of receiving. Id. at *2. The Tax Court deemed these documents “returns,” but held that the taxpayer had not “filed” them because the taxpayer did not follow the IRS agent's instructions for filing. Id. at *3. Friedmann only underscores how severely the IRS departed from normal procedures here. Seaview followed the IRS's instructions, and the IRS used Seaview's submissions to make an official tax determination. Then the IRS claimed that Seaview had never filed, and even if a filing did occur, Seaview filed no “return.”

Further, the IRS's and the Tax Court's focus on subjective intent would put taxpayers in an impossible, and possibly unconstitutional, position. The IRS would force a taxpayer who believes that it already filed the return to recant that position for the new submission to count as a “return.” And by forcing the taxpayer to admit that the old submission did not count, the IRS would get to restart the three-year limitations period that runs from the filing date. The IRS could repeat the process by requesting additional copies of the return as the statute of limitations wound down from each prior request — effectively giving the IRS unbridled power to reset the limitations period. This Court should reject that abusive position.

CONCLUSION

For the foregoing reasons, the Court should reverse the Tax Court's judgment below and remand the case for entry of judgment in Seaview's favor.

LISA S. BLATT
SARAH M. HARRIS
J. MATTHEW RICE
KIMBERLY BROECKER
WILLIAMS & CONNOLLY LLP
725 Twelfth Street, N.W.
Washington, DC 20005
(202) 434-5000
(202) 434-5029 (fax)
lblatt@wc.com

DAVID W. FOSTER
ARMANDO GOMEZ
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
1440 New York Avenue, N.W.
Washington, DC 20005
(202) 371-7000
(202) 393-5760 (fax)

Attorneys for Petitioner-Appellant
Seaview Trading, LLC,
AGK Investments, LLC,
Tax Matters Partner

DATED: JANUARY 4, 2021

FOOTNOTES

1The relevant statutory and regulatory provisions are those in effect for taxable year 2001. The Bipartisan Budget Act of 2015, Pub. L. No. 114-74, 129 Stat. 584, amended many of the statutory provisions at issue, but those amendments apply only to tax years after December 31, 2017. Thus, the 2000 edition of the U.S. Code — the edition applicable during taxable year 2001 — contains the relevant statutory provisions.

2In response to a Freedom of Information Act request, the IRS provided a copy of its administrative file relating to the examination of Mr. Kotick's individual returns, which included this copy of Seaview's return. See 2-ER244-52.

END FOOTNOTES

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