When Does The Statute Of Limitations Begin If a Tax Return Was Not Previously Filed To an IRS Service Center?
The Ninth Circuit Panel ruled in May that providing a tax return to an IRS agent initiates the statute of limitations even if the tax return had not been previously filed according to IRS regulations. In the case Seaview Trading LLC v Commissioner, a dispute arose when 2001 income tax return could not be found by the IRS and was re-submitted twice by the partnership’s accountant. The case ultimately went to the Ninth Circuit Panel, who ruled in favor of Seaview Trading LLC and stated that the tax return submission was valid even though it had been submitted directly to an IRS agent rather than an IRS service center.
The Facts Of The Case
In 2005, the IRS sent Seaview Trading LLC a notice that they had no record of the filing of their 2001 income tax return. The company’s accountant responded with a copy of the return as well as a certified mail receipt demonstrating that the tax return had been filed on time. Shortly thereafter, the IRS began an examination of the business partnership and requested more documentation in 2007, which was sent to an IRS agent upon request. By 2010, the IRS issued a Final Partnership Administrative Adjustment. The statute of limitations for signing an FPAA is three years, but the IRS argued that the income tax return had never been filed in accordance with their regulations because it had been submitted directly to an agent rather than through the appropriate IRS service center, and therefore the statute of limitations had never started.
The Tax Court agreed with the IRS, indicating that Seaview Trading LLC had not complied with regulations because the return had been sent to an IRS agent and had not been filed with the designated IRS service center. However, when the case went to the Ninth Circuit, a split decision overruled the Tax Court. The Ninth Circuit found that the statute of limitations had expired because the return had been filed more than 3 years before the FPAA had been issued. The Court found that the copy of the return that had been provided to the IRS employee who requested it as part of their examination did, in fact, constitute a proper filing.
Definition Of Filing a Tax Return
Seaview Trading LLC v Commissioner relies on what constitutes the filing of a tax return. When the case went to the Ninth Circuit, the taxpayer never asked the Court to rule on whether the certified mail receipt was considered proof of filing, but instead took up the question of whether providing the second (or possibly third) copy of the tax return to the IRS agent constituted a filing. The Ninth Circuit issued a long statement with their split decision, which ruled against the IRS. Among their many statements, the majority ruling in the Circuit Court noted that the submission to the IRS was considered a filing and that IRS regulations regarding tax returns only apply to timely submissions. The Court noted that IRS documentation actually encourages returns to be filed with agents and other IRS employees.
What Should We Take From This Case?
Because the case has a very recent ruling, it remains to be seen whether the IRS will ask for a rehearing with a larger panel. However, at this time, the rule is binding in the Ninth Circuit.
There is a lack of clarity over why only certain questions were raised to the Ninth Circuit. However, perhaps the most relevant lesson to take from Seaview Trading LLC v Commissioner is that it may be in the best interest of taxpayers to mail copies of any requested tax returns to the IRS processing center and then provide a notice to any involved IRS agents that the return was filed to the service center – even if the agent specifically requests that the copy be sent to him or her directly.
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