(509) 455-8173

601 W 1st Ave,
Suite 1000
Spokane, WA 99201

Ninth Circuit reverses IRS win in $35 million partnership adjustment

TAX ALERT | November 28, 2022

Authored by RSM US LLP

Update – Nov. 28, 2022

On Nov. 10, 2022, the U.S. Court of Appeals for the Ninth Circuit vacated the opinion discussed below and ordered that the case be reheard by all the active judges of the court.  While it is possible that the full court will reach the same conclusion as the three-judge panel, at least for now a majority of the judges voted that the case merited a full review and possibly a different result.

Original – May 23, 2022:

A three-judge panel for the U.S. Court of Appeals for the Ninth Circuit recently reversed the U.S. Tax Court and held that a delinquent partnership return is filed when an authorized IRS official asks for and receives the return from the taxpayer. Seaview Trading, LLC v. Comm'r of Internal Revenue, No. 20-72416 (9th Cir.)

The majority partner of Seaview Trading, LLC learned during an individual audit that the IRS had no record of the partnership filing a return for 2001. The partner initially provided an unsigned copy of the partnership return with proof of mailing the original, but without proof that the IRS received it. Later, and in response to an IRS auditor’s request, the partnership’s accountant faxed a signed copy of the partnership tax return to the IRS auditor in 2005, who acknowledged receipt of the signed copy. Shortly thereafter, the IRS auditor informed the partnership that it was selected for a partnership examination for the 2001 tax year. In 2010, more than three years after the partner faxed a copy of the signed return to the IRS auditor who requested it, the IRS issued a Final Partnership Administrative Adjustment (FPAA) disallowing a $35 million partnership loss. The IRS maintained that the 2010 administrative adjustment was timely, because the taxpayer had not met the technical filing requirements of section 6229(a) which required the taxpayer to mail the return to the IRS Ogden processing center before April 15, 2002. 

The Tax Court agreed with the IRS. It ruled that the IRS timely issued the FPAA because Seaview never properly filed a tax return for 2001. The court reasoned that a taxpayer provided signed copy in 2005 did not constitute filing and therefore the 3-year assessment statute never began. In fact, the Tax Court additionally opined that the copy did not even qualify as a return as defined by Beard v. Commissioner, 82 T.C. 766, 777 (1984)

On Appeal, the taxpayer in Seaview argued that the 3-year limitations period began when the IRS examiner received the requested return. The IRS argued that the statute of limitations never started running because the 2001 tax return was never properly filed under section 6229(a), which provides for timely filing at the appropriate service center. The Court noted that the IRS regulation only applied to timely filed returns as to the filing location and was therefore not constrained by the regulation’s definition of what constituted a “filed return” in the case of delinquent return. The Court turned to the ordinary meaning of the word ‘filing’ and other IRS practices regarding processing delinquent returns such as the Internal Revenue Manual (IRM) and the Chief Counsel Advice (CCA) Memoranda. These sources instructed IRS personnel how to request, accept and process delinquent returns when a taxpayer is under examination. 

In reversing the Tax Court, the Court of Appeals held that (1) when an IRS official authorized to obtain and receive delinquent tax returns informs a partnership that a tax return is missing and requests that tax return, and (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, then the partnership has ‘filed’ a tax return for purposes of section 6229(a). Consequently, the IRS issued an untimely FPAA because 3-year statute began to run when the taxpayer filed the return in 2005.

The panel of judges deciding this case was split, two to one. A Ninth Circuit judge wrote the opinion, and he was joined by a District Court judge from another circuit sitting by designation. The dissent in this case provided a well-reasoned opinion defending the Tax Court’s decision in favor of the government. The large adjustment at issue in this case ($35 million) and the split between the two judges of the Ninth Circuit could increase the likelihood that the government will request a rehearing by the full panel of Ninth Circuit judges. The government has 45 days to request such a rehearing.


Taxpayers are again reminded of the importance of record keeping. It is essential that taxpayers create and maintain proof of all correspondence with the IRS. Moreover, taxpayers should insist on obtaining proof of receipt the IRS through authorized private delivery service tracking or U.S. certified mail with return receipt. 

Let's Talk!

Call us at (509) 455-8173 or fill out the form below and we'll contact you to discuss your specific situation.

  • Topic Name:
  • Should be Empty:

This article was written by Alina Solodchikova, Evan Stone, John Cardone, Kimberly Thomas and originally appeared on Nov 28, 2022.
2022 RSM US LLP. All rights reserved.

The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.

HMA CPA is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.

Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.

For more information on how HMA CPA can assist you, please call (509) 455-8173.