Tax Practice & Procedure/October–November 2004
For Whom the Tax Tolls:
Signiﬁcant Events That
Extend IRS Collection Rights
Michael and Zachary Fried outline the events that
By can extend or toll statutes of limitation on IRS
Michael S. Fried collection actions and analyze the holding of the U.S.
Supreme Court in C.P. Young and subsequent IRS
Zachary S. Fried
Introduction the IRS is permitted to collect a
delinquent income tax or trust
The typical small business owner fund recovery penalty is 10 years
or professional walks into our of- from the date of its assessment.2
ﬁce owing delinquent taxes for a However, this 10-year collection
variety of different years. Often, the statute of limitations can be ex-
liabilities are a mixture of unpaid tended for additional periods by
personal income taxes, including a number of different events. For
penalties and interest, and trust example, the ﬁling of an offer-in-
fund recovery penalties, assessed compromise3 or bankruptcy,4 an
against the client in connection application for a Taxpayer Assis-
with the failure of his or her busi- tance Order,5 a taxpayer’s absence
ness to pay federal income taxes, from the country for more than six
Social Security and Medicare months,6 a voluntary waiver of the
taxes withheld from its employees’ statute of limitations,7 a Collection
wages.1 A number of solutions may due process appeal (appeal of the
be available to solve the problems, ﬁling of a lien ﬁled by the IRS pur-
and selecting the best strategy will suant to Code Section 63208 or a
often depend on the various dates
that the taxpayer’s tax returns
were due, when they were ﬁled Michael S. Fried is a Member of the
and when the delinquent taxes in law ﬁrm of Hodes, Ulman, Pessin,
question were assessed. & Katz, P.A., in Bethesda, Maryland,
and focuses his practice on IRS tax
Statute of Limitation controversy matters and the resolution
of delinquent tax liabilities.
Zachary S. Fried is a second-year law
Pursuant to Code Sec. 6502, the student at George Washington University
2004 M.S. Fried statutory period during which Law School in Washington, D.C.
IRS Collection Rights
proposed levy made pursuant to income tax liabilities. Although the bankruptcy filing18 (the
Code Section 63309) will all result slightly different timing rules ap- three-year look-back rule).
in extending the collection statute ply to the ability to discharge a 2. The return was filed more
of limitations, each for different tax in a Chapter 7 versus a Chap- than two years before the
extension, or tolling, periods. The ter 13 bankruptcy, the ability to bankruptcy filing19 (the two-
date on which the 10-year IRS col- discharge a tax in bankruptcy, year filing rule).
lection period ends, as extended and selection of the proper 3. The tax was actually assessed
by these various tolling events, is bankruptcy chapter, is primarily more than 240 days before
referred to as the collection stat- determined by four dates: the bankruptcy filing20 (the
ute expiration date (CSED). Many The date on which the taxpay- 240-day assessment rule).
times, particularly in connection er’s return was due for the year In a Chapter 13 case, only the
with the collection of a trust fund of the delinquent tax12 three-year look-back rule (tax
recovery penalty, the IRS will The date the taxpayer filed the return due date) and the 240-day
engage in aggressive collection applicable return13 assessment rule apply to deter-
activity close to the CSED.10 It is The date the tax was assessed mine if the tax can be discharged
important to note that trust fund by the IRS14 for less than full payment, not the
recovery penalties are not dis- The proximity of the foregoing two-year ﬁling rule (return ﬁling
chargeable in a bankruptcy,11 and three dates to the taxpayer’s date). In a Chapter 13 case, the
expiration of the collection statute bankruptcy case filing date taxpayer’s return for the applicable
of limitations will sometimes be These time requirements are tax year must have been due more
the only viable solution in con- found in the Bankruptcy Code.15 than three years before the bank-
nection with the client’s trust fund The bankruptcy discharge of a ruptcy ﬁling, and the tax to be
recovery penalty problem. personal income tax liability is discharged must not have been as-
governed by the sessed within the 240-day period
lapse of certain prior to the Chapter 13 case ﬁling;
time periods however, there is no requirement
[The] 10-year collection statute of measured from that any tax return has been ac-
limitations can be extended for additional the return due
taxpayer’s tually ﬁled, or that the tax was
assessed, before the bankruptcy
periods by a number of different events. date, ﬁling date ﬁling in order for the delinquent
or tax assess- tax to be eligible for discharge in
ment date, until a Chapter 13 case.
Discharge of Taxes the date of the taxpayer’s bank- There are two signiﬁcant advan-
ruptcy ﬁling. Thus, these periods tages of Chapter 13 in connection
in Bankruptcy can be thought of as three sepa- with a tax discharge case: (1) the
rate statute of limitations periods bad conduct rules do not apply,21
As opposed to the trust fund governing the ability to discharge and a tax can be discharged in a
recovery penalty, however, in- a delinquent tax in bankruptcy. Chapter 13 case even if the tax-
dividual income taxes are often Once these periods have expired, payer engaged in fraud or a willful
dischargeable in either a Chapter a delinquent tax will convert from attempt to evade payment of the
7 bankruptcy (sometimes referred a priority 16 (nondischargeable) tax; and (2) the two-year ﬁling rule
to as a “straight bankruptcy”) or a tax to a nonpriority (discharge- is not applicable. In Chapter 13,
Chapter 13 bankruptcy (an indi- able) tax that may be abated in the taxpayer’s return can be ﬁled
vidual payment plan bankruptcy), either a Chapter 7 or Chapter 13 at any time, e.g., the day before
or a combination of the two (the bankruptcy case. In Chapter 7, or even the day after, the taxpayer
serial ﬁling of a Chapter 7 and an income tax can be discharged ﬁles for Chapter 13 relief. There
a Chapter 13 is often called a (subject to certain bad conduct are only two timing requirements
“Chapter 20”). Use of these rules)17 if all of the following time to discharge a tax in Chapter 13:
bankruptcy “tools” will often be periods have expired: (1) the taxpayer’s return was due
the most efﬁcient, most predict- 1. The taxpayer’s return was more than three years prior to the
able and least costly alternative due (including all extensions) bankruptcy ﬁling; and (2) the tax
to solve or mitigate delinquent more than three years before was not assessed within the 240-
Tax Practice & Procedure/October–November 2004
day window prior to the Chapter to solve delinquent tax problems. 1993. However, Dr. Delinquent,
13 ﬁling. The 240-day assessment The remainder of this article will like most taxpayers facing IRS
rule will be satisﬁed if the tax to focus on these limitation periods collection pressure, suffered
be discharged was assessed either and the most signiﬁcant events from a lack of clarity concerning
more than 240 days prior to the that toll their expiration. the ﬁling and assessment of the
bankruptcy or the assessment taxes in question and could not
occurred after the bankruptcy accurately remember prior actions
case was filed. In either case, Hypothetical Client taken personally and through his
assessment occurred outside of Recently, Dr. Ron Delinquent, a advisors to solve his tax problems.
the window beginning 240 days prominent local ophthalmolo- Accordingly, our ﬁrst step was to
before the bankruptcy ﬁling and gist, was referred to our ofﬁce in obtain tax transcripts for all years
ending on the date of the ﬁling. connection with IRS collection ac- and all taxes owed.
Akin to the statute of limitations tivity for taxes owed for the period Examination of the client’s tax
for collection, the taxpayer’s right 1987 to 2000. After 2000, Dr. De- transcripts revealed the follow-
to discharge a tax in bankruptcy, linquent, in his inﬁnite wisdom, ing facts:
whether in a Chapter 7 or Chap- sua sponte spontaneously began The pending trust fund taxes
ter 13 case, and the IRS’s right to to ﬁle returns and pay taxes in were assessed on July 15,
continue collection of a tax after a timely manner. At the time of 1989, and the outstanding
bankruptcy, are governed by the our ﬁrst meeting on September balance of these taxes totaled
lapse of time; the running of these 15, 2004, Dr. Delinquent’s tax $100,000 at the time the
bankruptcy discharge time peri- obligations totaled $1.5 million, transcripts were prepared by
ods can be extended, or tolled, including income tax liabilities the IRS.
by many of the same events that for all years 1987 through 2000, The other delinquency bal-
toll the running of the collection and trust fund recovery penalties ance of $1.4 million was for
statute of limitations. For example, (“trust fund taxes”) assessed in income tax liabilities for the
a prior bankruptcy stops the clock, 1989 as the result of the failure of years 1987 to 2000.
or tolls, the running of the two-year his professional corporation to pay On May 1, 1994, the client
filing and three-year look back taxes withheld from employees’ filed a bankruptcy case that
periods22; an offer in compromise salaries. At the time of our meet- was not terminated until June
will often, but not always, toll the ing, Dr. Delinquent’s personal 24, 1997.
running of the 240-day assess- bank account had been levied by On December 9, 1998, the
ment period23; and the collection the IRS, and he was having trouble client filed an offer in compro-
due process appeal of a proposed making his mortgage payments. mise for the trust fund taxes
assessment will toll the commence- Obtaining accurate information and all other taxes owed for
ment, and hence, the running of the about the timing of the various as- 1987 through 1997.
240-day period.24 sessments, return ﬁling and due The taxpayer’s offer in compro-
Substantial amount of litigation dates, and the intermittent activity mise was not rejected by the
and attention has recently been of the client intended to amelio- IRS until December 9, 2003,
focused on the events that toll rate IRS collection procedures five years after it was filed.
or extend these bankruptcy time was crucial to determining the Dr. Delinquent filed his 1999
periods, and often, the results have best strategy to solve the client’s and 2000 tax returns on March
been favorable to the taxpayer.25 problems. Since Dr. Delinquent 15, 2002.
However, the various time and “recalled” that the trust fund On April 29, 2002, the IRS as-
limitation periods controlling the taxes were assessed against him sessed a liability of $10,000
collection statute expiration date in 1988, it appeared that the col- for 1999 and a liability of
and the ability to discharge a tax in lection statute of limitations had $25,000 for 2000.
bankruptcy, and the possible oc- expired for the trust fund taxes. It The transcripts contained no
currence of events that may toll also appeared that the collection indication of any civil fraud
the running of these limitation statute of limitations would bar penalty or problem.
periods, are among the most im- collection of the taxpayer’s income Remarkably, Dr. Delinquent had
portant considerations in planning tax liabilities for the delinquencies very little recollection of the events
for and implementing strategies attributable to tax years 1987 to shown on his the transcripts.
IRS Collection Rights
1997. The offer in compromise discharging the nontrust fund
Collection was not terminated until Decem- tax liabilities in a Chapter 7 or
Statute Expiration ber 9, 2003, exactly ﬁve years, or 13 bankruptcy, or a combination
1,825 days later. The collection of the two. This strategy required
It was apparent from an examina- statute of limitations for all liabili- that we examine the impact of
tion of the tax transcripts that the ties covered by Dr. Delinquent’s the taxpayer’s various activities
collection statute of limitations offer in compromise was tolled for on the running of the applicable
had not expired for either the trust the entire 1,825-day period of the bankruptcy discharge time
fund taxes or for any of the other offer, plus an additional 30 days periods—the three-year look
delinquent tax liabilities. Although thereafter.28 As a result of the tax- back period, the two-year ﬁling
the trust fund taxes were assessed payer’s serial bankruptcy and offer period and the 240-day assess-
on July 15, 1989, two signiﬁcant in compromise ﬁlings, the origi- ment period.
events resulted in extending the nal July 15, 1999, trust fund tax
collection statute expiration date collection statute expiration date
for the 1989 trust fund taxes to was extended for 3,005 days (from 1998, 1999 and
October 8, 2007. Likewise, the July 15, 1999, to August 8, 2007). 2000 Tax Liabilities
collection statute of limitations The collection statute expiration
date for the non- We began by examining the bank-
dischargeable ruptcy timing rules in connection
trust fund taxes with the client’s 1998, 1999 and
Substantial amount of litigation remained more 2000 tax liabilities. The 1998 tax
and attention has recently been focused than the future.
three years return was ﬁled on October 15,
1999, and the tax owed for this
on the events that toll or extend The extended period was nominal. The 1999
these bankruptcy time periods, and often, tolling of the and 2000 tax returns were ﬁled
the results have been favorable collection stat- on March 15, 2002, and on April
ute expiration 29, 2002, the taxpayer was as-
to the taxpayer. date caused by sessed a liability of $10,000 for
the taxpayer’s 1999, and a liability of $25,000
consecutive for 2000. The taxpayer’s liabili-
for Dr. Delinquent’s other tax bankruptcy and offer in compro- ties for 1998, 1999 and 2000
liabilities was extended for a sig- mise applied to almost all of the were not included in his recently
niﬁcant time period by the same delinquent tax liabilities. terminated offer in compromise.
two events. Since an offer in compromise only
Dr. Delinquent’s 1994 bankrupt- tolls the bankruptcy time periods
cy case was ﬁled on May 1, 1994,
Bankruptcy for the taxes included in it,29 the
and terminated on June 24, 1997, Solutions and three-year look back, the two-year
a total of 1,150 days. During the
entire 1,150-day bankruptcy case,
Tolling Issues ﬁling and the 240-day assessment
periods were not tolled for Dr.
the clock stopped on the running As a result of the August 8, 2007, Delinquent’s 1998, 1999 and
of the collection statute of limita- collection statute expiration date 2000 tax liabilities (despite the
tions for all delinquent taxes owed for the nondischargeable (inﬁ- fact that the offer in compromise
by the taxpayer. It is now settled
nitely “priority”) trust fund taxes for his other tax liabilities was still
law that a bankruptcy tolls the col- (and most of his other tax liabili- pending when the 1998, 1999 and
lection statute of limitations for the ties) it was necessary to devise a 2000 taxes were assessed).
full period of the bankruptcy, but strategy enabling Dr. Delinquent Since the taxpayer’s 1998, 1999
for no additional period. In ad-
to apply his limited resources to and 2000 tax liabilities were as-
dition to his bankruptcy, the client payment of the trust fund tax, sessed after the client’s bankruptcy
ﬁled an offer in compromise on while substantially reducing or was terminated in 1997 and none
December 9, 1998, covering the eliminating his other tax liabili- were included in his December
trust fund taxes and all income ties. Accordingly, we turned our 1998 offer in compromise, no
taxes owed for 1987 through attention to the possibility of tolling events applied to the tax
Tax Practice & Procedure/October–November 2004
liabilities for those years. Accord- tax liability was assessed more was assessed on November 30,
ingly, it seemed as if a straight than 240 days earlier, satisfying 1998. All of these events occurred
forward calculation of the three- the 240-day assessment rule. after, and were unaffected by, the
year look back (return due date), However, compliance with the client’s previous bankruptcy case.
the two-year ﬁling and the 240- three-year look-back rule was However, assessment of the 1997
day assessment periods would questionable. The taxpayer’s re- tax liability occurred before De-
provide the answer to whether the quest to extend the due date of cember 9, 1998, and the 1997 tax
1998, 1999 and 2000 tax liabili- his 2000 tax return from April liability was included in Dr. Delin-
ties were eligible for Chapter 7 or 15, 2001, to October 15, 2001, quent’s offer in compromise. Did
Chapter 13 discharge. We were was denied by the IRS. Therefore, the offer in compromise toll any
correct about our assumptions we were hopeful that the original of the three bankruptcy discharge
concerning the 1998 and 1999 April 15, 2001, due date would time periods for this tax year?
tax liabilities, but wrong about apply to our calculation and that
the year 2000 assumptions. the taxpayer’s liability for 2000
Examining the three bankruptcy would qualify for discharge un- Two Hundred
time periods in connection with der the three-year look back rule. and Forty–Day
the taxpayer’s 1998 and 1999 However, in reviewing case law,
liabilities proved simple. Taking we discovered a problem. Al-
into account all ﬁling extensions, though the taxpayer’s extension
the tax returns for 1998 and 1999 request was denied by the IRS, Although tolling of the 240-day
were both due more than three the cases indicated that taxpay- period is unsettled if an offer in
years ago, satisfying the three-year ers cannot rely on the original due compromise is made prior to the
look-back period. Additionally, the date for their tax return, April 15, start of the 240-day assessment
tax returns for these two years were but rather must use the extended period,31 Bankruptcy Code Sec-
both ﬁled more than two years due date shown in their exten- tion 507(a)(8)(A)(ii)32 requires that
ago, and the taxes for these years sion requests (even if denied by an offer in compromise stops the
were both assessed more than the IRS) for purposes of calcu- clock on the running of the 240-
240 days ago. Thus, the three- lating the three-year look back day assessment period if the offer
year look-back period, two-year period. 30 Since our client had in compromise is made during the
ﬁling period and 240-day assess- requested an extension of the 240-day period. In the case of Dr.
ment period had all expired for Dr. due date for his 2000 tax return Delinquent’s 1997 tax liability, as-
Delinquent’s 1998 and 1999 tax to October 15, 2001, the expira- sessment of the 1997 tax liability
liabilities, making them eligible tion of the three-year look back and commencement of the 240-
for discharge in a Chapter 7 or period in connection with his day assessment period occurred
Chapter 13 bankruptcy. 2000 tax return would not occur just nine days prior to the day the
However, the pending 2000 until October 15, 2004, a date re- taxpayer’s offer in compromise
liability was a bit more trouble- maining one month in the future. was accepted for processing by
some. The client wanted us to For the next 30 days, this problem the IRS. Pursuant to Bankruptcy
ﬁle a bankruptcy immediately to would disqualify Dr. Delinquent’s Code Section 507(a)(8)(A)(ii), the
release the levy on his bank ac- 2000 tax liability from discharge 240-day assessment period was
count and end other aggressive in either a Chapter 7 or Chapter tolled for the entire time the offer
IRS collection activity. Although 13 bankruptcy. was pending, and did not again
we were sure that the 240-day begin running until the offer in
assessment and two-year ﬁling compromise was rejected on De-
periods had expired, we were 1997 Tax Liability cember 9, 2003.
concerned about the three-year Working backwards, we turned Fortunately, by September 15,
look-back period applicable to our attention to the discharge- 2004, the date of our ﬁrst ap-
both a Chapter 7 and a Chapter ability of the taxpayer’s $100,000 pointment with Dr. Delinquent,
13 discharge. The 2000 tax return 1997 income tax liability. The 258 days had expired since the
was ﬁled more than two years 1997 tax return was ﬁled on Oc- December 9, 2003, offer rejec-
ago, thereby satisfying the two- tober 15, 1998, the last available tion date. Despite the tolling
year ﬁling rule, and the related due date for ﬁling, and related tax effect of the offer in compromise,
IRS Collection Rights
the 240-day assessment period after his prior bankruptcy was the IRS is prohibited from engag-
for the taxpayer’s 1997 liability terminated, and this prior bank- ing in collection activity once an
had already expired. Addition- ruptcy did not affect the expiration offer in compromise is accepted
ally, since termination of the of the two-year or three-year time for processing.34 Accordingly, after
offer in compromise occurred periods for this tax year. However, December 31, 1999, commenta-
more than 240 days ago, the the 1997 tax liability was included tors have suggested that the IRS
240-day assessment period had in the taxpayer’s offer in compro- may seek to impose an equitable
expired for all of the taxpayer’s mise. If the offer in compromise tolling period on the running of
pre-1997 tax liabilities. tolled the running of the three- the three-year look back period
year look back and two-year ﬁling and the two-year filing period
periods, Dr. Delinquent’s 1997 during the pendency of an offer
Application of tax liability would not qualify for in compromise.35
Three-Year Look discharge under either Chapter Before January 28, 2004, the IRS
7 or 13. Since the due date and provided no meaningful guidance
Back Rule and ﬁling date for the 1997 tax pre- on its position concerning the ef-
Two-Year Filing ceded the commencement of the fect of an offer in compromise on
offer in compromise by 55 days, the running of the three-year look-
Rule to 1997 Tax and the offer in compromise was back or two-year ﬁling periods.
Although we determined that terminated for only 258 days by The Supreme Court, in the case
the 240-day assessment period the date of our ﬁrst appointment of C.P. Young, held that a prior
expired in connection with the with the client, the three-year look bankruptcy always tolls the three-
1997 tax liability, it remained nec- back and two-year ﬁling periods year look-back period during the
essary to determine whether the would be 313 days old if tolled time of overlap.36 Although Young
1997 tax liability qualiﬁed for dis- during the pendency of the offer in was decided in connection with
charge pursuant to the three-year compromise, far short of the ages the affect of a prior bankruptcy
look back and the two-year ﬁling necessary to qualify for either a on the three-year look-back pe-
rules. The taxpayer’s 1997 tax re- Chapter 7 or 13 discharge. riod, not an offer in compromise,
turn was due and ﬁled on October some commentators felt that the
15, 1998, more than three years Young opinion would encourage
ago. Therefore, unless a tolling LTR 200404049 the IRS to assert that the rationale
event stopped the running of the of Young applied to the three-year
three-year look back period or the Prior to the IRS Restructuring look-back period and the two-
two-year ﬁling period, the 1997 & Reform Act of 199833 (RRA), year ﬁling period during an offer
the IRS was in compromise, and that both of
not prohibited these time periods must be tolled
from pursuing during an offer’s pendency.
Prior to Young, a majority of courts held collection activ- Notwithstanding Young,
that a prior bankruptcy tolled the running ity duringofthe
on January 5, 2004, the IRS
Chief Counsel issued CCA
of the three-year look back period offer in com- 200404049,37 concluding that an
during the overlap of the look back period promise. Hence, offer in compromise does not toll
and the bankruptcy, plus an additional under pre-RRA the three-year look-back period.
law, there was Although limited to the three-year
six months thereafter. no statutory or look-back period, the rationale of
equitable basis the CCA also applies to the two-
for tolling the year ﬁling period. Essentially, the
tax would qualify for discharge three-year look back period or the IRS determined that equitable
under all timing criteria necessary two-year ﬁling period during the tolling of the three-year look-
for either a Chapter 7 or Chapter pendency of an offer in compro- back period is inconsistent with
13 discharge. mise. However, the RRA changed the text of applicable Bankruptcy
As previously described, the the landscape. Pursuant to the Code provisions. Furthermore,
taxpayer’s 1997 tax liability arose RRA, after December 31, 1999, the IRS concluded that an asser-
Tax Practice & Procedure/October–November 2004
tion of equitable tolling would not in the 1998 offer in compromise. time to the two-year ﬁling period
be upheld by the courts because Prior to Young, a majority of or the three-year look-back period
the IRS retained the ability to courts held that a prior bank- for the period of the taxpayer’s
protect its claims during an offer ruptcy tolled the running of the offer in compromise pursuant to
in compromise by ﬁling a notice three-year look-back period dur- CCA 200404049. Based on our
of federal tax lien, using its right ing the overlap of the look-back analysis, we concluded that all
of setoff against an overpayment, period and the bankruptcy, plus pending 1987–1996 income tax
and asserting levy rights in a jeop- an additional six months there- liabilities (other than the trust
ardy situation. after.38 In Young, the court held fund taxes) qualiﬁed for discharge
that the three-year look-back pe- under all three timing rules—the
riod of Bankruptcy Code Section three-year look-back rule, the
Application to 1997 507(a)(8)(A)(i)39 is a limitations two-year ﬁling rule and the 240-
Tax Liability period subject to equitable toll- day assessment rule.
ing, and that equitable tolling We advised our client of our
After reviewing CCA 200404049, always applies when the IRS has opinion and, of course, we
we concluded that the three-year been prevented by a prior bank- added the caveat that the law
look-back and two-year ﬁling pe- ruptcy from collecting. Therefore, on the tolling of the three-year
riods related to our client’s 1997 the Court ruled that the three-year look-back and two-year filing
tax liability were not subject to look-back period of Bankruptcy periods during an offer in com-
any tolling period during the Code Section 507(a)(8)(A)(i) is promise remains unsettled, and
pendency of the offer in compro- always tolled during the pen- that risk remains that the IRS or
mise, and that these periods had dency of a bankruptcy. Applying the courts could reach a different
expired. Therefore, it was our the rationale of Young, the IRS conclusion in the future. If tolling
judgment that this liability is eli- announced in a chief counsel no- were applied to these time peri-
gible for discharge in a bankruptcy tice40 that it would no longer take ods during the taxpayer’s offer in
case. We conveyed this opinion to the position that an additional compromise, in addition to the
our client with the caveat that the six months must be added to the tolling time for his bankruptcy
law on the issue is not settled, and tolling period of Bankruptcy Code period, many of the 1987–1996
that a risk remains that the IRS or Section 507(a)(8)(A)(i), stating, “In tax liabilities for 1987–1996
the courts could reach an opposite light of the rationale of Young, the would not qualify under either
conclusion in the future. three-year look back period of the three-year look-back rule or
B.C. §507(a)(8)(A)(i) should not the two-year ﬁling rule.
be computed by including an
1987 to 1996 additional six months, based on
Tax Liabilities I.R.C. § 6503(h).” Equitable toll- Conclusion
ing would be applied only during Relying on our conclusions, we
After concluding that the client’s the bankruptcy and not for any recommended the following strat-
1997 tax liability is eligible for additional time thereafter. egy to Dr. Delinquent:
Chapter 7 or Chapter 13 dis- Although Young and the chief File a Chapter 7 bankruptcy
charge, while acknowledging counsel notice were limited to on October 16, 2004, seek-
the still unsettled law concerning the three-year look-back period, it ing to discharge all of the
the tolling effect of an offer in was our conclusion that the ratio- client’s nontrust fund tax
compromise, we applied the prin- nale contained in Young and the liabilities.
ciples of the Young case and CCA chief counsel notice also applies After receiving the Chapter
200404049 to our evaluation of in the same way to the two-year 7 discharge, file a Chapter
the eligibility of Dr. Delinquent’s ﬁling period. Accordingly, we cal- 13 case seeking to pay the
1987–1996 tax liabilities for bank- culated both of these time periods remaining $100,000 trust
ruptcy discharge. IRS collection of for the 1987–1996 liabilities by fund tax liability in a five-year
all the 1987–1996 tax liabilities tolling them during the taxpayer’s Chapter 13 Plan.
was stayed during the client’s bankruptcy but did not add any The client accepted our rec-
1994–1997 bankruptcy, and all additional tolling time thereafter. ommendations, and we are
of these liabilities were included Neither did we add any tolling currently preparing a Chapter
IRS Collection Rights
7 bankruptcy to be ﬁled on the strategy will reduce our client’s ment of the remaining $100,000
appropriate date. It is our expec- tax liabilities by approximately trust fund tax liability during his
tation that implementation of our 95 percent, and provide for pay- Chapter 13 case.
1 §1; see also note 3, supra, at §3:9. 26
Code Sec. 6672(a) provides, “Any person Young, supra note 22.
required to collect, truthfully account for, Code Sec. 6503(c). Id.; see also Chief Counsel Notice CC-
and pay over any tax imposed by this title Code Sec. 6502(a)(2)(A). 20020023, supra note 22.
who willfully fails to collect such tax, or See note 3, supra, at §3:24. Code Sec. 6331(k); see note 3, supra, at §3:9.
truthfully account for and pay over such Id. KING, supra note 5, at 1.8(c).
tax, or willfully attempts in any manner to See note 3, supra, at §3:12. B.D. Hermann, BC-DC Okla., 221 BR 944,
evade or defeat any such tax or payment 11 USC §523(a)(1)(A); 11 USC BANKR. L. REP. ¶77,758 (1998); J. Brustman,
thereof, shall, in addition to all other penal- §507(a)(8)(C). BC-DC Calif., 217 BR 828 (1997). Aff’d,
ties provided by law, be liable to a penalty 11 USC §507(a)(8)(A)(i). BAP-9, 99-1 USTC ¶50,348.
equal to the total amount evaded or not col- 11 USC §523(a)(1)(B). See G.E. Aberl, CA-6, 96-1 USTC ¶50,151,
lected, or not accounted for and paid over.” 11 USC §507(a)(8)(A)(ii). 78 F3d 241.
Code Sec. 7501(a) provides, “Whenever any 11 USC §§507(a)(8)(A)(i), 523(a)(1)(B) and 11 USC §507(a)(8)(A)(ii).
person required to collect or withhold any IRS Restructuring and Reform Act of 1998
internal revenue tax from any person and 11 USC §§507(a)(8)(A)(i) and (ii), (P.L. 105-206).
to pay over such tax to the United States, Code Sec. 6331(k).
the amount of tax so collected or withheld 11 USC §523(a)(1)(C). The authors have attended a number of
shall be a special fund in trust for the United 11 USC §507(a)(8)(A)(i). conferences and seminars in which the
States. The amount of such fund shall be 11 USC §523(a)(1)(B). Supreme Court Young decision has been
assessed, collected, and paid in the same 11 USC §507(a)(8)(A)(ii). discussed. Many of the commentators
manner and subject to the same provisions 11 USC §523 (Exceptions to Discharge) does and participants at these conferences and
and limitations (including penalties) as are not apply in Chapter 13 because 11 USC seminars have reached different conclusions
applicable with respect to the taxes from §1328, governing discharge in a Chapter concerning the application of equitable toll-
which such fund arose.” 13 case, does not except from discharge ing principles to the three-year look-back
2 any taxes under 11 USC §523. Therefore,
Code Sec. 6502(a)(1). Prior to 1990, the period and the two-year ﬁling period taking
statute of limitations for collection was six the ﬁling of a fraudulent return or a willful into account the suspension of the IRS right
years from the date of assessment, plus such attempt to evade or defeat a tax exceptions to levy during an offer in compromise.
to discharge found in 11 USC §523 does not 36
suspended, extended or postponed period Young, supra note 22.
apply to Chapter 13. 37
of time as, by law, may be applicable. The CCA 200404049, supra note 25.
Revenue Reconciliation Act of 1990 (P.L. C.P. Young, SCt, 2002-1 USTC ¶50,257, 535 See W.J. Zecco, BC-DC Mass., 97-2 USTC
101-508) extended the collection period to US 43, 122 SCt 1036; IRS Chief Counsel ¶50,910, 211 BR 109; L. Tibaldo, BC-DC
10 years. Notice, CC-2002-023, May 9, 2002. Calif., 187 BR 673 (1995); D.L. Brickley,
Code Sec. 6331(k); see Robert E. McKenzie, 11 USC §507(a)(8)(A)(ii). BAP-9, 87-1 USTC ¶9313, 70 BR 113, BANKR.
REPRESENTATION BEFORE THE COLLECTION DIVISION See note 3, supra, at §3:24. L. REP. ¶71,703.
OF THE IRS (updated March 2004), at §3:9. See CCA 200404049, Jan. 5, 2004; Chief 11 USC §507(a)(8)(A)(i).
4 Counsel Notice CC-20020023, supra note 40
Code Sec. 6503(b). Chief Counsel Notice CC-20020023, supra
5 22; see also Young, supra note 22.
Code Sec. 7811; see MORGAN D. KING, DIS- note 22.
CHARGING TAXES IN BANKRUPTCY (2000 ed.), at
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