December 23, 2007
10 Year Tax Collection Limitation Tolled During Bankruptcy per Tax Court Decision
Severo v. I.R.S., 129 T.C. No. 17 (U.S. Tax Court, November, 2007)
Issue: Is the 10 year statute of limitations for IRS collection tolled during a bankruptcy filing?
Holding: Yes, at least during the period the automatic stay protecting the debtor is in effect, i.e., until the discharge is entered, plus six months thereafter
The debtor owed income taxes for the year 1991 which were not discharged in his 1994 bankruptcy case, a chapter 11 later converted to chapter 7. “[B]ecause of the above automatic stay provided by the Bankruptcy Code, under subsections (b) and (h) of section 6503 the 10-year collection period of limitations relating to Federal taxes owed by a debtor in bankruptcy is suspended generally during part or all of a bankruptcy proceeding.”
“Section 6503(b) provides that the collection period of limitations is suspended for the period of time in which a taxpayer's assets are in the custody or control of any court plus an additional 6 months.”
“[S]ection 6503(h)(2) provides more specifically that the 10-year collection period of limitations on Federal income taxes also is suspended for the period of time that respondent is prevented from collecting taxes by reason of a pending bankruptcy proceeding, plus 6 months.”
The Tax Court ruled that 6503(h)(2) is not limited by 6503(b) because (h)(2) specifically refers to bankruptcy. The Tax Court also ruled that the tolling extended to post-petition assets acquired by the debtor since the IRS was prevented by the stay from proceeding against those assets, at least until the discharge was entered which terminates the stay as to the debtor.
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