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10 Year Tax Collection Limit Tolled by Bankruptcy
This is a Tax Court case.
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
Judge Swift
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. "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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