The following is an excerpt from:

"For Whom the Tax Tolls: Significant Events That Extend IRS Collection Rights"

Published in Tax Practice & Procedure - October/November 2004

By Michael S. Fried and Zachary S. Fried

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Collection Statute Expiration

It was apparent from an examination of the tax transcripts that the collection statute of limitations had not expired for either the trust fund taxes or for any of the other delinquent tax liabilities. Although the trust fund taxes were assessed on July 15, 1989, two significant events resulted in extending the collection statute expiration date for the 1989 trust fund taxes to October 8, 2007. Likewise, the collection statute of limitations for Dr. Delinquent's other tax liabilities was extended for a significant time period by the same two events.

Dr. Delinquent's 1994 bankruptcy case was file on May 1, 1994, and terminated on June 24, 1997, a total of 1,150 days. During the entire 1,150-day bankruptcy case, the clock stopped on the running of the collection statute of limitations for all delinquent taxes owed by the taxpayer. It is now settled law that a bankruptcy tolls the collection statute of limitations for the full period of the bankruptcy, but for no additional period. In addition to his bankruptcy, the client file an offer in compromise on December 9, 1998, covering the trust fund taxes and all income taxes owed for 1987 through 1997. The offer in compromise was not terminated until December 9, 2003, exactly five years, or 1,825 days later. The collection statute of limitations for all liabilities covered by Dr. Delinquent's offer in compromise was tolled for the entire 1,825-day period of the offer, plus an additional 30 days thereafter. As a result of the taxpayer's serial bankruptcy and offer in compromise filings, the original July 15, 1999, trust fund tax collection statute expiration date was extended for 3,005 days (from July 15, 1999, to August 8, 2007). The collection statute expiration date for the nondischargeable trust fund taxes remained more than three years into the future. The extended tolling of the collection statute expiration date caused by the taxpayer's consecutive bankruptcy and offer in compromise applied to almost all of the delinquent tax liabilities.

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