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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Application of Three-Year Look Back Rule and Two-Year Filing Rule to 1997 Tax

Although we determined that the 240-day assessment period expired in connection with the 1997 tax liability, it remained necessary to determine whether the 1997 tax liability qualified for discharge pursuant to the three-year look back and the two-year filing rules. The taxpayer?s 1997 tax return was due and file on October 15, 1998, more than three years ago. Therefore, unless a tolling event stopped the running of the three-year look back period or the two- ear filing period, the 1997 tax would qualify for discharge under all timing criteria necessary for either a Chapter 7 or Chapter 13 discharge.

As previously described, the taxpayer?s 1997 tax liability arose after his prior bankruptcy was terminated, and this prior bankruptcy did not affect the expiration of the two-year or three-year time periods for this tax year. However, the 1997 tax liability was included in the taxpayer?s offer in compromise. If the offer in compromise tolled the running of the three-year look back and two-year filing periods, Dr. Delinquent?s 1997 tax liability would not qualify for discharge under either Chapter 7 or 13. Since the due date and filing date for the 1997 tax preceded the commencement of the offer in compromise by 55 days, and the offer in compromise was terminated for only 258 days by the date of our first appointment with the client, the three-year look back and two-year filing periods would be 313 days old if tolled during the pendency of the offer in compromise, far short of the ages necessary to qualify for either a Chapter 7 or 13 discharge.

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