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8. Statute of Limitations

8.1. Federal Taxes.       Index

8.1.1. General Rule.  IRS’ ability to collect any federal tax expires 10 years after it assesses the tax, unless it commences a lawsuit to collect, obtains a favorable court judgment and periodically renews the judgment.  IRC § 6502.

The 10 year statute of limitations also applies to tax liens.  A federal tax lien will expire 10 years after the tax is assessed, unless IRS begins a lawsuit to collect, obtains a favorable court judgment, and periodically renews the judgment.

The 10 year time period begins to run on the date IRS assesses the tax, not on the date it files a tax lien.  A bankruptcy filing is unnecessary if the taxpayer’s primary goal is to avoid payment of a federal tax assessed more than 10 years ago.       Index

Example #8.1.

Facts.  Taxpayer owes unpaid employment taxes (both the employer and employee portions) for the 2004 tax year. The unpaid tax was assessed on September 15, 2005. IRS files a tax lien five years later on September 15, 2010.

Result. Taxpayer can never discharge the employee portion of the tax in bankruptcy. However, the tax will become uncollectible, and the lien will expire, unless IRS files suit to collect the tax on or before September 15, 2015, 10 years after the tax was assessed.

8.1.2. Tolling Events. The 10 year collection period is suspended (the clock stops running) during any time period that any of the following events are pending:       Index

(a) Court Proceedings.  IRC § 6503(a)(1) suspends the limitations period for any time period during which IRS is prohibited from collecting a tax by levy or a proceeding in court, and for 60 days thereafter.

(b) Bankruptcy Filings.  IRC § 6503(h) suspends the limitations period during any time which the IRS is prohibited from collecting due to a bankruptcy proceeding, and for 6 months thereafter.

(c) Assets In Court Control or Custody.  IRC § 6503(b) suspends the limitation period for any time during which the taxpayer's assets are in the control or custody of a United States or state court, and for 6 months thereafter

(d) Absence from Untied States.  IRC § 6503(c) suspends the limitation period for any time during which the taxpayer is outside the United States if the absence is for a continuous period of at least 6 months.

(e) Offer in Compromise Pending.  IRC § 6331(k) suspends the limitations period for any time during which an offer in compromise is pending, for 30 days after rejection, and while a timely filed appeal is pending.

(f) Installment Agreements.  Under IRC § 6502(a)(2)(A), if the taxpayer signs an installment agreement, the limitations period is extended to 90 days after the expiration of any time period for collection agreed upon in writing by the taxpayer.

8.2. State Taxes.        Index

8.2.1. Property Taxes. A lawsuit to collect delinquent property taxes may not be filed after the expiration of the following time periods after the tax becomes delinquent:        Index

4 years – personal property taxes;

20 years – real property taxes.

8.2.2. Sales, Excise, Use and Franchise.        Index

(a) Assessment.        Index

(i) General Rule. Texas state sales, excise, use and franchise taxes can not be assessed more than 4 years after the tax is due and payable. The tax can not be collected if the Texas government office does not assess the tax within 4 years.

(ii) Exceptions. There are several exceptions to the 4 year statute of limitations on assessment of sales, excise, use and franchise taxes. The general rule does not apply if:

● Tax Evasion and Fraudulent Returns. The tax imposed relates to a fraudulent tax return or the taxpayer is guilty of tax fraud.

● No Return Filed. The Taxpayer never filed a required tax return for the tax in question.

● Gross Error on Return. The tax return contains a gross error. A gross error is any error which results in an increase of 25 percent or more in the tax due.

(b) Collection. The State of Texas must file suit to collect the tax within 3 years after the later of the date the:       Index

(i) tax became due and payable; or

(ii) the tax lien was last recorded.

The tax becomes uncollectible and the tax lien will expire if the state does not file suit to collect the tax before expiration of the 3 year time period.

(c) Tolling Events. The 4 year assessment and 3 year collection limitations are both suspended (the clock stops running) during any time period that any of the following events are pending:       Index

(i) any bankruptcy case;

(ii) a tax payment has been made under protest;

(iii) any lawsuit or administrative proceeding to determine the amount of the tax due.


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