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6. Tolling Events (Clock Stoppers) for Federal Tax Claims

6.1. Time periods in Bankruptcy. The 3 year age rule and the 240 day assessment rule will be suspended or “tolled” for any additional time periods during which IRS is prevented from collecting the tax as a result of either of the following events:        Index

(a) Prior Bankruptcy Cases. Any time during which the stay of collection activity was in effect in any prior bankruptcy case or during which collection was precluded by the existence of 1 or more confirmed bankruptcy plans, plus 90 days after the termination of the bankruptcy proceedings. 11 U.S.C. § 507 (8)(HP) or

(b) Request for Hearing or Appeal of Collection Action. Any time period during which the IRS is prohibited under applicable nonbankruptcy law from collecting a tax as a result of a request by the taxpayer for a hearing and an appeal of any collection action taken or proposed against the taxpayer, plus 90 days the termination of the hearing or appeal. 11 U.S.C. § 507 (8)(HP)

In other words, the clock on the 3 year and 240 day rules is tolled for all time periods during which the taxpayer had a pending bankruptcy case, or a prior pending appeal of a tax collection action proposed or taken against the debtor, plus an additional 90 days. The clock on the 3 year and 240 day rules start to run again after these events have been concluded.        Index

Example #6.1.

Facts. Taxpayer files his 2009 tax return in a timely fashion on or before April 15, 2010, but never pays the tax. On April 15, 2011, 2 years before expiration of the 3 year age rule, Taxpayer files a Chapter 13 bankruptcy petition.

Result. The bankruptcy case is dismissed for non-payment on April 14, 2012 (exactly 2 years after it was filed). Taxpayer can not file a second bankruptcy case to discharge the 2009 income tax debt unless the second case is filed on or after July 14, 2015 (the normal 3 year time period, plus the amount of time in bankruptcy [2 years], plus 90 days).

6.2. Offers in Compromise. An offer in compromise is an alternative method of settling a tax debt by offering to pay IRS less than the full amount due. The submission of an offer in compromise will suspend the running of (stop the clock on) the 240 assessment time period. If the taxpayer makes an offer in compromise within 240 days of filing for bankruptcy, the 240 day time period will be suspended for the time during which the offer in compromise is pending, plus an additional 30 days.       Index

Example #6.2.

Facts. Taxpayer files his 2009 federal income tax return in a timely fashion on or before April 15, 2010. On April 13, 2013, as a result of an audit, IRS assesses additional tax for the 2009 tax year (the amount of additional tax is unimportant). On June 15, 2013, Taxpayer submits an offer in compromise to IRS offering to pay 1/5th of the additional tax. IRS rejects the offer on September 14, 2013.

Result. The additional tax assessed on April 14, 2013, can not be discharged in bankruptcy unless Taxpayer files for bankruptcy on or after April 9, 2014 [361 days after the additional tax was assessed on April 13, 20013 – 240 days, plus 90 days (the time period during which the offer in compromise was pending), plus an additional 30 days.

6.3. Litigation. A taxpayer has the option of preventing IRS from assessing additional tax by filing a lawsuit in Tax Court to contest a proposed assessment. The filing of such a lawsuit will prevent IRS from assessing the additional tax until after the Tax Court resolves the matter. If the taxpayer files such a lawsuit and losses, the 240 day time period will not start until IRS assesses the additional tax, which can only occur after the lawsuit is over.        Index

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