The statute of limitations prescribes the time period within which a case may be brought on a cause of action. For assessments, the general rule is that assessments may only be brought within three years, subject to certain exceptions, after a return is filed or after the due date of the return if the return was filed early. Tolling or suspending the statute of limitations means that the tolling of this three-year period may be paused or put on hold when certain events outlined in the IRC take place.
Note – this is only a partial list of events that can extend the statute of limitations for tax collection. For a complete list of events see the IRM Statutes on Collection Cases.
Pending Tax Court Proceeding
For instance, the assessment period may be suspended, provided the statutory notice was timely issued, if there is a proceeding relevant to or in respect of the deficiency filed before the Tax Court, up until such time as the decision of the Tax Court becomes final, and for another 60 days thereafter. During this time, the IRS is prohibited from making the assessment or from collecting on the deficiency.
A Stay Due to a Pending Bankruptcy Proceeding
On the other hand, while a bankruptcy proceeding will not, by itself, toll or suspend the period of assessment, it might effectively do so under certain circumstances.
For instance, if the taxpayer is unable to petition the Tax Court due to a stay resulting from a bankruptcy proceeding, the three-year statute of limitations for assessments may be indirectly suspended.
One of the rights granted to the taxpayer is that of being able to petition the Tax Court on the alleged tax deficiency assessed against him. And because a bankruptcy proceeding stays all other relevant proceedings, including any that may be brought before the Tax Court, and the taxpayer has been issued a statutory notice of assessment, the fact that the taxpayer cannot then petition the Tax Court for a review will also effectively suspend the period of assessment, until such time as the right to petition again becomes available to the taxpayer.
Appointment of a Receiver or Other Fiduciary in a Bankruptcy or Other Proceeding
Once again, while a bankruptcy proceeding will not, by itself, toll or suspend the period of assessment, if a receiver or other fiduciary is appointed as a result of the bankruptcy proceeding, and notice of such appointment was not given to the IRS, the statute of limitations on the assessment is suspended.
The appointment of a fiduciary or receiver means that a person has been given the responsibility of administering the property or properties in question, and part of that responsibility may include the payment of taxes. If the IRS was not given notice of the appointment of such fiduciary, the IRS would have no idea that assessment, levy, and collection are now proper. The statute of limitations for assessment is therefore suspended until such time as the appropriate notice of the appointment has been provided to the IRS.
Separate Assessment Period for Joint Filers
On the other hand, while spouses who file jointly have joint tax liability, it does not mean that the applicable statute of limitations also applies jointly to both spouses. Each spouse can avail of the remedies available to them individually, whether it is petitioning the Tax Court or asking for an administrative review. If one spouse fails to do so, then as to that spouse, the assessment period is not suspended, and the three-year period is not tolled.
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