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Part 4. Examining Process

Chapter 27. Bankruptcy

Section 4. Statute of Limitations Considerations

4.27.4  Statute of Limitations Considerations

4.27.4.1  (05-25-1999)
Overview

  1. This section details the effect of the filing date and entity type on the statute of limitations.

4.27.4.2  (05-25-1999)
Effect of Automatic Stay—Prior to 10/22/94

  1. This section describes how the automatic stay provisions may suspend and impact the statute of limitations for bankruptcy petitions filed before October 22, 1994.

4.27.4.2.1  (05-25-1999)
Periods Ending Before Filing of Petition

  1. For all pre-petition years of a taxpayer whose petition was filed prior to October 22, 1994, the automatic stay provision of the U.S. Bankruptcy Code prohibits assessment. The automatic stay operates to prohibit (i) the commencement or continuation of action before the U.S. Tax Court and (ii) any act to collect or assess a claim that arose before commencement of the bankruptcy case (BC secs. 362(a)(6) and (8) before the effective date of BC sec. 362(b)(9)(D)). IRC sec. 6503(h)(1) suspends the running of the statutory period of limitations on making assessments for the period during which the Service is prohibited from making an assessment as a result of the automatic stay, and for an additional 60 days for assessment purposes. In the case of a joint return where only one spouse is in bankruptcy, IRC sec. 6503(h)(1) only suspends the statute of limitations for that spouse. Thus, the statute of limitation for assessment for the spouse not protected by the automatic stay is determined under IRC sec. 6503(a).

  2. For agreed pre-petition years of a pre-BRA ‘94 case, the statute of limitations is suspended by the automatic stay under IRC sec. 6503(h)(1). The statute is determined by adding to the date the automatic stay is lifted, the number of days remaining on the normal 3 year statute (under IRC sec. 6501 (a)) plus an additional 60 days (under sec. 6503(h)(1)).

    Example (1): A couple files a joint 1990 tax return on April 15, 1991. On January 31, 1992, they jointly file a bankruptcy petition whereupon the automatic stay becomes effective. On December 1, 1992, the taxpayers sign a Form 4549 agreeing to an additional tax deficiency. On March 1, 1993, the taxpayers are granted a discharge by the U.S. Bankruptcy Court, releasing the automatic stay. The statute of limitations on the joint 1990 tax return under IRC secs. 6503(h)(1) and 6213(a) is July 14, 1995, calculated by adding the number of days remaining on the IRC sec. 6501 statute at the time the automatic stay went into effect (January 31, 1992, through April 15, 1994 = 806 days), and an additional 60 days, to March 1, 1993, the date the automatic stay was lifted.


    Example (2): Assume the same facts as example (1), except that only the wife files for bankruptcy. The husband’s statute of limitations on assessment for the 1990 tax return would be April 15, 1994, under IRC sec. 6501(a). The wife’s would be July 14, 1995, since the Service is only prohibited from making an assessment against her as a result of the automatic stay.

  3. Consents to extend the statute of limitations, under IRC sec. 6501(c)(4) will only affect the redetermination of the statute under IRC sec. 6503(h)(1) if it is executed prior to the effective date of the automatic stay. If a consent is executed while the automatic stay is in place, the statute of limitations will be the later of (i) the suspended statute as determined under IRC sec. 6503(h)(1) without considering the consent or (ii) the statute as extended by consent under IRC sec. 6501(c)(4).

    Example (1): Assume the same facts as example (1), except that on January 1, 1992 the taxpayers signed a Form 872, consenting to extend the statute of limitations on the 1990 joint return to December 31, 1994. The statute of limitations on the joint 1990 tax return under IRC sec. 6503(h)(1) is March 29, 1996 (March 30, 1996, being on a Saturday), determined by adding the number of days remaining on the IRC sec. 6501(a) statute at the time the automatic stay went into effect (January 31, 1992, through December 31, 1994 = 1066 days) and an additional 60 days, to March 1, 1993, the date the automatic stay was lifted.


    Example (2): Assume the same facts as example (1), except that on February 1, 1993 the taxpayers signed a Form 872, consenting to extend the statute of limitations on the 1990 joint return to December 31, 1994. The statute of limitations on the joint 1990 tax return under IRC sec. 6503(h)(1) is July 14, 1995. The calculation is made by adding the number of days remaining on the IRC sec. 6501(a) statute at the time the automatic stay went into effect (January 31, 1992, through April 15, 1994 = 806 days) and an additional 60 days, to March 1, 1993, the date the automatic stay was lifted. Since the consent to extend the statute was executed during the period of the automatic stay and the statute under IRC sec. 6503(h)(1) is later than that under sec. 6501(c)(4), the consent does not control the statute date.

  4. The automatic stay does not prohibit the issuance of a statutory notice of deficiency on unagreed pre-petition tax years where a bankruptcy petition was filed prior to October 22, 1994. It only prohibits the commencement or continuation of a proceeding before the U.S. Tax Court. The statutory notice of deficiency should be issued prior to the expiration of the statute under IRC sec. 6501(a) without considering the statute suspension provisions of IRC sec. 6503(h)(1) for taxpayers in bankruptcy. This practice is in the Service’s best interest in view of events such as dismissal of bankruptcy petition, or lack of timely notice of dismissal or discharge of the bankruptcy case.

  5. When a statutory notice of deficiency is issued, IRC secs. 6503(a)(1) and 6213(a) suspends the statute of limitation during the 90-day (150-day for addresses outside U.S.) petition period and for an additional 60 days thereafter. For purposes of petitioning the Tax Court by a taxpayer who is prohibited by the automatic stay from filing a petition with the Tax Court, the 90-day petition period under secs. 6503(a)(1) and 6213(a) is suspended and an additional 60 days allowed under sec. 6213(f). Thus, the taxpayer in a bankruptcy proceedings has a total of 150 days (not including the time suspended while the stay was in effect), within which to petition the Tax Court.

  6. If an assessment was pending (e.g., on a defaulted 90-day case) when the bankruptcy petition was filed, the automatic stay of the U.S. Bankruptcy Code prohibits the assessment on pre-BRA ‘94 bankruptcy cases. IRC sec. 6503(h)(1) suspends the running of the 3-year assessment period under sec. 6501(a) statute of limitations provisions and allows an additional 60 days thereafter.

  7. Recalculating the statute of limitations under IRC sec. 6503, when the statute has been suspended by both the bankruptcy automatic stay and a statutory notice of deficiency: If the 90-day petition period has expired and no assessment was made by the bankruptcy petition date (and the automatic stay went into effect), the statute for assessment purposes under IRC sec. 6503(h)(1) is calculated by adding the following to the date the automatic stay is lifted:

    1. the number of days remaining on the statute at the time the automatic stay went into effect, without considering the 90 day statutory notice period.

      Note:

      If a consent to extend the statute under IRC sec. 6501(c)(4) was executed before the automatic stay was effective, it will be considered in calculating the days remaining on the statute.

    2. the 90-day petition period plus the additional 60 days thereafter as provided under IRC secs. 6213(a) and 6503(a)(1).

    3. an additional 60-day assessment period under IRC sec. 6503(h)(1).


    Example (1): An individual files a 1990 income tax return on April 15, 1991. On February 1, 1993, a statutory notice of deficiency is issued. The taxpayer does not petition the Tax Court and the statutory notice is defaulted on May 3, 1993. On December 1, 1993, the taxpayer files a bankruptcy petition which initiates the automatic stay. On June 30, 1994, the taxpayer is granted a discharge by the Bankruptcy Court, releasing the automatic stay. The statute of limitations on the 1990 tax return under IRC sec. 6503 is June 9, 1995 (as June 11 falls on a Sunday), calculated by adding (a) the number of days remaining on the IRC sec. 6501 (a) statute at the time the automatic stay went into effect (December 1, 1993, through April 15, 1994 = 136 days), (b) the 90-day petition period and an additional 60-day thereafter as provided under IRC sec. 6213(a)(1), plus (c) an additional 60 days under sec. 6503(h)(1), the date the automatic stay was lifted.


    Example (2): Assume the same facts as Example (1), except that on December 1, 1992, the taxpayer signed a Form 872, consenting to extend the statute of limitations to December 31, 1994. The statute of limitations under IRC sec. 6503 is February 26, 1996, calculated by adding (a) the number of days remaining on the IRC sec. 6501 (a) statute at the time the automatic stay went into effect (December 1, 1993 through December 31, 1994 = 396 days), (b) the 90-day petition period plus 60 days under secs. 6213(a) and 6503(a)(1) and (c) an additional 60 days under sec. 6503(h)(1) to the date the automatic stay was lifted.

  8. If a taxpayer goes into bankruptcy after the issuance of a statutory notice of deficiency but before the 90-day petition period has expired, the taxpayer is prohibited from petitioning the Tax Court during the automatic stay, unless authorized by the U.S. Bankruptcy Court. However, once the automatic stay is lifted, the taxpayer is again permitted to petition the Tax Court during the unexpired portion of the 90-day period when the automatic stay went into effect plus an additional 60 days (IRC sec. 6213(f)). In such circumstances, the statute of limitations under IRC sec. 6503 is determined by adding the following periods to the date the automatic stay is lifted:

    1. The number of days remaining at the time the notice of deficiency was issued.

    2. The number of days remaining on the 90-day period for petition to the Tax Court at the time the automatic stay went into effect plus 60 days under IRC sec. 6503(a)(1); and

    3. additional 60 days for taxpayer to petition the Tax Court under IRC sec. 6213(f).

    (Note: If a consent to extend the statute under IRC sec. 6501(c)(4) has been executed, it will be considered in calculating the days remaining on the statute if it was executed before the automatic stay became effective.)

  9. IRC sec. 6503(a)(1) is a general provision suspending the statute of limitations for assessments during the sec. 6213(a) 90-day petition period and for 60 days thereafter. Subsection 6503(h)(1) further provides for suspension of the statute of limitation for 60 days where the Service is prohibited from assessment due to bankruptcy stay. Subsections 6503(a) and 6503(h)(1) will be applied in combination when (1) the bankruptcy petition was filed before October 22, 1994, (2) the statutory notice had defaulted before bankruptcy petition was filed, and (3) the Service has yet to make an assessment. This will result in the 90-day petition period plus the additional 60 days allowed under subsection 6503(a)(1) being applied to extend the IRC section 6501(a) assessment period and, upon lifting of the bankruptcy stay, the subsection 6503(h)(1) will be triggered to allow an additional 60 days for assessment purposes. When the 90-day petition period had not expired or if a 90-day has not been issued when bankruptcy petition was filed, the Service’s practice is to apply IRC secs. 6503(a)(1) and 6213(f) without considering subsection 6503(h)(1). The position that both subsections 6503(a) and (h)(1) apply in suspended 90-day cases to determine the statute of limitation should be taken only if the assessment period is not open under the preceding computation method.

    Example:

    Assume the same facts as Example (1) in paragraph (7) above, except that the notice of deficiency was issued on November 2, 1993. IRC sec. 6213(f) suspends the 90-day petition period while the taxpayer is in bankruptcy and extends the petition period by additional 60 days. The statutory notice is not considered defaulted until October 31, 1994, determined by adding (a) 61 days left on the 90-day petition period as of December 1, 1993, when the bankruptcy petition was filed, and (b) an additional 60 days under sec. 6213(f) to June 30, 1994, the date the bankruptcy stay was lifted. If the taxpayer does not petition Tax Court by October 30, 1994, the statute of limitations of the 1990 tax deficiency under IRC sec. 6503 is June 21, 1995, determined by adding to June 30, 1994, the date the automatic stay is lifted: (a) the number of days remaining on the IRC sec. 6501(a) statute at the time the notice of deficiency was issued (November 2, 1993, through April 15, 1994 = 165 days), (b) the unexpired 61 days remaining on the 90-day petition period plus the 60 days thereafter as provided under sec. 6213(a)(1), and (c) additional 60 days to petition the Tax Court as provided under IRC sec. 6213(f).

  10. If a statutory notice of deficiency is issued during the automatic stay, the taxpayer is prohibited from petitioning the Tax Court until the Bankruptcy Court lifts the stay. Thus, the 90-day notice of deficiency period does not commence until the automatic stay is lifted. Once it is lifted, the taxpayer is permitted to petition the Tax Court for the 90-day period following the lifting of the stay plus an additional 60 days (IRC sec. 6213(f)). In such circumstances, the statute of limitations under IRC sec. 6503 is determined by adding the following periods to the date the automatic stay is lifted:

    1. The number of days remaining on the statute of limitations at the time the automatic stay went into effect.

    2. the 90-day petition period under IRC sec. 6213(a), plus 60 days as provided under IRC sec. 6503(a)(1); and,

    3. additional 60 days to petition Tax Court under IRC sec. 6213(f).

    (Note: If a consent under IRC sec. 6501(c)(4) was executed before the automatic stay is effective, it will be considered in calculating the days remaining on the statute.)

    Example:

    Assume the same facts as example (1), except that the notice of deficiency was issued on December 31, 1993. Because IRC sec. 6213(f) suspends the petition period while the taxpayer is in bankruptcy and allows an additional 60 days, the period does not begin until the automatic stay is lifted. Thus, the notice of deficiency is not considered defaulted until November 28, 1994 (150 days after June 30, 1994, the date the stay is lifted). If the taxpayer does not petition the Tax Court by this date, the statute of limitations on the 1990 tax return under sec 6503 is June 10, 1995, calculated by adding (a) the number of days remaining on the sec. 6501(a) statute at the time the automatic stay became effective (December 1, 1993, through April 15, 1994 = 136 days), (b) the 90-day petition period plus 60 days thereafter under sec. 6213(a), and (c) the additional 60 days to petition under sec. 6213(f) to June 30, 1994, the date the automatic stay was lifted.

4.27.4.2.2  (05-25-1999)
Periods Ending After Filing of Petition

  1. The automatic stay provision of the Bankruptcy Code does not apply to post-petition tax years even if the petition was filed before October 22, 1994, except where 90-day petition period on a statutory notice must be suspensed.

  2. The automatic stay provisions of IRC sec. 6503(h)(1) do not apply to agreed post-petition years, even where a petition was filed prior to October 22, 1994. (On or after October 22, 1994, the automatic stay no longer prohibits assessment under the Bankruptcy Code.) Assessments may be made regardless of the taxpayer’s status in the bankruptcy proceeding. The bankruptcy automatic stay operates to prohibit (i) the commencement or continuation of action before the U.S. Tax Court and (ii) any act to collect or assess a claim against a debtor that arose before the commencement of the bankruptcy case. BC secs. 362(a)(6) and (8). Thus, the statute suspension provisions of IRC sec. 6503(h)(1) do not apply.

    Example:

    On December 1, 1992, an individual files a bankruptcy petition, which initiates an automatic stay on assessment for all pre-petition liabilities. On April 15, 1994, the taxpayer files his 1993 income tax return which is subsequently examined. On March 1, 1996, the taxpayer signs a Form 4549 agreeing to an additional deficiency. Although the automatic stay is still in place, it does not apply to the agreed post-petition tax. The statute suspension provisions of IRC sec. 6503(h)(1) do not apply, and the statute of limitations remains April 15, 1997, under IRC 6501(a).

  3. With respect to all post-petition years of a taxpayer who has filed a petition prior to October 22, 1994, the automatic stay provisions do not prohibit the issuance of a statutory notice of deficiency. However, the stay does prohibit the commencement or continuation of a proceeding before the U.S. Tax Court, unless authorized by the Bankruptcy Court (refer to Halpern v. Commissioner, 96 T.C. 895 (1991)). Thus, the statute must be protected by issuance of a notice of deficiency prior to its expiration under IRC sec. 6501(a).

  4. To accommodate the effect the automatic stay has on the filing of Tax Court petitions, IRC sec. 6213(f) provides that the 90-day period to petition the Tax Court under sec. 6213(a) is suspended due to the bankruptcy stay plus the additional 60 days. IRC sec. 6503(a)(1) is a general provision suspending the statute of limitations during the sec. 6213(a) 90-day petition period and for 60 days thereafter.

  5. To determine the assessment period under IRC sec. 6503(a) when the taxpayer is prohibited from petitioning the Tax Court due to the automatic stay, add the following periods to the date the automatic stay is lifted:

    1. the number of days remaining on the statute of limitations at the time the notice of deficiency was issued under IRC sec. 6501(a) or as extended under sec. 6501(c)(4);

    2. the 90-day period under IRC sec. 6213(a) within which to petition the Tax Court and 60 days thereafter under IRC sec. 6503(a)(1); and

    3. the additional 60 days to petition the Tax Court under IRC sec. 6213(f).

    Example:

    On July 17, 1991 a taxpayer files a bankruptcy petition, thus initiating the automatic stay. The taxpayer files her 1992 income tax return on April 15, 1993. It is examined and a statutory notice of deficiency is mailed on August 31, 1994. A discharge is granted by Bankruptcy Court on December 29, 1995, which lifts the automatic stay. Since the stay prohibits the taxpayer from petitioning Tax Court, IRC 6213(f) suspends the 90-day petition period for the duration of the bankruptcy stay plus additional 60 days (total of 150 days). The stay is lifted on December 29, 1995, the 150-day period to petition Tax Court expires on May 27, 1996. If the taxpayer does not petition by this date, the statute of limitations under IRC sec. 6503(a)(1) is March 10, 1998, determined by adding to December 29, 1995 (the date the stay was lifted) (a) the number of days remaining on the statute at the time the notice of deficiency was issued (August 31, 1994, through April 15, 1996 = 594 days), (b) the 90-day petition period under sec. 6213(a) plus the 60 days thereafter as provided under IRC sec. 6503(a)(1), and (c) additional 60 days allowed to petition the Tax Court under IRC sec. 6213(f).

4.27.4.3  (05-25-1999)
Effect of Automatic Stay—On/After 10/22/94

  1. For both pre-petition and post-petition years of a taxpayer who has filed a petition on or after October 22, 1994, the automatic stay provision of the U.S. Bankruptcy Code does not prohibit assessment of agreed deficiencies against the taxpayer. For this reason the statute of limitations period under IRC sec. 6503(h)(1) does not apply in these situations.

    Example (1): A taxpayer files her 1993 individual tax return on April 15, 1994. On December 1, 1994, she files a petition for bankruptcy, and is not granted a discharge until May 2, 1997. On March 31, 1995, she signs a Form 870 agreeing to an additional deficiency on her 1993 return. Although still in bankruptcy, the additional tax must be assessed before the April 15, 1997, statute of limitations under IRC sec. 6501(a).


    Example (2): On December 1, 1994, a taxpayer files a petition for bankruptcy and will not be granted a discharge until April 30, 1999. The taxpayer files his 1995 individual tax return on April 15, 1996, and agrees to an examination deficiency on March 25, 1997. Although still in bankruptcy, the additional tax must be assessed on or before the April 15, 1999, statute of limitations under IRC sec. 6501(a).

  2. In unagreed pre-petition and post-petition case years in which a bankruptcy petition was filed on or after October 22, 1994, the automatic stay does not prohibit the issuance of a statutory notice of deficiency. However, the stay still prohibits the commencement or continuation of a proceeding before the U.S. Tax Court (see Halpern v. Commissioner, 96 T.C. 895 (1991)). For this reason, the statutory notice of deficiency must be issued prior to the expiration of the IRC sec. 6501(a) assessment statute. Once a statutory notice of deficiency is issued, IRC sec. 6213(a) suspends the statute of limitations during the 90-day petition period and section 6503(a)(1) for an additional 60 days. Due to the automatic stay’s prohibition on commencing or continuing with Tax Court proceedings, IRC 6213(f) provides that the 90-day petition period is suspended while the taxpayer is prohibited from petitioning the Tax Court due to the bankruptcy proceedings, and for additional 60 days. Thus, while the taxpayer is prohibited from petitioning the Tax Court due to the automatic stay, the statute of limitations is suspended.

    Note:

    The prohibition is for the commencement or continuation with a Tax Court proceedings. The automatic stay does not operate on defaulted statutory notices before a bankruptcy petition is filed because the taxpayer can no longer commence a Tax Court case. Immediate assessment should be effected.

  3. The following guideline should be used to determine the statute of limitations under IRC sec. 6503(a)(1) where a notice of deficiency has been issued to a taxpayer in bankruptcy proceedings:

    1. If the 90-day petition period has expired before the bankruptcy petition is filed and the automatic stay goes into effect, the statute of limitations under IRC sec. 6503(a)(1) is suspended for the 90-day period in which the taxpayer may petition the Tax Court and for the additional 60 days. Since it expired prior to the initiation of the stay, the 90-day petition period is not affected by the automatic stay; the assessment statute is determined under IRC secs. 6501(a) and 6503.

      Example:

      A taxpayer files her 1993 income tax return on April 15, 1994. The return is examined and a statutory notice of deficiency is mailed on May 31, 1995. The 90-day period for petitioning Tax Court expires on August 29, 1995. On October 31, 1995, the taxpayer files a bankruptcy petition which triggers the automatic stay. The statute of limitations under IRC sec. 6503(a)(1) is September 12, 1997, determined by adding the 90-day petition period and additional 60 days to April 15, 1997 (the normal three year statute date under IRC sec. 6501(a)). Since the 90-day petition period expired before the automatic stay, it does not suspend the petition period provided under IRC sec. 6213(f) nor is the assessment period suspensed under IRC sec. 6503(h)(1). The statute is not suspended.

    2. If a taxpayer files for bankruptcy protection after the issuance of a statutory notice of deficiency, but before the expiration of the 90-day petition period, the taxpayer is prohibited from petitioning the Tax Court while the automatic stay is pending unless such petition is authorized by the Bankruptcy Court. However, once the automatic stay is lifted, the unexpired portion of the 90-day petition period begins to run again and the taxpayer may petition the Tax Court. The petition period is extended by additional 60 days under IRC sec. 6213(f). In such cases, the statute of limitations under IRC 6503(a)(1) is determined by adding the following periods to the date the automatic stay is lifted: the number of days remaining on the IRC sec. 6501(a) statute of limitations when the notice of deficiency was issued; the number of days remaining on the 90-day petition period when the bankruptcy was filed plus 60 days thereafter as provided under IRC sec. 6503(a); and, additional 60 days to petition the Tax Court as provided under IRC sec. 6213(f).

      Example:

      A taxpayer files his 1992 income tax return on April 15, 1993. The return is examined and a statutory notice of deficiency is mailed on May 31, 1995. On July 17, 1995, the taxpayer files a bankruptcy petition, initiating the automatic stay. A discharge is granted by the Bankruptcy Court on December 29, 1995, which lifts the stay. Since the stay prohibits the taxpayer from petitioning the Tax Court, IRC 6213(f) suspends the 90-day petition period for the duration of the stay. Once the stay is lifted, the taxpayer has until April 10, 1996 (add to December 29, 1995, the remaining 43 days of the petition period when the bankruptcy was filed and the stay became effective, and an additional 60 days), to petition the Tax Court. If the taxpayer does not petition by this date, the statute of limitations under IRC sec. 6503(a)(1) is April 25, 1997, determined by adding to December 29, 1995 (the date the stay is lifted): (a) the number of days remaining on the statute at the time the notice of deficiency was issued (May 31, 1995, through April 15, 1996 = 321 days), (b) the 43 days remaining on the petition period at the time the stay went into effect plus the additional 60 days under sec. 6503(a), and (c) the additional 60 days to petition the Tax Court under sec. 6213(f).

    3. If a statutory notice of deficiency is issued during the automatic stay, the taxpayer is prohibited from petitioning the Tax Court until the stay is lifted. Thus, the 90-day petition period does not begin to run until the automatic stay is lifted. Once the stay is lifted, the taxpayer is permitted to petition the Tax Court within the 90-day period plus 60 days (total of 150 days) following the lifting of the stay. In such circumstances, the statute of limitations under IRC 6503(a)(1) is determined by adding the following periods to the date the automatic stay is lifted: the number of days remaining on the IRC sec 6501(a) statute of limitations when the notice of deficiency was issued; the 90-day Tax Court petition period under IRC sec. 6213(a) plus additional 60 days under IRC sec. 6503(a)(1); and, additional 60 days to petition Tax Court under IRC sec. 6213(f).

      Example:

      A taxpayer files her 1992 income tax return on April 15, 1993. On July 17, 1995, the taxpayer files a bankruptcy petition initiating the automatic stay. A discharge is granted by the Bankruptcy Court on December 29, 1995, lifting the stay. The return is examined and a statutory notice of deficiency mailed on August 31, 1995. Since the stay prohibits the taxpayer from petitioning the Tax Courts, IRC 6213(f) suspends the 90-day petition period for the duration of the stay and extends by another 60 days (total of 150 days) within which to petition the Tax Court. Once the stay is lifted on December 29, 1995, the 150-day petition period begins to run and the taxpayer has until May 28, 1996, to petition. If the taxpayer does not petition by this date, the statute of limitations under sec. IRC sec. 6503(a)(1) would expire on January 10, 1997, determined by adding to December 29, 1995: (a) the number of days remaining on the statute when the notice of deficiency was issued (August 31, 1995, through April 15, 1996= 229 days), (b) the 90-day petition period and 60 days thereafter as provided under sec. 6503(a), and (c) the additional 60 days to petition as provided under sec. 6213(f).

4.27.4.4  (05-25-1999)
Bankrupt TEFRA Investors

  1. When a TEFRA investor files for bankruptcy protection, the assessment statutes of limitation (ASED) on the affected pre-petition years become shortened. The most common ASED date will be the one year date which is imposed by IRC sec. 6229(f) — Items Becoming Non-partnership Items. By filing for bankruptcy, the TEFRA investor converts the partnership items into non-partnership items as of the date the bankruptcy petition is filed. The investor no longer remains a part of the TEFRA proceedings. The Service then has one year from the bankruptcy petition date in which to issue a statutory notice of deficiency or to make an assessment. The one year period under section 6229(f) may be extended using Form 872–F, Consent to Extend the Time to Assess Tax Attributable to Items of a Partnership or S Corporation that Have Converted Under Section 6231(b) of the Internal Revenue Code.

  2. The other ASED that should be determined in bankrupt TEFRA investor cases is the suspension of the statute of limitations during the period when an action may be brought on a notice of final partnership administrative adjustment plus one year, as provided under IRC 6229(d) — Suspension When Secretary Makes Administrative Adjustment. This code section provides that if an action is brought on the final notice during the suspension period, the suspension is extended until the decision of the court. Once the decision is entered on the key TEFRA partnership case, and becomes final (normally 90 days from the date that the decision is entered by the court), the TEFRA proceedings have ended and Service has one year in which to make any flow through adjustments to related TEFRA investor tax returns and to assess any tax resulting from the court decision. The one year date under IRC sec. 6229(d) may supersede the ASED of IRC sec. 6229(f). The ASED is the earlier of one year from the date the court decision becomes final or one year from the bankruptcy petition date.

    Example:

    A Tax Court decision was entered on XYZ Partnership and became final on November 1, 1993. The IRC sec. 6229(d) ASED is then November 1, 1994. One of the partners filed for bankruptcy protection on September 30, 1994. The IRC sec. 6229(f) ASED would then be September 30, 1995. However, in this case the IRC sec. 6229(d) ASED of November 1, 1994, is controlling and any tax deficiency as a result of the Tax Court decision should be assessed by November 1, 1994. The ASED is not extended by the IRC sec. 6229(f). Since the automatic stay is in effect in this pre-BRA ‘94 case, it prohibits the Service from making the assessment. (The stay and a motion to lift the stay is not an issue in these circumstances for post-BRA ‘94 cases since BC sec. 362(b)(9)(D) would permit assessment without a motion.) The examiner must immediately request that Area Counsel file a motion with the Bankruptcy Court for a temporary lift of the automatic stay so that the Service may make the assessment without violating the stay. In the unlikely event that the request is denied, a barred statute will result. It is critical that examiners determine the status of the key case examination in cases in which the partners file bankruptcy.


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