IRS Explains Effect of Bankruptcy on Assessment SOL

X filed a bankruptcy petition on Date 1; the automatic stay terminates 100 days later (Date 2). In each situation below, the deficiency notice is not addressed to a person outside the U.S. and X does not file a Tax Court petition for a deficiency redetermination.

Situation 1: A deficiency notice is issued on or after Date 1 and before the termination of the automatic stay on Date 2.

Under Bankruptcy Code Section 362(a)(8), a Tax Court proceeding cannot be commenced while the automatic stay is in effect. Under Sec. 6213(f), the running of the 90-day period for filing a Tax Court petition is suspended while the automatic stay prevents the filing, and for 60 days thereafter. Thus, the 90-day period for filing a Tax Court petition begins to run 61 days after Date 2. The period for filing a Tax Court petition ends on Date 3150 (60 + 90) days after Date 2.

Under Sec. 6213(a), the Service is prohibited from making an assessment from issuance of the deficiency notice through Date 3A, the last day for filing a Tax Court petition. Under Sec. 6503(a)(1), the running of the assessment statute of limitations (SOL) is suspended during this period. Also, under Sec. 6503(a)(1), because no Tax Court petition was filed, the running of the SOL is further suspended for an additional 60 days after Date 3A. On the next day, 61 days after Date 3A and 211 (60 + 90 + 61) days after Date 2, any portion of the SOL period that had not run when the deficiency notice was issued begins to run.

Situation 2: The deficiency notice is issued 10 days before Date 1 (less than 90 days before Date 1).

As in Situation 1, a Tax Court proceeding cannot be commenced while the automatic stay is in effect; the running of the period for filing a Tax Court petition is suspended during the automatic stay and for 60 days thereafter. Here, however, only 80 days of the 90-day period for filing a Tax Court petition remain as of Date 1. Thus, the 80-day period remaining for filing a Tax Court petition begins to run 61 days after termination of the automatic stay on Date 2. The period for filing a Tax Court petition ends on Date 3B, which is 140 (60 + 80) days after Date 2. This is 240 (100 + 60 + 80) days after Date l, the date on which the bankruptcy petition was filed.

Under Sec. 6213(a), the Service is prohibited from making an assessment during the period from issuance of the deficiency notice through Date 3B, the last day for filing a Tax Court petition. Under Sec. 6503(a)(1), the running of the SOL on assessment is suspended during this period. Also, under Sec. 6503(a)(1), because no Tax Court petition was filed, the running of the SOL on assessment is further suspended for an additional 60 days after Date 3B. On the next day, which is 61 days after Date 3B, 201 (60 + 80 + 61) days after Date 2 and 301 (100 + 60 + 80 + 61) days after Date 1, the portion of the SOL that had not run when the deficiency notice was issued begins to run.

Situation 3: The deficiency notice is issued 90 or more days before Date 1.

Because the 90-day period for filing a Tax Court petition expired before the filing of the bankruptcy petition, the Service may assess the deficiency at any time after the expiration of the 90-day period, including while the automatic stay is in effect; see Bankruptcy Code Section 362(b)(9)(D). In this case, Sec. 6213(f) does not apply, because the 90-day period for filing a Tax Court petition expired before the bankruptcy petition filing. The bankruptcy case has no effect on the running of the SOL or on the suspension of the SOLs running under Sec. 6503(a)(1).

Conclusion

The timing of the deficiency notice and the bankruptcy petition determines whether and how the running of the SOL is affected by the bankruptcy. When the deficiency is issued on or after the day on which the bankruptcy commences and before the termination of the automatic stay, or is issued less than 90 days before the bankruptcy commences (Situations 1 and 2, respectively), the bankruptcy effects the running of the SOL because of Bankruptcy Code Section 362(a)(8) and Sec. 6213(a) and (f). If the deficiency notice is issued 90 or more days before the bankruptcy commences (Situation 3), the running of the SOL is not affected by the bankruptcy.

Rev. Rul. 2003-80, 2003 IRB-29, 83