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Individual Tax

Bankruptcy does not toll refund suit statute of limitations

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

Dixon, (DC IN 7/24/2019) 124 AFTR 2d ¶2019-5085

A district court has held that a taxpayer’s bankruptcy proceedings did not toll the two-year statute of limitations period during which he could file suit to recover taxes.

Background. Any suit for the recovery of any internal revenue tax must begin before the expiration of two years from the date of mailing by the IRS to the taxpayer of a notice of the disallowance of the part of the claim to which the suit or proceeding relates. (Code Sec. 6532(a)(1))

The running of the period of limitations on IRS collections is, in a bankruptcy case, suspended during the bankruptcy case and for six months thereafter. (Code Sec. 6503(h))

Facts. Mr. Dixon filed a suit for the recovery of taxes in district court on July 26, 2018, with respect to his tax year ending December 31, 2012. The parties agreed that Dixon timely filed an administrative claim for a tax refund via Form 1040X, Amended U.S. Individual Income Tax Return, on April 13, 2015. The IRS sent a letter to Dixon on January 21, 2016, stating that the claim of April 13, 2015, could not be allowed. Dixon filed another, identical Form 1040X in June 2016, and received a letter dated August 3, 2016, again disallowing that claim. Dixon claimed he that he received a letter dated August 4, 2016, informing him of his right to appeal the IRS’s decision.

Dixon filed for bankruptcy on or about September 2, 2010, and he stated that it was completed on July 22, 2016.

The IRS argued that Dixon’s suit was untimely because he filed it on July 26, 2018, which was more than two years after he received notice that his administrative claim was disallowed on January 21, 2016.

Dixon argued first that the statute of limitations was tolled when he filed for bankruptcy, i.e., tha it was tolled until January 22, 2017, six months after the bankruptcy was completed, citing to Code Sec. 6503(h).

Second, he argued that he relied on written guidance he received from the IRS on August 4, 2016, so the IRS should have been estopped from arguing that a shorter statute of limitations should apply.

Decision. The district court held that bankruptcy does not toll the two-year period during which a taxpayer can bring suit to recover taxes.

Code Sec. 6503(h) applies to the collection of taxes by the IRS. It does not apply to suits by taxpayers to recover taxes.

Code Sec. 6532 provides the statute of limitations for lawsuits brought by taxpayers against the IRS and does not include a tolling provision for the taxpayer’s bankruptcy.

The court pointed out that the disallowance letter regarding Dixon’s administrative claim for a refund was mailed on or about January 21, 2016, so the statute of limitations for a tax refund suit expired on or about January 21, 2018.

Dixon also argued that he relied on the IRS’s written guidance when filing his suit. He stated that the August 4, 2016 letter, informing him of his right to appeal, should govern the statute of limitations.

The court pointed out that Dixon signed a Form 1040X in April 2015 and another in June 2016, but that these two forms were identical. The court held that the June 2016 form was not a new refund claim submitted on new grounds, so it did not restart the statute of limitations. It was the first letter, dated January 21, 2016, and disallowing the April 2015 Form 1040X refund claim, that started the statute of limitations.

The court held, accordingly, that Dixon’s claim for a refund for tax year 2012 was barred by the Code Sec. 6532(a)(1) statute of limitations.

References: For statute of limitations for tax recovery suits, see FTC 2d/FIN ¶ T-9018United States Tax Reporter ¶ 65324.

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