Hiramanek Case Raises Issue of Collateral Estoppel When Spouse Intervenes as well as the Refusal of Tax Court to Accept Attempted Concession by IRS on Issue of Duress

Today, we welcome back guest blogger Patrick Thomas.  Patrick has just finished his Christine Brunswick Fellowship through which the ABA Tax Section sponsored his work for two years at the Low Income Taxpayer Clinic (LITC) located within the Neighborhood Christian Legal Clinic in Indianapolis, Indiana.  He will open the new LITC at Notre Dame Law School this fall as its first director.  He writes on an recent decision by Judge Halpern involving an interesting innocent spouse case with a couple of unusual procedural issues.  Keith

On May 10, Judge Halpern issued a memorandum opinion in Hiramanek v. Commissioner, T.C. Memo. 2016-92, denying innocent spouse relief in a standalone petition under section 6015(e). This case presents an interesting application of the collateral estoppel doctrine, along with a good example of circumstances under which a purported joint tax return is signed under duress. Mr. Hiramanek, the Petitioner (and a certified public accountant), was denied the opportunity to argue that a joint return was filed because of his prior intervention in his ex-wife’s case before the Tax Court, where the Court found that because the purported joint return was signed by Mr. Hiramanek’s wife under duress, she could not be held liable for the deficiency on that return. Because Mr. Hiramanek had effectively litigated this issue previously before the Court, he could not raise it again in his own proceeding under section 6015(e).


For tax year 2006, the IRS received what purported to be a joint tax return from the Hiramaneks. In March 2010 the IRS sent them a Notice of Deficiency, which determined a $27,222 deficiency, along with a $5,444 section 6662(a) penalty. Mrs. Hiramanek (“Ms. Kapadia” in the Court’s opinion) timely filed a petition, which both requested innocent spouse relief and disputed the deficiency in full. Mr. Hiramanek formally intervened in that case under Rule 325(b).

Prior to trial, Ms. Kapadia and the Service stipulated that she signed the purported joint return under duress and that therefore no deficiency existed with respect to her. The Court, however, did not accept the stipulation and proceeded to hold a trial on the duress issue. In his testimony at trial, Mr. Hiramanek disputed the allegations of duress, but otherwise did not introduce other relevant evidence.  Ms. Kapadia testified and introduced other evidence of a long history of abuse, along with the specific abuse that forced her signature on the tax return.

The Court found that Ms. Kapadia signed the return under duress and, accordingly, she was not liable for the deficiency. Specifically, the Court held Mr. Hiramanek’s contrary testimony not credible, while finding credible Ms. Kapadia’s testimony and evidence showing a history of abuse. (The Court also found that she qualified for relief under IRC § 66(c), which provides an exception from community property rules where spouses separately file). The Court’s ultimate findings as to the circumstances of duress are quite harrowing. According to the Court:

Throughout their marriage [Mr. Hiramanek] physical and verbally abused petitioner. During 2007 the abuse included threats against petitioner’s life, physical assaults, and verbal abuse. Petitioner documented several instances of abuse in a handwritten diary from December 13, 2005, to April 4, 2007.

In 2007 [Mr. Hiramanek] prepared a 2006 joint Federal income tax return . . . for himself and petitioner. On the evening of April 3, 2007, [Mr. Hiramanek] presented petitioner with a copy of the joint return for her signature. Petitioner refused to sign the return without first reviewing it. [Mr. Hiramanek] initially refused but, upon petitioner’s instance [sic], allowed her a quick glance at the return. Petitioner noticed that [Mr. Hiramanek] had claimed a casualty loss deduction of $35,000 for a break-in to their rental car while they were vacationing in Hawaii. [Mr. Hiramanek] had overstated the amount of the casualty loss deduction, and as a result, petitioner refused to sign the return.

Petitioner’s refusal to sign the return angered [Mr. Hiramanek]. He grabbed petitioner’s left arm and twisted it several times, resulting in bruising. He then struck petitioner on the back of the head with an open hand and pulled her hair with both hands. Finally, [Mr. Hiramanek] pushed petitioner on the jaw. Petitioner still refused to sign the return. Later that night, [Mr. Hiramanek] cornered petitioner in the bathroom and shoved her against the wall. He ordered her to the kitchen table and threatened her with physical harm and threatened that she would never see her children again if she did not sign the return. Petitioner, fearing for her safety, placed a scribble in the signature line of the return.

The next day . . . [Mr. Hiramanek] presented petitioner with a new version of the return in which he had removed the $35,000 casualty loss. Fearing for her safety, petitioner signed the return without review.

Hiramanek v. Commissioner, T.C. Memo. 2011-280, at 3-4 (Hiramanek I). Ms. Kapadia also filed a police report about this sequence of events, which she introduced at trial.

While the first Tax Court litigation was pending, Mr. Hiramanek filed his own request for innocent spouse relief with the Service, which was denied. He then petitioned the Tax Court for redetermination of his innocent spouse request, which eventually evolved into Hiramanek II. (Mr. Hiramanek appealed the first case all the way to the Supreme Court, which denied certiorari in late 2015. This resulted in a multi-year stay of the Hiramanek II proceedings. The Service filed a motion to lift the stay and for judgment on the pleadings on November 2, 2015.)

The Service argued that not only was no joint return filed, but Mr. Hiramanek was prohibited from arguing the existence of a joint return (a necessary predicate to innocent spouse relief) because of his involvement in the final determination in Hiramanek I. The Service specifically argued that the doctrines of res judicata and collateral estoppel gave Mr. Hiramanek only one bite at the apple on this issue—a bite he had already taken.

The Court largely agreed with the Service. It grounded its decision in the collateral estoppel doctrine, rather than res judicata; the Court recognized that IRC § 6015(g)(2) provides an exception to the res judicata doctrine, at least for innocent spouse petitions that are filed subsequent to the final determination of a tax deficiency.  As such, res judicata could not bar Mr. Hiramanek’s argument.

Mr. Hiramanek’s primary argument against the application of collateral estoppel was that the Court in Hiramanek I did not have jurisdiction to determine anything outside of the innocent spouse context once Ms. Kapadia formally withdrew her request for innocent spouse relief with the Service. However, because Ms. Kapadia filed her petition within the 90 day period after issuance of the Notice of Deficiency and included a “catch-all” request to invalidate the deficiency, the Court determined that they did have jurisdiction over any matter affecting the deficiency. Whether Ms. Kapadia signed the return under duress was centrally relevant to the existence of a deficiency; thus, the Court reasoned, they had jurisdiction to address that question.

Because Mr. Hiramanek actively participated in the resolution of the duress issue; that issue was identical to the dispositive issue in Hiramanek II; the Court had jurisdiction and rendered a final judgment; Mr. Hiramanek was a party to the prior litigation; and no operative facts had changed in the interim, Mr. Hiramanek was estopped from arguing that a joint return was filed. Therefore, because Mr. Hiramanek’s standalone petition necessitated a joint return and deficiency from which to seek relief—a requirement that could necessarily not be proven, given the collateral estoppel—the Court granted the Service’s motion for judgment on the pleadings.

This seems a fairly straightforward application of the collateral estoppel doctrine. However, there is a lesson to be learned for practitioners. Mr. Hiramanek was only prevented from relitigating the duress issue because he actively participated, as an intervenor, in the Hiramanek I litigation. Had he not formally intervened, collateral estoppel would provide no bar. Of course, the factual determinations would be highly probative evidence against his claim, so representatives of nonmoving spouses still would be well-advised to intervene in appropriate cases.

A more interesting situation could arise if the Court had accepted a settlement between Ms. Kapadia and the Service. In Dinger v. Commissioner, T.C. Memo. 2015-145, the Court concluded that a settlement, without a factual stipulation supporting the settlement, did not raise a collateral estoppel bar to subsequent litigation of the substantive facts actually underlying the settlement. Here, it appears the Service and Ms. Kapadia did have a factual stipulation that would have supported the settlement. But again, because Mr. Hiramanek would not have participated in that settlement, collateral estoppel would not apply. And, a stipulation alone would have less probative value than evidence introduced at trial, and would provide less finality to the petitioner seeking relief, as well as the Service.

Thus, in particularly compelling cases with substantial available evidence of abuse, like Ms. Kapadia’s, it may be prudent for an individual seeking innocent spouse relief, or the relief sought by Ms. Kapadia, to take this issue to trial and to accede to intervention by the nonmoving spouse. Even if the IRS Chief Counsel desires to grant innocent spouse relief, it may be in their interests to try the issue as well, given that it will save them from additional litigation down the line. Of course, this does not prevent tactics like Mr. Hiramanek’s that could extend the litigation, but given Hiramanek II, it appears that the Service could easily succeed with a motion for judgment on the pleadings in subsequent litigation brought by the nonmoving spouse.





The Struggle to Obtain Individual Taxpayer Identification Numbers

Today we welcome guest bloggers Lany Villalobos and Patrick Thomas.  Lany and Patrick are Christine Brunswick Public Service Fellows of the Tax Section of the ABA.  Lany works with Philadelphia Legal Assistance where she is part of the Pennsylvania Farm Project Low Income Taxpayer Clinic and Patrick worksat the Neighborhood Christian Legal Clinic in Indianapolis, Indiana.  The issue they write on has received much attention recently as Congress and the IRS try to find the right balance between promoting compliance and preventing fraud.  Their post suggest we may not have found the sweet spot yet as we try to solve that problem.  Keith

In her most recent 2015 Annual Report to Congress, the National Taxpayer Advocate (NTA) identified as Most Serious Problem #18 the IRS processes that create barriers to filing returns and paying taxes for taxpayers applying for Individual Taxpayer Identification Numbers (ITINs).  In this post, we will summarize the IRS processes causing barriers to ITIN applicants as identified by the NTA and discuss added concerns in light of the recent ITIN changes in the Protecting Americans from Tax Hikes (PATH) Act, which was signed into law on December 18, 2015.


Barriers for ITIN Applicants Created by IRS Processes As Identified by the NTA

The NTA raises several concerns about IRS processes that create barriers for ITIN applicants and filers. First, the NTA suggests that ITIN applicants must submit an ITIN application with a paper tax return during the filing season. This accordingly causes hardship in gathering and sending original supporting documentation, an inability to e-file in the first year, significant backlog issues, including almost 120,000 ITIN applications at one point, delayed refunds, and lost returns—not to mention the 11-week processing time frame for ITINs during filing season.

However, ITIN applicants are not required to apply for an ITIN with a paper tax return solely during filing season. As referenced in footnote 35 of the report, the IRS requires that ITIN applicants demonstrate a tax administration purpose for receiving an ITIN; filing a tax return demonstrates such a purpose. ITIN applications with paper tax returns may also be submitted outside of the filing season, but this usually involves a taxpayer filing a late tax return or an ITIN applicant re-filing a previously rejected ITIN application.  Yet, because of the requirement to file with a tax return, many first-year filers or filers with recently born dependent children must indeed wait until filing season—and its lengthy processing delays—to apply for an ITIN for the first time.

Second, the NTA identifies the requirement that ITIN applicants must mail in original or certified copies of supporting documentation proving identity and foreign status as imposing a hardship on ITIN applicants, who must go without important original identification documents and risk these documents being lost in the process. To obtain an ITIN, applicants must file an ITIN application (Form W-7) with an original tax return and original or certified copies of supporting documentation. The supporting documentation must be a valid passport or an original birth certificate and one other identification document, such as a consular identification for adults, school records for children under 18 years of age, or medical records for children under six years of age.  See the instructions to Form W-7, page 3 for a list of acceptable documentation.

Next the NTA notes interrelated problems with the effective requirement that most ITIN applications be filed during filing season and the requirement to send original supporting documentation: ITIN unit errors due to the large number of applications processed during the filing season; the use of seasonal employees with less expertise in reviewing ITIN applications; an applicant’s limited time frame to properly gather the necessary original documentation required with an ITIN application; and ITIN applicants abroad needing to mail original documentation internationally due to limited options for obtaining certified copies of  supporting documentation abroad. These barriers lead to high rejection rates for ITIN applications.

Lastly, the NTA raises concerns about the IRS’s plan to implement the ITIN deactivation provision of the PATH Act, particularly with respect to ITINs used solely on third party returns, and also raises concerns with the lack of notice afforded to taxpayers before the deactivation.

ITIN Specific Provisions Within the PATH ACT

We commend the NTA for addressing the barriers ITIN applicants face as a result of IRS processes, as these processes disproportionately affect immigrant individuals and families in the United States.  Figure 1.18.1 in the report shows that in 2014 50% of ITIN applicants were from Mexico and that 98% of ITIN applications were for primary taxpayers, spouses, and dependents. Additionally, Figure 1.18.2 shows that 85% of ITIN applicants filed as residents for tax purposes, meaning that a vast majority of ITIN applicants reside in the United States more than 183 days to meet the substantial presence test.

These barriers to filing tax returns and paying taxes are even more alarming in light of the recent ITIN changes by the PATH Act, which now requires the deactivation of unused ITIN issued after 2012, the deactiviation of ITINs issued prior to 2013, and the denial of retroactive claims to the Child Tax Credit (CTC) for new ITIN filers. This post only addresses Section 203 and Section 205 of the PATH Act, though there are also other provisions affecting immigrant communities, such as the denial of retroactive Earned Income Tax Credit claims for recent Social Security number recipients (Section 204) and denial of retroactive American Opportunity Credit claims for recent ITIN applicants (Section 206).

ITIN Deactivation and Renewals Under the PATH Act 

Section 203 of the PATH Act amends IRC § 6109 by adding subsection (i) to the statute.  We focus on Section 6109(i)(3)(A)-(B), which addresses the deactivation of ITINs issued after 2012 and the deactivation of ITINs issued before 2013.  IRC § 6109(i)(3)(A) will now provide:

An individual taxpayer identification number issued after December 31, 2012, shall remain in effect unless the individual to whom such number is issued does not file a return of tax (or is not included as a dependent on the return of tax of another taxpayer) for 3 consecutive taxable years. In the case of an individual described in the preceding sentence, such number shall expire on the last day of such third consecutive taxable year. 

ITINs issued in 2013 and forward will remain active indefinitely so long as the ITIN is used (either by a filer or a dependent on a return) at least once in three consecutive years after its issuance.  For example, Taxpayer A is issued an ITIN in May 2013.  If Taxpayer A files a tax return for tax years 2013, 2014, and 2015, the ITIN will remain active because it has been used for three consecutive taxable years. Now let’s say Taxpayer A files a tax return for tax year 2013, but does not file a tax return for tax years 2014, 2015, and 2016 because he is below the filing threshold.  If Taxpayer A works in tax year 2017 and now is required to file a tax return, Taxpayer A must mail a new ITIN application with an original tax return and original supporting documentation for tax year 2017.

The deactivation process for ITINs issued in 2012 and before will be outlined in IRC § 6109(i)(3)(B):

In the case of an individual with respect to whom an individual taxpayer identification number was issued before January 1, 2013, such number shall remain in effect until the earlier of—

(i) the applicable date, or

(ii) if the individual does not file a return of tax (or is not included as a dependent on the return of tax of another taxpayer) for 3 consecutive taxable years, the earlier of—

(I) the last day of such third consecutive taxable year, or

(II) the last day of the taxable year that includes the date of the enactment of this subsection. 

This provision breaks up the ITIN deactivation process for pre-2012 ITINs in two ways: IRC. § 6109(i)(3)(B)(i) concerns ITIN filers who consistently file tax returns with an ITIN for themselves and/or dependents, or at least without a three year consecutive gap; and IRC § 6109(i)(3)(B)(ii) addresses ITIN filers who have not consistently filed a tax return with an ITIN or claimed a dependent with an ITIN at least once in three consecutive tax years.

ITINs issued in 2012 or before to taxpayers who have consistently filed tax returns will deactivate by an “applicable date” based on the year of issuance and will, presumably, need to be renewed.  The “applicable date” will be defined in IRC § 6109(i)(3)(C):


If the ITIN Was Issued: Then, the ITIN Will Deactivate On:
Before January 1, 2008 January 1, 2017
In 2008 January 1, 2018
In 2009 or 2010 January 1, 2019
In 2011 or 2012 January 1, 2020


Here is an example of the “applicable date.” Taxpayer B was issued an ITIN in April 2007.  She has consistently filed a tax return for each tax year since tax year 2007.  Her ITIN will deactivate on January 1, 2017.  This example illustrates important concerns about the implementation of this provision of the PATH Act: how exactly will the renewal process be carried out? Will there be new W-7 forms? Will taxpayers need to send original supporting documentation again to the IRS ITIN unit? The ITIN deactivation starts this filing season for some ITIN filers, but there is no published guidance by the IRS on the renewal process.

Taxpayer B in our example has two options: renew her ITIN before January 1, 2017 or wait until next year’s filing season in 2017 for tax year 2016 to file a new ITIN application.  She is in a bit of a predicament, though. There is currently no guidance on how to renew her ITIN. If she waits until next filing season in 2017, she will need to reapply for a new ITIN with a paper tax return and original supporting documentation because her ITIN will be deactivated by that point.

Let’s take another example for taxpayers with ITINs issued prior to 2013 who have failed to file a tax return using an ITIN and/or failed to claim a dependent with an ITIN for three consecutive taxable years under IRC § 6109(i)(3)(B)(ii).  Taxpayer C was issued an ITIN in April 2011.  He does not file tax returns for tax years 2012, 2013, and 2014 because he was below the filing threshold.  His ITIN already expired on December 31, 2014, “the last day of such third consecutive taxable year” in which the taxpayer did not file. IRC § 6109(i)(3)(B)(I). Taxpayer C must now file a new ITIN application with a papertax return, should he have a filing requirement. This raises additional important questions: will the ITIN issued to Taxpayer C be the same as the prior ITIN? If not, is Taxpayer C authorized to obtain information on his prior tax filings under the prior ITIN? Or, if Taxpayer C does not have a subsequent filing requirement, may he still obtain such information? What if Taxpayer C has a debt under the prior ITIN?

The ITIN deactivation process will likely raise additional barriers in filing returns and paying taxes for ITIN filers. The currently overburdened IRS ITIN unit, which at one point had a backlog of nearly 120,000 ITIN applications, will not only continue to process new ITIN applications for first time filers but must now also begin to renew ITINs and accept applications from ITIN holders whose ITINs have already expired. The lack of guidance on the ITIN renewal process is especially problematic, particularly on the question of whether the IRS will require resubmission of original documentation.  ITIN filers need time to request original support documentation from consulates or home countries for themselves and their dependents. And, as we will discuss next, ITIN filers may also be denied the Child Tax Credit in the first year in which the ITIN is requested and perhaps also in the year of renewal or re-activation

The Child Tax Credit and ITINs Under the PATH Act

In Section 205 of the PATH Act, Congress purported to deny retroactive Child Tax Credit claims from ITIN recipients—i.e., an ITIN filer, filing for the first time in 2016, could not claim the CTC for years prior to 2015. Indeed, Congress entitled Section 205 “Prevention of Retroactive Claims of Child Tax Credit” and the Ways and Means Committee summarized Section 205 as “prohibit[ing] an individual from retroactively claiming the [CTC] . . . for any prior year in which the individual or a qualifying child . . . did not have an ITIN.” Given that ITIN filers otherwise lawfully entitled to the CTC could previously claim the credit on untimely tax returns, Section 205 effectively represents an additional failure-to-file penalty for ITIN filers, even if the taxpayer is owed a refund. At best, it is an additional incentive for ITIN recipients to timely file.

Yet Section 205 sweeps much further than advertised. It amends IRC § 24(e) such that, to claim the CTC, an ITIN must be issued—not just applied for—prior to the applicable tax return’s due date. While this does address the concern surrounding prior year returns, it also impacts current-year, timely filed returns: if an ITIN is not issued before April 15 for a first-year ITIN filer, any CTC claim will be disallowed, even for timely filed tax returns. As noted in the Annual Report, ITIN application processing can take 11 weeks during filing season. Thus, unless ITIN applicants file their applications and tax returns by January 30, they have little chance of obtaining the CTC on their timely filed tax returns.

Moreover, given the deactivation process noted above, it is unclear whether Section 205 will similarly complicate CTC claims in the year of renewal. It certainly impacts those expired ITINs for ITIN holders, such as Taxpayer C in the example above, who did not have a filing requirement in the last three years, yet have future valid CTC claims. If Congress’s true concern in Section 205 was to incentivize taxpayers to file timely, it should immediately clarify that a valid application for an ITIN, submitted with a timely filed tax return, qualifies a taxpayer to receive the CTC.


While legitimate concerns exist regarding the integrity of the ITIN program—especially regarding fraudulent claims to the Additional Child Tax Credit—Congress’s steps to address the problem in the PATH Act needlessly hamper the ability of tax-compliant ITIN holders to file tax returns, claim legitimate tax credits, and remain in compliance. First, Congress should clarify that first-time ITIN filers who timely file a tax return are able to claim the Child Tax Credit. Next, the IRS must work quickly to publish guidance related to ITIN renewals that must occur in 2016, keeping in mind that many taxpayers’ ITINs will deactivate on January 1, 2017. The IRS must also publicize the requirement to renew such ITINs, such that ITIN holders are not shocked that their ITINs are inactive in the 2017 filing season. Finally, the IRS should not require the resubmission of original supporting documentation with a renewal ITIN application, as the IRS has previously verified the identity and foreign status of the ITIN filer at the time of the filing of the original ITIN application.


Inability to Correctly Calculate CSED – Confusion Leads to Unlawful Results

Today we welcome first time guest blogger Patrick Thomas.  Patrick is an ABA Tax Section Christine A. Brunswick Public Service Fellow working at the Neighborhood Christian Legal Clinic in Indianapolis, Indiana.  As a Public Service Fellow he receives a stipend for two years to work assisting low income taxpayers.  Patrick was very generous with his time in assisting in the review of the 6th Edition of Effectively Representing Your Client Before the IRS which becomes available this month.  He writes today on a topic that does not often receive attention but leaves both the IRS and practitioners confused – calculation of the statute of limitations on collection.  Keith

It is a basic concept of law that once a statute of limitation has passed, no action barred by the statute may take place. Yet, as noted in the National Taxpayer Advocate’s 2014 Annual Report, the IRS often engages in forced collection action after the Collection Statute Expiration Date (CSED) has passed. Of course, the IRS does so not because they intend to flout the law; rather, Service employees may mistakenly apply the complicated rules by which the CSED is calculated. Indeed, the Annual Report, citing a 2013 TIGTA audit, indicates that “21 percent of CSED calculations were not accurate” in the CDP context. Given the volume of CDP cases each year—59,470 in FY 2012, including CDP and Equivalent Hearings—the IRS was making incorrect CSED calculations in over 10,000 CDP cases each year. Certainly, the problem is not endemic to Appeals alone, and likely affects many more cases every year.


The misapplication of the CSED in the CDP context is the most critical, however, as this is often the sole venue where a miscalculated CSED can be resolved. Even where the CDP officer upholds a miscalculated CSED, the Annual Report indicates that the Tax Court often cannot exercise independent review of the Settlement Officer’s decision, restricting itself instead to the administrative record and an abuse of discretion standard of review. The National Taxpayer Advocate accordingly calls on Congress to clarify that the Tax Court may always exercise de novo review of this issue, as it is fundamental to that basic concept of a statute of limitations. I wholeheartedly agree with the NTA’s recommendation. To that end, I believe a review of the CSED rules, and the ease with which they can be misapplied, would be helpful.

Normally, the CSED occurs 10 years after the date on which the tax is assessed. IRC § 6502(a)(1). However, various circumstance may “extend” the CSED—i.e., these circumstances push the CSED date forward in time. The Code speaks to “suspension” of the period of limitations, during which the CSED “clock” stops running. Such suspension periods lead to the extension of the CSED. (The interchangeability of these terms in the IRM, e.g., IRM 5.1.19, Collection Statute Expiration, may contribute to confusion among Service employees). The most often encountered periods include:

  1. Bankruptcy: From the date of filing the petition until the date of discharge, plus 6 months. IRC § 6503(h).
  2. Pending Installment Agreement: From the date of the request for an installment agreement, plus appeals, plus 30 days. IRC § 6331(k)(3).
  3. Termination of Installment Agreement: 30 days from the date of termination, plus appeals. IRC § 6331(k)(3).
  4. Pending Offer in Compromise: From the date of acceptance for processing of the OIC plus appeals after rejection, plus 30 days. IRC § 6331(k)(3).
  5. CDP Hearings: From the date of a timely request until final disposition. Additionally, if it is less than 90 days from the CSED, the CSED is reset to 90 days from the date of final disposition. Reg. § 301.6330-1(g)(3).
  6. Military-related Service in a Combat Zone: The length of service, plus 180 days. IRC § 7508(a)(1)(i).

The taxpayer may also elect to extend the CSED to a particular date, often in connection with an Installment Agreement.

Some examples help to clarify the rules. A tax assessed on 4/15/2015 ordinarily has a CSED of 4/15/2025. A suspension of that CSED for 30 days from 6/1/2020 until 7/1/2020 stops the CSED clock for that period of time; accordingly, the new CSED will be 5/15/2025. Easy enough.

In a more complicated example, let’s say a taxpayer files his 2014 tax return on 4/15/2015, showing a tax liability of $10,000. The taxpayer then files a bankruptcy petition on 5/15/2015, and receives a Chapter 7 discharge on 7/15/2015. The CSED is suspended for the period of the bankruptcy—62 days—plus six months. Accordingly, the new CSED is 12/16/2025. Still fairly straightforward.

The intersection of more than one suspension period at the same time creates the potential for confusion—and ultimately, for miscalculation of the CSED. In a yet more complicated example, let’s take that same bankrupt taxpayer. In the period after his bankruptcy is discharged, he files an Offer in Compromise, which was accepted for processing by the Service on 8/15/2015, to resolve his non-dischargeable $10,000 tax debt from tax year 2014. The CSED “clock” does not run during the 6 months after discharge of the bankruptcy; that is, until 1/16/2016. The OIC filing similarly suspends the clock during pendency of the OIC, and for 30 days after its rejection (for sake of the example, the taxpayer must, unfortunately, have his OIC rejected). Let’s say the rejection occurred on 12/15/2015 (this is about the average time I’m currently seeing for COIC to process Offers in Compromise from acceptance to disposition). Let’s further assume that the taxpayer did not exercise any appeal rights.

Accordingly, the CSED would start running again for purposes of the OIC suspension on 1/15/2016. His new CSED is still 12/16/2025, because the OIC suspension fell entirely during the bankruptcy suspension. The OIC filing does not doubly penalize the taxpayer on the CSED issue. It’s fairly easy to see how a Service employee could confuse the concurrent suspension of the CSED due to bankruptcy and due to the OIC with a rule that would tack on the period of the OIC, plus 30 days, as an extension to the CSED. If that were the case, the CSED would not run until 5/16/2026.

Continue with this taxpayer. He has now successfully flown under the radar of the IRS until December 2025, when he decides to take a job and files a Form W-4 with his employer. The IRS notices the W-4 filing and the wages, and on January 16, 2026, the IRS sends the taxpayer a Notice of Intent to Levy on the wages. The taxpayer timely files for a CDP hearing on February 15, 2026, offering a collection alternative that is, like his old OIC, rejected. But he fails to mention the CSED issue—in fact, he was entirely unaware of its existence. In the verification process, the Appeals officer noticed that the CSED read “5/16/2026,” and after rejecting the collection alternative, decided to sustain the levy. The taxpayer then files a petition in Tax Court, challenging the decision of Appeals. How will the Tax Court rule on the IRS’s clear misapplication of the CSED in this matter (assuming that the taxpayer gets connected with a practitioner who spots the issue)?

Even with clear evidence to the contrary, it may uphold the decision. The Annual Report explains the Tax Court’s standard of review at length: in the opinion of IRS Chief Counsel and some of the Court’s decisions, the Court may only review CSED determinations in a CDP hearing subject to an abuse of discretion standard. What is more, an abuse of discretion review in Tax Court is limited to the administrative record. Therefore, where a taxpayer does not raise the CSED issue in the CDP hearing, the issue is essentially forfeited in Tax Court.

This is clearly a problem for all taxpayers. While many are familiar with the “3 year rule” for amending tax returns or as a bar against examinations, I doubt if 1% of taxpayers are familiar with the CSED as a concept. Even for taxpayers who owe liabilities, the CSED is never publicized in any materials; the IRS will only give you their CSED calculation if you ask for it—if you can get through on the phone. Low-income taxpayers, who often have lower educational attainment, lack access to the Internet, and speak English as a second language, have it even worse. Even if such taxpayers get to the CDP stage (and that’s a big “if”, without the assistance of a Low Income Taxpayer Clinic), how are they supposed to know about—let alone challenge—the CSED?

Without the background knowledge to raise a CSED issue in a CDP hearing, taxpayers—and especially low-income and ESL taxpayers—may unwittingly forfeit a clear bar to collection. Lack of meaningful Tax Court review inappropriately harms these taxpayers. Given the harm and its relative likelihood that the complexity of the CSED rules engenders, the legislative change that the National Taxpayer Advocate recommends is an easy, relatively uncontroversial fix that should be implemented as soon as possible.