Tolling the Statute of Limitations on Collection

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I have written before about the ability of a Collection Due Process (CDP) request to toll the statute of limitations on collection and hold it open for the IRS to bring a suit to foreclose or to reduce the assessment to judgment. In the Holmes case, it was the request itself that held open the statute of limitations with some discussion of the failure of the IRS to timely act upon the request. The court there found that the request held open the statute of limitations even though the IRS did not act on the request within its ordinary time period.

In the case of United States v. Giaimo, No. 16-2479 (8th Cir. 4-17-2017), a similar issue arises, but here the concern is Tax Court petition she filed following the receipt of a CDP determination. The issue arises in a lien foreclosure case with the taxpayer arguing, similar to the taxpayer in Holmes, that the IRS did not bring the suit within the 10-year period of the collection statute of limitations. In order for the IRS to win, it had to show that Ms. Giaimo timely brought a CDP suit which tolled the statute of limitations on collection. She argued that she never intended to bring the suit and that the Tax Court petition was untimely filed. The 8th Circuit finds otherwise in an opinion that determines her CDP petition kept open the statute of limitations on collection.

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How do you not realize that you are bringing a suit? Maybe a better way to frame the question in this case would be how do you make it clear why you brought a suit? The facts make it clear that Ms. Giaimo filed a Tax Court petition after receiving a notice of determination. She argues that her suit did not extend the statute of limitations on collection. The 8th Circuit, affirming the lower court, holds that it did.

Ms. Giaimo received a CDP lien notice and a CDP levy notice in 2005 with respect to her income taxes for 1992-1994. The assessment of the liabilities for these years was delayed by a bankruptcy and did not occur until 1999. The levy notice arrived first, in February 2005, which is normal and the lien notice arrived in April of 2005. She sent the IRS Form 12153, seeking to assert her right to a CDP hearing. The form was timely only with respect to the lien notice. The IRS treated the CDP hearing with respect to the levy as an equivalent hearing. At the conclusion of her discussions with Appeals, it decided that she should not receive the relief she wanted. Appeals issued a notice of determination with respect to the CDP lien notice, but a decision letter with respect to the levy because it treated that hearing as an equivalent hearing. She timely petitioned the Tax Court based on the notice of determination and eventually the Tax Court granted summary judgment to the IRS in 2007. The effect of requesting the CDP hearing with respect to the lien notice is to suspend the statute of limitations on collection from the time of the request until the conclusion of the Tax Court case – approximately two years.

Flash forward to 2011 and the IRS initiates a suit to enforce its lien and foreclose upon certain real property. Ms. Giaimo argues that the statute of limitations on collection expired in 2009, ten years after assessment, while the IRS argues that the statute of limitations on collection expires two years later because of the CDP hearing and Tax Court petition. To avoid the problem of having the statute suspended as a result of the Tax Court case, Ms. Giaimo argues that she brought the Tax Court case to contest the levy and not to contest the lien. The 8th Circuit suggests that her argument arises because of the interplay of IRC 6320 (the CDP lien statute) and 6330 (the CDP levy statute). If you look at the two statutes, you find that they do not mirror each other but rather 6320 borrows from 6330. Many of the CDP provisions reside in 6330, and 6320 basically says to go look at 6330 and follow the directions there. Picking up on the differences in the statutes, Ms. Giaimo argues that her Tax Court suit was based on the levy. Since it did not involve a challenge to the notice of federal tax lien, the statute of limitations on collection was not tolled by the Tax Court case.

The 8th Circuit does not buy what she was selling. It looks at the two statutes, it looks at her Tax Court petition, and it determines that the petition sought to challenge the only thing it could challenge – the CDP lien determination. Her Tax Court petition did reference the tax levy, but the 8th Circuit finds that “regardless of what other issues Giaimo impermissibly might have attempted to raise in her Tax Court appeal, she placed a challenge to the lien before the Tax Court….”

Additionally, she argued that her Tax Court petition was untimely. The IRS argued that the fact of the Tax Court jurisdiction is res judicata because of the decision in the case and cannot be collaterally attacked. The 8th Circuit does not accept this argument but looks at the case. It finds that the “presumption of regularity applies to a long-closed proceeding.” It says that Ms. Giaimo has a heavy burden to show that jurisdiction did not exist. Here, she signed the petition four days before the deadline, the Tax Court deemed the petition timely, she failed to challenge jurisdiction while the case was pending, she did not appeal the decision and she failed to collaterally attack the decision for many years. The court found that she did not carry her heavy burden.

She argued that the Tax Court entered her petition on its docket on the third day after the deadline for filing the petition. The 8th Circuit points to the mailbox rule to swat away this argument. She also argued that the IRS had the burden to come up with her envelope to show the timely mailing. The 8th Circuit finds that the IRS does not have such a burden in a case in which she raises the issue many years after the event.

There is nothing remarkable about the decision. Her arguments were somewhat unique. She argues on the opposite side of the argument most petitioners make, because she is trying to undo something that she set in motion. The case points again to a downside in bringing a CDP case without a plan. When a taxpayer makes a CDP request and files a CDP petition, their only plan at the time might be to delay the collection of the liability. If that is the plan, the request and the petition will work, but it comes with a price. She pays the same price as the petitioners in the Holmes case, which is that she keeps open the statute of limitations for the IRS to bring suit. In another recent post, Mr. Mayweather filed a CDP petition to delay collection but with a plan to use that time to collect his fight purse and pay off the liability. Filing the CDP request and petition can have many beneficial aspects but it has consequences, and thinking about those consequences before initiating the proceeding matters.

 

 

Comments

  1. Bryan Camp says:

    Nice post Keith. Good topic and thanks for bringing the 8th Circuit’s opinion to readers’ attention. A more interesting case would be if the CDP was only timely with respect to the notice of intent to levy and not a NFTL. But I think the answer would be the same: the entire CSED gets tolled. Both 6320 and 6330 toll “the running of ANY period of limitations under section 6502” (emphasis mine). I think that means the Service can use any one of its collection tools. I do not see how tolling 6502 can toll just the ability to levy and not the ability to bring a suit to foreclose the line or reduce the assessment to judgment. 6502 tolls the ability to collect a tax “by proceeding in court” (which I read as reduce the assessment to judgment) and the 6322 period of lien says the lien remains until the “liability…becomes unenforceable by reason of lapse of time.”

    • Richard Gavaghan says:

      Good read – Another reason why I personally prefer the Equivalent Hearing (EH) vs. CDP. The taxpayer receives essentially the same treatment in EH with ultimately forgoing tax court rights in exchange for IRS forgoing tolling….in the vast majority of collection cases, I make this trade every day and twice on Sunday.

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