The Ninth Circuit in United States v. Kollman adopted the view of the IRS on the statute of limitations tolling impact of Collection Due Process (CDP) cases. The case provides a simple affirmation of the regulations with no curves but deserves mention because the length of the tolling can matter in other cases as it did here. The IRS and Department of Justice have a habit of bringing suits at or near what they calculate as the last possible moment. Double checking their calculation provides the taxpayer an important service in cases that usually have little basis for defense on the merits.
This case represents one of the very first CDP notices issued by the IRS. Mr. Kollman owed taxes for 1996 which the IRS assessed on November 24, 1997. Normally, the statute of limitations on collection runs for 10 years and would have expired on November 24, 2007, absent something extending that date. On March 18, 1999, less than two months after the IRS began issuing CDP notices in January of that year on the effect date of RRA 98, Mr. Kollman filed a CDP request. He could have received the CDP request as much as 30 days before that date and the IRS did not get off to a fast start when it started the process of sending CDP notices. So, he must have received one of the very first ones.
Because he filed one of the first CDP cases, Appeals jumped right on his case. By June 18, 1999, it had made its determination sustaining the collection action proposed by the IRS. It sent him a notice of determination on that date giving him 30 days to petition the Tax Court. He did not file a petition in Tax Court. He also did not pay some or all of the taxes at issue, and, as the statute of limitations on collection wound down, the IRS decided to bring a suit to reduce the assessment to judgment to buy more time to collect from him. The issue in this case turns on the timeliness of the filing of the suit on March 12, 2008, which turns on the suspension of the statute of limitations on collection caused by the CDP request.
Section 6330(e) provides for the statute of limitations suspension when a taxpayer makes CDP request; however, it does not specific exactly how long the suspension lasts. In the regulation at 301.6330-1(g)(1) the IRS gets very specific about the period of the suspension. The regulation provides that the statute suspension lasts from the date of the request until 30 days after the date of the notice of determination in situations in which the taxpayer does not petition the Tax Court. The specific language suspends the statute until “the determination resulting from the CDP hearing becomes final by expiration of the time for seeking judicial review.” Had the taxpayer petitioned the Tax Court the suspension would have continued until “the exhaustion of any rights to appeals following judicial review.”
The period from the receipt of the request for the CDP hearing on March 18, 1999, until 30 days after June 18, 1999, is 123 days. Adding 123 days to the normal statute expiration date of November 24, 2007, yields March 26, 2008. The suit was filed on March 12, 2008, within the extended time period for collection in this case.
Mr. Kollman argued that the language of the statute clearly stated the tolling period would run during the time of the hearing citing to the statutory language – “shall be suspended for the period during which such hearing and appeals therein are pending.” He needs the court to find this language so clear that any regulation reaching a different conclusion must fail under the Chevron test. Neither the district nor the circuit court found that kind of clarity sought by Mr. Kollman. As a result they turned to the regulation for an explanation of the period of tolling. The regulation, as quoted above, provides clear guidance on this point.
Having determined under the first test of Chevron that the statute did not clearly provide an answer to the question posed here, it moved on to the second step of Chevron – did the regulation provide a permissible construction of the statute? On that point it found for the IRS as well. The construction of the statute by the IRS provided a reasonable basis for interpreting an unclear provision. The interpretation was consistent with other regulations providing guidance in similar circumstances. Further, the court went on to find the interpretation consistent with the legislative history.
In all, the decision of the court provides no surprises. It also provides judicial authority now for a well settled interpretation of the how the statute suspension works when someone makes a CDP request. Because the statute suspension of CDP can impact a taxpayer, it must be considered prior to making a CDP request. Many times, you might accomplish your goal in a CDP request through an equivalent hearing. Within the short 30 day span allowed after the CDP notice, one of the things to think about with a client is the benefit of making a CDP request because of the downside of the suspension of the statute of limitations. The case provides no information about the reasons for Mr. Kollman’s request. Had he decided not to make a CDP request, the IRS would probably have made its decision to file suit with the normal 10 year time frame. The suspension here may not have made a difference, but it is something to think about when deciding to make a CDP request particularly because some of the same collection goals may be attainable in an equivalent hearing without the suspension of the statute of limitations.