part4-229
- 4.27.4.1
Overview - 4.27.4.2
BRA 94 and BAPCPA 05: Effect of Automatic Stay on or after October 22, 1994 - 4.27.4.3
The Effect of the Bankruptcy on the Notice of Deficiency Period and Assessment Statute - 4.27.4.4
Old Law: Effect of Automatic Stay — Prior to 10/22/1994 - 4.27.4.5
Bankrupt TEFRA Investors - 4.27.4.6
Protecting the Assessment Statute of Limitations (ASED)
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This manual section details how the filing of a bankruptcy petition affects the assessment statute. We will address “old law
(the law before the Bankruptcy Reform Act of 1994 (BRA 94) was enacted),”
BRA 94, and most currently the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA 05). We will address
Pre BRA 94 “old law ”
last since there are few of these cases still in the examination stream.Caution:
The assessment statute is affected in different ways depending on the bankruptcy filed date.
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For bankruptcy petitions filed after October 21, 1994, the automatic stay provision of the U.S. Bankruptcy Code does not prohibit
assessment of agreed deficiencies against the taxpayer. For this reason, the statute of limitations period under IRC section
6503(h)(1) does not apply in these situations.Example:
A taxpayer files her 1993 individual tax return on April 15, 1994. On December 1, 1994, she files a petition for bankruptcy,
and is not granted a discharge until May 2, 1997. On March 31, 1995, she signs a Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment, agreeing to an additional deficiency on her 1993 return. Although still in bankruptcy, the additional tax must be assessed
before the statute of limitations expires on April 15, 1997, under IRC section 6501(a).Example:
On December 1, 1994, a taxpayer files a petition for bankruptcy and will not be granted a discharge until April 30, 1999.
The taxpayer files his 1995 individual tax return on April 15, 1996, and agrees to an examination deficiency on March 25,
1997. Although still in bankruptcy, the additional tax must be assessed on or before the statute of limitations expires on
April 15, 1999, under IRC section 6501(a). -
In unagreed pre-petition case years in which a bankruptcy petition was filed after October 21, 1994, and unagreed post-petition
case years in which a bankruptcy petition was filed after October 21, 1994 but before October 17, 2005, the automatic stay
does not prohibit the issuance of a statutory notice of deficiency. However, the stay still prohibits the commencement or
continuation of a proceeding before the U.S. Tax Court (see Halpern v. Commissioner, 96 T.C. 895 (1991)). For this reason, the statutory notice of deficiency must be issued prior to the expiration of the IRC section 6501(a) assessment
statute. -
Once a statutory notice of deficiency is issued, IRC section 6213(a) suspends the statute of limitations during the 90-day
petition period and IRC section 6503(a)(1) suspends the limitation period for an additional 60 days. -
IRC section 6213(f) provides that the 90-day petition period is suspended while the taxpayer is prohibited from petitioning
the Tax Court due to the bankruptcy proceedings, and for additional 60 days. Thus, while the taxpayer is prohibited from petitioning
the Tax Court due to the automatic stay, the statute of limitations is suspended.Caution:
Under BAPCPA 05, an individual debtors post petition periods are no longer protected by the automatic stay. See IRM 5.9.4.2.1,
BRA 94 and BAPCPA’s Effect on Assessments, paragraph (4). -
Revenue Ruling 2003-80, 2003-29 I.R.B. 80 provides guidance when calculating the assessment period for cases where a notice
of deficiency has been issued, whether issued before or after the taxpayer files a bankruptcy petition. Refer to Revenue Ruling
2003-80, for additional information and examples. -
For cases filed on or after October 17, 2005, BAPCPA limits the stay on Tax court proceedings regarding an individual debtors
tax liability only for a taxable period ending before the order for relief (the stay applies to both pre-petition and post
petition corporate liabilities so long as it is a liability the bankruptcy court may determine). See 11 USC section 362(a)(8).
Therefore, the indirect ASED stay for deficiency liabilities resulting from IRC section 6213(a) will no longer apply to an
individual debtors post petition liabilities. -
The Service may obtain a valid consent to extend the statute of limitations on assessment from entities in bankruptcy.
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For more information, refer to IRM 5.9.4.2.1, BRA 94 and BAPCPAs Effect on Adjustments.
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Bankruptcy can affect the notice of deficiency period and the assessment statute. Examiners need to be familiar with the impact.
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If the 90 day petition period expires prior to the filing of a bankruptcy petition, the automatic stay will have no effect
on the assessment period. The assessment statute will be determined under IRC section 6501(a) and IRC section 6503.Example:
A taxpayer files her 1993 income tax return on April 15, 1994. The return is examined and a statutory notice of deficiency
is mailed on May 31, 1995. The 90-day period for petitioning Tax Court expires on August 29, 1995. On October 31, 1995, the
taxpayer files a bankruptcy petition which triggers the automatic stay. The statute of limitations under IRC section 6503(a)(1)
expires September 12, 1997, determined by adding the 90-day petition period and additional 60 days to April 15, 1997 (the
normal three year statute date under IRC section 6501(a). Since the 90-day petition period expired before the automatic stay
became effective, IRC section 6213(f) does not suspend the petition period nor is the assessment period suspended under IRC
section 6503(h)(1). The statute is not suspended.
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If a taxpayer files for bankruptcy protection after the issuance of a statutory notice of deficiency, but before the expiration
of the 90-day petition period, the taxpayer is prohibited from petitioning the Tax Court while the automatic stay is pending
unless such petition is authorized by the Bankruptcy Court. -
Once the automatic stay is lifted, the unexpired portion of the 90-day petition period begins to run again and the taxpayer
may petition the Tax Court. -
The petition period is extended by an additional 60 days under IRC section 6213(f).
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In such cases, the statute of limitations under IRC section 6503(a)(1) is determined by adding the following periods to the
date the automatic stay is lifted:-
The number of days remaining on the IRC section 6501(a) statute of limitations when the notice of deficiency was issued;
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An additional 60 days under IRC section 6213(f);
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The number of days remaining on the 90-day petition period under IRC section 6213(a) when the bankruptcy was filed; and
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An additional 60 days under IRC section 6503(a).
Example:
A taxpayer files his 1992 income tax return on April 15, 1993. The return is examined and a statutory notice of deficiency
is mailed on May 31, 1995. On July 17, 1995, the taxpayer files a bankruptcy petition, initiating the automatic stay. A discharge
is granted by the Bankruptcy Court on December 29, 1995, which lifts the stay. Since the stay prohibits the taxpayer from
petitioning the Tax Court, IRC section 6213(f) suspends the 90-day petition period for the duration of the stay. Once the
stay is lifted, the taxpayer has until April 10, 1996 (add to December 29, 1995, the remaining 43 days of the petition period
when the bankruptcy was filed and the stay became effective, and an additional 60 days), to petition the Tax Court. If the
taxpayer does not petition by this date, the statute of limitations under IRC section 6503(a)(1) is April 25, 1997, determined
by adding to December 29, 1995 (the date the stay is lifted): (a) the number of days remaining on the statute at the time
the notice of deficiency was issued (May 31, 1995, through April 15, 1996 (321 days)), (b) the 43 days remaining on the petition
period at the time the stay went into effect plus the additional 60 days under IRC section 6503(a), and (c) the additional
60 days to petition the Tax Court under IRC section 6213(f). -
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When a taxpayer is in bankruptcy at the time the statutory notice of deficiency is issued, the 90-day petition period does
not begin to run until the automatic stay is lifted. -
Once the stay is lifted, the taxpayer is permitted to petition the Tax Court within the 90-day period plus 60 days (total
of 150 days) following the lifting of the stay under IRC section 6213(f)(1). -
In such circumstances, the statute of limitations under IRC section 6503(a)(1) is determined by adding the following periods
to the date the automatic stay is lifted:-
The number of days remaining on the IRC section 6501(a) statute of limitations when the notice of deficiency was issued;
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An additional 60 days under IRC section 6213(f);
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The 90-day petition period under IRC section 6213(a) when the bankruptcy was filed; and
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An additional 60 days under IRC section 6503(a)(1).
Example:
A taxpayer files her 1992 income tax return on April 15, 1993. On July 17, 1995, the taxpayer files a bankruptcy petition
initiating the automatic stay. The return is examined and a statutory notice of deficiency mailed on August 31, 1995. A discharge
is granted by the Bankruptcy Court on December 29, 1995, lifting the stay. Since the stay prohibits the taxpayer from petitioning
the Tax Courts, IRC section 6213(f) suspends the 90-day petition period for the duration of the stay and extends by another
60 days (total of 150 days) within which to petition the Tax Court. Once the stay is lifted on December 29, 1995, the 150-day
petition period begins to run and the taxpayer has until May 28, 1996, to petition. If the taxpayer does not petition by this
date, the statute of limitations under IRC section 6503(a)(1) would expire on March 11, 1997, determined by adding to December
29, 1995: (a) the number of days remaining on the statute when the notice of deficiency was issued (August 31, 1995, through
April 15, 1996 (228 days)); (b) the 60-days under IRC section 6213(f); (c) the 90-day petition period under IRC 6213(a), and
(d) an additional 60 days under IRC section 6503(a)(1). -
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This section describes how the automatic stay provisions may suspend and impact the statute of limitations for bankruptcy
petitions filed before October 22, 1994.
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For all pre-petition years of a taxpayer whose petition was filed prior to October 22, 1994, the automatic stay provision
of the U.S. Bankruptcy Code prohibits assessment. The automatic stay operates to prohibit (i) the commencement or continuation
of action before the U.S. Tax Court, and (ii) any act to collect or assess a claim that arose before commencement of the bankruptcy
case (BC section 362(a)(6) and BC section 362(a)(8) before the effective date of BC section 362(b)(9)(d)). IRC section 6503(h)(1)
suspends the running of the statutory period of limitations on making assessments for the period during which the Service
is prohibited from making an assessment as a result of the automatic stay, and for an additional 60 days. In the case of a
joint return where only one spouse is in bankruptcy, IRC section 6503(h)(1) only suspends the statute of limitations for that
spouse. Thus, the statute of limitation for assessment for the spouse not protected by the automatic stay is determined under
IRC section 6503(a)(1). -
For agreed pre-petition years of a pre-BRA 94 case, the statute of limitations is suspended during the period of the automatic stay under IRC section
6503(h)(1). The limitation period is determined by adding to the date the automatic stay is lifted, the number of days remaining
on the normal 3 year statute (under IRC section 6501(a)) plus an additional 60 days (under IRC section 6503(h)(1)). -
If a consent to extend the statute of limitations, under IRC section 6501(c)(4) is executed while the automatic stay is in place, the statute of limitations will be the later
of (i) the suspended statute as determined under IRC section 6503(h)(1) without considering the consent, or (ii) the statute
as extended by consent under IRC section 6501(c)(4). -
The automatic stay does not prohibit the issuance of a statutory notice of deficiency on unagreed pre-petition tax years where a bankruptcy petition was filed prior to October 22, 1994. It only prohibits the commencement or continuation
of a proceeding before the U.S. Tax court. The statutory notice of deficiency should be issued prior to the expiration of
the statute under IRC section 6501(a) without considering the statute suspension provisions of IRC section 6503(h)(1) for
taxpayers in bankruptcy. This practice is in the Services best interest in view of events such as dismissal of bankruptcy
petition, or lack of timely notice of dismissal, or discharge of the bankruptcy case. -
When a statutory notice of deficiency is issued, IRC section 6503(a)(1) and IRC section 6213(a) suspend the statute of limitations during the 90-day (150-day for
addresses outside U.S.) petition period and for an additional 60 days thereafter. For a taxpayer who is prohibited by the
automatic stay from filing a petition with the Tax Court, the 90-day petition period under IRC section 6503(a)(1) and IRC
section 6213(a) is suspended and an additional 60 days allowed under IRC section 6213(f). Thus, the taxpayer in a bankruptcy
proceeding has a total of 150 days (not including the time suspended while the stay was in effect), within which to petition
the Tax Court. -
If an assessment was pending (e.g., on a defaulted 90-day case) when the bankruptcy petition was filed, the automatic stay of the U.S. Bankruptcy Code
prohibited the assessment on pre-BRA 94 bankruptcy cases. IRC section 6503(h)(1) suspended the running of the 3-year assessment
period under IRC section 6501(a) statute of limitations provisions and added an additional 60 days to the three year period. -
If the 90-day petition period has expired and no assessment was made by the bankruptcy petition date (and the automatic stay went into effect), the statute for assessment purposes under IRC section
6503(h)(1) is calculated by adding the following to the date the automatic stay is lifted:-
The number of days remaining on the statute at the time the automatic stay went into effect, without considering the 90-day
statutory notice period. If a consent to extend the statute under IRC section 6501(c)(4) was executed before the automatic
stay was effective, it will be considered in calculating the days remaining on the statute. -
An additional 60-day assessment period under IRC section 6503(h)(1).
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If a taxpayer goes into bankruptcy after the issuance of a statutory notice of deficiency but before the 90-day petition period has expired, the taxpayer is prohibited from petitioning the Tax Court during the automatic stay, unless authorized by the U.S. Bankruptcy
Court. However, once the automatic stay is lifted, the taxpayer is again permitted to petition the Tax Court during the unexpired
portion of the 90-day period when the automatic stay went into effect plus an additional 60 days (IRC section 6213(f)). In
such circumstances, the statute of limitations under IRC section 6503 is determined by adding the following periods to the
date the automatic stay is lifted:-
The number of days remaining on the statute at the time the notice of deficiency was issued;
Note:
If a consent to extend the statute under IRC section 6501(c)(4) has been executed, it will be considered in calculating the
days remaining on the statute if it was executed before the automatic stay became effective. -
The number of days remaining on the 90-day period for petition to the Tax Court at the time the automatic stay went into effect
plus 60 days under IRC section 6513(f); and -
Additional 60 days for taxpayer to petition the Tax Court under IRC section 6503(a)(1).
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If a statutory notice of deficiency is issued during the automatic stay, the taxpayer is prohibited from petitioning the Tax
Court until the Bankruptcy Court lifts the stay. Thus, the 90-day notice of deficiency period does not commence until the
automatic stay is lifted. Once it is lifted, the taxpayer is permitted to petition the Tax court for the 90-day period following
the lifting of the stay plus an additional 60 days (IRC section 6213(f)). In such circumstances, the statute of limitations
under IRC section 6503 is determined by adding the following periods to the date the automatic stay is lifted:-
The number of days remaining on the statue of limitations at the time the automatic stay went into effect.
Note:
If a consent under IRC section 6501(c)(4) was executed before the automatic stay is effective, it will be considered in calculating
the days remaining on the statute. -
The 90-day petition period under IRC section 6213(a), plus 60 days as provided under IRC section 6503(a)(1); and
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Additional 60 days to petition Tax Court under IRC section 6213(f).
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The automatic stay provision of the Bankruptcy Code does not apply to post-petition tax years even if the petition was filed
before October 22, 1994, except where 90-day petition period on a statutory notice must be suspended. -
The automatic stay provisions of IRC section 6503(h)(1) do not apply to agreed post-petition years, even where a petition was filed prior to October 22, 1994. (On or after October 22, 1994, the automatic stay no longer
prohibits assessment under the Bankruptcy Code.) -
Assessments may be made regardless of the taxpayers status in the bankruptcy proceeding.
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The bankruptcy automatic stay operates to prohibit:
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The commencement or continuation of action before the U.S. Tax Court, and
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Any act to collect or assess a claim against a debtor that arose before the commencement of the bankruptcy case. BC section
362(a)(6) and BC section 362(a)(8).
Thus, the statute suspension provisions of IRC section 6503(h)(1) do not apply.
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For all post-petition years of a taxpayer who filed a petition prior to October 22, 1994, the automatic stay provisions do
not prohibit the issuance of a statutory notice of deficiency. However, the stay does prohibit the commencement or continuation
of a proceeding before the U.S. Tax Court, unless authorized by the Bankruptcy Court (refer to Halpern v. Commissioner, 96 T.C. 895 (1991)). Thus the statute must be protected by issuance of a notice of deficiency prior to the expiration of the IRC section 6501(a)
assessment statute. -
To accommodate the effect the automatic stay has on the filing of Tax Court petitions, IRC section 6213(f) provides that the
90-day period to petition the Tax Court under IRC section 6213(a) is suspended due to the automatic stay plus the additional
60 days. IRC section 6503(a)(1) is a general provision suspending the statute of limitations during the IRC section 6213(a)
90-day petition period and for 60 days thereafter.
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When a TEFRA investor files for bankruptcy protection, the assessment statutes of limitation (ASED) on the affected pre-petition
years become shortened. The most common ASED date will be the one year date which is imposed by IRC section 6229(f) — Items
Becoming Non-partnership Items. -
Because this is a specialized area, Examiners are encouraged to contact their area TEFRA coordinator when determining the
ASED of a TEFRA investor. -
By filing for bankruptcy, the TEFRA investor converts the partnership items into non-partnership items as of the date the
bankruptcy petition is filed. The investor no longer remains a part of the TEFRA proceedings. The Service then has one year
from the bankruptcy petition date to make an assessment or issue a statutory notice of deficiency. The one year period under
IRC section 6229(f) may be extended using Form 872–F, Consent to Extend the Time to Assess Tax Attributable to Items of a Partnership or S Corporation That Have Converted Under
IRC Section 6231(b). -
The other ASED that should be determined in bankrupt TEFRA investor cases is the suspension of the statute of limitations
during the period when an action may be brought on a notice of final partnership administrative adjustment plus one year,
as provided under IRC section 6229(d) — Suspension When Secretary Makes Administrative Adjustment. This code section provides
that if an action is brought on the final notice during the suspension period, the suspension is extended until the decision
of the court. Once the decision is entered on the key TEFRA partnership case, and becomes final (normally 90 days from the
date that the decision is entered by the court), the TEFRA proceedings have ended and Service has one year in which to make
any flow through adjustments to related TEFRA investor tax returns and to assess any tax resulting from the court decision.
The one year date under IRC section 6229(d) may supersede the ASED of IRC section 6229(f). The ASED is the earlier of one
year from the date the court decision becomes final or one year from the bankruptcy petition date. -
See IRM 4.31.7, Pass-Through Entity Handbook – TEFRA Bankruptcy for additional information.
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As a general rule, an alpha code should not be entered on AIMS and on statute control records prior to 180 days before expiration
of the normal statutory period for assessment and the individual ASED alpha code descriptions below should be read in the
context of this general rule. Most alpha codes apply only when precise requirements of the law are met. The alpha code should
be used only when it is clear that all essential elements of the applicable law are present.Caution:
For those joint tax returns involving a non-bankrupt spouse, do not update to Alpha Code “KK” until the non-bankrupt spouse
has been assessed. -
IRM 25.6.23, Examination Process-Assessment Statute of Limitations Controls, and IRM Exhibit 25.6.23-3, Instructions for Updating the Statute on AIMS, provides detailed information about completing Forms 895 and the use of Alpha Code “KK.”
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Once an automatic stay has been lifted, the ASED will be recomputed and the ASED will be updated.
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When updating an ASED to “KK,”
note in the remarks section of the Form 895, Notice of Statute Expiration, the date the notice of deficiency was issued and the date the bankruptcy petition was filed. -
When the ASED is updated after an automatic stay has been lifted, indicate on the Form 895 the dismissal or discharge date.
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Leave Alpha Code “EE”
for those cases where no return has been filed. At least once a year, check IDRS for transaction codes that may indicate
a return may have been filed.
