IRS CANNOT OBTAIN EXTENSION OF STATUTE OF LIMITATIONS
This case may apply to waiver signed by an attorney.
sEE: Staso v. U.S., 538 F.Supp.2d 1335 (D. Kan., 2008)
C. The Internal Revenue Service Restructuring and Reform Act of 1998
In 1998, Congress passed the Internal Revenue Service Restructuring and Reform Act of 1998 (“the 1998 Reform Act”), which took effect on January 1, 2000.64 Two sections of the 1998 Reform Act are particularly relevant to this appeal: § 3461 and § 3462.
Section 3461 of the 1998 Reform Act amended I.R.C. § 6502 and was entitled “Procedures Relating to Extension of Statute of Limitations by Agreement.”65 Section 3461 eliminated the ability of the taxpayer and the IRS to enter into an agreement to extend the collection statute of limitations in conjunction with an offer in compromise.66 Pursuant to § 3461(c)(1), the amendments made by § 3461 were to apply to any requests to extend the period of limitations that were made after December 31, 1999.67 Thus, after December 31, 1999, the taxpayer and IRS could not enter into any new agreements to extend the CSED such as those that were contained in the Form 656 and the first two of Plaintiffs OICs.
Section 3461(c)(2) of the 1998 Reform Act also contained a provision that applied to any “prior requests,” i.e., requests to extend the period of limitations that were made on or before December 31, 1999. Section 3461(c)(2), provided:
PRIOR REQUEST — If, in any request to extend the period of limitations made on or before December 31, 1999, a taxpayer agreed to extend such period beyond the 10-year period referred to in section 6502(a) of the Internal Revenue Code of 1986, such extension shall expire on the latest of —
(A) the last day of such 10-year period;
(B) December 31, 2002; or
(C) in the case of an extension in connection with an installment agreement,68 the 90th day after the end of the period of such extension.69
This amendment contained in § 3461(c)(2) of the 1998 Reform Act is known as a “Sunset Provision,”70 and, by its express terms, applied only to requests to extend the period of limitations that were made on or before December 31, 1999.71 Thus, as to a request to extend the ten-year limitations period that was made on or before December 31, 1999 and which did not involve an installment agreement, the Sunset Provision of the 1998 Reform Act provided that the extension would expire on the last day of the ten-year collection period or on December 31, 2002, whichever was later.
Another section of the 1998 Reform Act that is relevant to this appeal is § 3462, which was entitled “Offers-in-Compromise.”72 72 Section 3462(b) of the Reform Act amended I.R.C. § 633173 to suspend the limitations period while an OIC was pending (and for an additional thirty days after the IRS rejected an OIC and during the pendency of any appeal filed after the rejection).74 More specifically, § 3462(b) added § 6331(k)(1) to the I.R.C. Code and prohibited the IRS from making any levy during the time an OIC was pending and for thirty days after the rejection of the OIC, and during the period that any appeal was pending (assuming the taxpayer filed an appeal within thirty days of the rejection of the OIC).75 Section 3462(b) stated that for purposes of new § 6331(k)(1), an offer in compromise would be deemed to be pending “beginning on the date the Secretary accepts such offer for processing.”76
In addition, § 3462(b) stated that for purposes of new § 6331(k)(3), a rule similar to I.R.C. § 6331(i)(5) would apply.77 I.R.C. § 6331(i)(5) — which was not changed by the 1998 Reform Act — provided that the period of limitations was suspended while the IRS was prohibited from making a levy.78 The Court will refer to this portion of the amendment as the “Suspension Provision” of the 1998 Reform Act.
Thus, under these 1998 Reform Act amendments, during the pendency of an OIC and thirty days after the rejection of the OIC (and any subsequent appeal period), the IRS was, pursuant to I.R.C. § 6331(k), prohibited from levying on the assessment and, pursuant to I.R.C. § 6331(i)(5) (i.e., the Suspension Provision) the statute of limitations was suspended during that period.
Section 3462(e) of the 1998 Reform Act set out the effective dates of the amendments contained within § 3462. Section 3462(e) stated as follows:
EFFECTIVE DATES. —
(1) IN GENERAL. — The amendments made by this section shall apply to proposed offers-in-compromise and installment agreements submitted after the date of the enactment of this Act.
(2) SUSPENSION OF COLLECTION BY LEVY. — The amendment made by subsection (b) shall apply to offers-in-compromise pending on or made after December 31, 1999.79
As noted above, the 1998 Reform Act was enacted, i.e., became effective, on January 1, 2000.
D. The Community Renewal Tax Relief Act of 2000
In 2000, Congress passed the Community Renewal Tax Relief Act of 2000 (“2000 Renewal Act”).80 Effective December 21, 2000, the 2000 Renewal Act eliminated the provision allowing suspension of the limitations period during the pendency of an OIC. More specifically, the 2000 Renewal Act amended I.R.C. § 6331(k)(3) to delete the reference to I.R.C. § 6331(i)(5).81 In other words, the 2000 Renewal Act deleted the Suspension Provision so that the limitations period was no longer suspended for the period during which the IRS was prohibited from making a levy (which had included the period during which an OIC was pending). The 200 Renewal Act stated that this particular amendment took effect the date of enactment, i.e., December 21, 2000.82