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For Whom the Collection Statute Tolls by Jonathan Kalinski

Every tax practitioner knows the general rule that the IRS has 10 years to collect a tax after the assessment. That isn’t blog material.  Less well known because it is infrequently litigated, is the flush language of IRC §6502(a), which states that the collection statute of limitations is tolled if a timely proceeding in court is commenced when the collection statute is open.  As a result, the government can collect after the 10-year period has expired.

That brings us to a recent Michigan District Court[1] case filed by the government to reduce the liability to judgment that focused on what constitutes a proceeding in court.  The facts are this: In 2005 the IRS timely assessed a 2002 liability against Albert Chicorel, who subsequently died in 2006.  The IRS sent a proof of claim to the estate’s representative and filed it with the Oakland County Probate Court.  The proof of claim was docketed and never disputed.  Mr. Chicorel’s probate case is still pending.  The estate argued that the collection statue expired because 10 years from assessment had passed.  The estate lost.

The parties agreed the issue was a question of Federal law that turned on the nature, function, and effect of submitting a probate claim under local law. The Court held that the “nature, function, and effect” of the proof of claim constituted a proceeding in court and tolled the limitations period.  In doing so it did not rely on Federal tax law, but likened the case to ERISA, SEC, and Title VII precedents.  Michigan’s probate statute provides that for purposes of a statute of limitations, the proper presentation of a claim…is the equivalent to commencement of a proceeding on the claim.

It is important to note that in California and Massachusetts the decision likely would have been different. In United States v. Silverman[2], the Ninth Circuit held that the filing of a claim in California Probate Court did not constitute a proceeding before that court because it would undermine a state statute of limitations.  In United States v. Saxe[3], the First Circuit held that a proof of claim did not commence an actual proceeding, but served to extend the time for service of process in an action already commenced.

In New York, Illinois, and Kentucky, the decision would have been the same. This illustrates the importance of checking state law where relevant, and not simply relying on a Federal case.

Although the decision is bad news for taxpayers in Michigan, there is a potential silver lining. The government is generally hesitant to file a proof of claim because doing so can allow the taxpayer to challenge the liability.    In this case the estate never challenged the claim.

[1] United States v. Estate of Albert Chicorel, Eastern District of Michigan, Case No. 16-10894.

[2] United States v. Silverman, 621 F.2d 961 (9th Cir. 1980), cert. denied, 450 U.S. 913 (1981).

[3] United States v. Saxe, 261 F.2d 316, 319 (1st Cir. 1958).

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