Tax Realty Consultant

IRS tax liens, which attached more than six but less than ten years previously to married debtors’ property that was transferred to a realty trust of which the wife was the sole beneficiary, were still in existence because the collection period had been statutorily extended from six to ten years. However, the IRS was required to file new notices of the liens but failed to do so prior to the expiration of the refiling period. Thus, the IRS’s claims lost their priority status with respect to existing mortgages as well as the bankruptcy trustee.

An IRS action to foreclose tax liens on property which the taxpayer fraudulently conveyed to her daughter was timely brought within ten years after the taxes were assessed. The action to collect the fraudulently conveyed property from the daughter was not governed by the six-year statute of limitations under the Federal Debt Collection Procedures Act of 1990 because that Act does not limit the federal government’s right to collect taxes. Although the IRS’s right to set aside the conveyance was based on state (Florida) fraudulent conveyance law, the IRS was not bound by any state statute of limitations.

The statutory amendment that changed the statute of limitations on collection actions from six years to ten years and applied the change retroactively was not unconstitutional. The amendment did not give rise to a due process claim because its purpose, to raise revenue without imposing additional prospective tax liabilities, was rational and reasonable. Moreover, the extended limitations period did not abrogate any rights of or create any new liabilities for a partner. The taxpayer did not rely on the expiration of the six-year limitations period to avoid the tax, and the length of the retroactivity was not inappropriate given the purpose of the statute. The amendment did not give rise to an equal protection claim because the classification purportedly created by its retroactive application was rationally related to a legitimate governmental purpose.

The statute of limitations for enforcing a levy against two consulting firms that failed to surrender funds owed to a bankrupt company was suspended as long as the company was in bankruptcy proceedings and for six months thereafter. The firms’ argument that the limitations period should not have been tolled because the IRS could have sued the firms or the bank to which the funds were paid once they surrendered the funds to the bank was rejected.

The ten-year statute of limitations for collection properly applied in a case where the six-year limitations period, in effect before its amendment by Congress in 1990, had not expired as of November 5, 1990. Although an initial District Court order stated that the IRS had six years from the date of assessment to collect the taxes, a subsequent opinion issued in the same proceeding by a successor judge properly revised the limitations period to reflect the newly enacted ten-year period. The “law if the case” doctrine did not prevent the successor judge from amending the order to reflect the longer period of limitations because, at the time the order was entered, the change did not prejudice the taxpayer. Under either limitations period, the IRS was not time-barred from collecting the assessed taxes as of the time the order was entered. Moreover, collateral estoppel prevented the taxpayer from rearguing the limitations period. The taxpayer had ample opportunity at his prior District Court proceeding to argue that the six-year limitations period should apply.The IRS’s failure to meet the 60-day mailing deadline for giving notice and demand of payment of tax did not void the otherwise valid assessments. The court concluded that the purpose of the 60-day notice requirement was to allow the taxpayer an opportunity to make voluntary payments of tax before the IRS could use its lien and collection powers. Thus, the IRS’s failure in this case resulted only in the removal of its nonjudicial collection powers. The taxpayer remained liable for the amounts assessed. Further, the IRS’s counterclaim to reduce to judgment the assessments made for two of the years at issue was not barred by the statute of limitations as a result of its not meeting the 60-day deadline for notice and assessment.
Liens for taxes did not lapse with the passage of time inasmuch as (1) the administrative procedure of collecting the assessment did not have to be completed within six years after the tax lien was perfected, and (2) an action was instituted within the statutory period of six years.
The government was entitled to the portion of proceeds from the sale of a delinquent, insolvent individual’s property that were attributable to fraudulent enhancement of the property. Although a 6-year limitations period applied at the time the IRS assessed the taxpayer’s unpaid liabilities, it was subsequently changed to 10 years. Because the 6-year limitations period had not expired at the time of the amendment and the government’s fraudulent enhancement claim was within the 10-year limitations period, it was timely.

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