Opinion ID: 77627
Heading Depth: 2
Heading Rank: 1

Heading: Tolling of the Statute of Limitations by the Offers in Compromise

Text: 14 Mr. Ryals first asserts that the lower court erred in concluding that the complaint for collection after assessments was timely filed. The lower court's decision, and this Court's de novo review of that issue, depends on a detailed review of the facts presented as applied to several revisions in the applicable statutes. Before embarking on that review, it bears noting that statutes of limitations that bar the collection of taxes otherwise due and unpaid, as they are here, are strictly construed in favor of the Government. See Atl. Land & Improvement Co. v. United States, 790 F.2d 853, 858 (11th Cir.1986); see also Lucia v. United States, 474 F.2d 565, 570 (5th Cir.1973) ([A] period of limitations runs against the collection of taxes only because the Government, through Congressional action, has consented to such a defense. Absent Government consent, no limitations defense exists.) (citations omitted). 15 When a taxpayer fails to pay assessed taxes after notice and demand, the Government may bring a suit to reduce the assessment to judgment. See 26 U.S.C. §§ 7401-7403. Under 26 U.S.C. § 6502(a)(1), 3 the Government has ten years from the date of an assessment to collect a federal tax liability by bringing suit. 16 Offers in compromise operate as one way to suspend the running of the ten-year statute of limitations. See 26 U.S.C. §§ 6331(k) and (i)(5). Offers in compromise contain a waiver of the limitations period in order to enable the Government to consider the offer without the prejudice resulting from a running of the limitations period against collection of the tax. See United States v. Ressler, 576 F.2d 650, 652 (5th Cir.1978) (citations omitted). The running of the statutory period is suspended until the offer of compromise is terminated, withdrawn, or formally rejected. Id. (citation omitted). Furthermore, one additional year is added to the suspension period in accordance with the parties' agreement as contained in the Forms 656 used by the taxpayer and the IRS here. 17 An attempted withdrawal of an offer in compromise by the taxpayer, as Mr. Ryals attempted to effect with his 1997 offer, becomes effective only once an authorized IRS official returns or acknowledges withdrawal of the offer in writing, as is stated in the Form 656 submitted. See also United States v. Donovan, 348 F.3d 509, 512 (6th Cir.2003) (offer ceases to be pending for purposes of statute of limitations when IRS officer, in writing, accepts, rejects or acknowledges withdrawal of the offer). While Mr. Ryals certainly communicated his withdrawal of the first offer in compromise, no written acknowledgment of the withdrawal by an IRS official was ever made. 18 Mr. Ryals' tax liabilities were assessed on June 22, 1989, and this event triggered the ten-year statute of limitations. In the absence of any offers in compromise or statutory provisions altering the ten-year period, the statute of limitations on collection would have expired on June 22, 1999. A little less than two years before the expiration of the limitations period, on August 19, 1997, the first offer in compromise was submitted. This offer had the effect of suspending the ten-year statute of limitations for the time it was pending, plus one additional year. The Appeals Office rejected the first offer on January 25, 2000. Thus, the limitations period was extended by three years, five months and seven days, from the original deadline of June 22, 1999 to November 29, 2002. 19 However, just over one month was added to this extension by Congress' passage, during the pendency of the first offer, of the Internal Revenue Service Restructuring and Reform Act of 1998 (Reform Act), Pub.L. No. 105-206, § 3461(c)(2),112 Stat. 685, 764 (1998). The Reform Act took effect on January 1, 2000, and applied to requests to extend the period of limitations made after December 31, 1999. See Reform Act at § 3461(c)(2), 112 Stat. 685, 764. As to requests to extend the limitations period made on or before December 31, 1999, however, the Reform Act amended section 6502(a)(2) and provided that where a taxpayer agreed to extend such period beyond the ten-year period contained in section 6502(a) of the Internal Revenue Code of 1986, the extension would expire on the latest of: the last day of the ten-year period; December 31, 2002; or the 90th day after the end of the period of an extension in the case of an extension in connection with an installment agreement. See Reform Act at § 3461(c)(2), 112 Stat. 685, 764. Because here the first offer was presented before December 31, 1999, and the last day of the ten-year period was June 22, 1999, the effect of the Reform Act was to extend the November 29, 2002 deadline previously computed to December 31, 2002, the latest of the three possible dates set forth in the Reform Act section 3461(c). See, e.g., United States v. Elton, 429 F.Supp.2d 561, 574-75 (E.D.N.Y.2006) (applying Reform Act). 20 Analysis of the relevant events and relevant statutes for tolling purposes does not end here, however. On June 14, 2000, also after the effect of the Reform Act, Mr. Ryals submitted his second offer in compromise. This offer remained pending until March 12, 2002, when it was rejected. Several additional statutory provisions govern the effect this second offer had on the expiration of the statute of limitations. 21 Another change in the Reform Act, which operates to suspend the statute of limitations on collection while an offer in compromise (made on or after December 31, 1999) is pending, is the addition of section 6331(k). Under 26 U.S.C. § 6331(k), which was added by Pub.L. No. 105-206, § 3462(b), 112 Stat. 685, 765-66, the IRS is prohibited from making a levy on property or the rights to property of a person with respect to an unpaid tax while an offer in compromise by such person is pending, or if the offer is rejected, during the 30 days thereafter. 4 An offer in compromise is pending beginning on the date the Secretary accepts the offer for processing. Id. Pursuant to section 6331(i)(5), the period of limitations is suspended while the IRS is prohibited from making a levy, and section 6331(k)(3) provides that rules similar to section 6331(i)(5) apply. Because Mr. Ryals' second offer was accepted for processing on June 14, 2000, section 6331(k) applied to suspend the statute of limitations from June 14, 2000 to April 12, 2002. 22 Later statutory enactments also apply to the determination of how this second offer in compromise served to extend the statute of limitations. These are The Community Renewal Tax Relief Act of 2000 (Renewal Act), Pub.L. No. 106-554, 114 Stat. 2763 (2000); and the Job Creation and Worker Assistance Act of 2002 (Worker Assistance Act), Pub.L. No. 107-147, § 416(e)(1), 116 Stat. 21, 55 (2002). Effective December 21, 2000, the Renewal Act eliminated the statutory suspension of the limitations period. 5 Therefore, the second offer suspended the limitations period only from June 14, 2000 through December 20, 2000, the effective date of the Renewal Act. The Worker Assistance Act, effective on March 9, 2002, reinstated the statutory suspension, 6 thereby tolling the limitations period until March 12, 2002, the date the IRS rejected the second offer. 23 Thus, a total of six months and nine days of suspension, (i.e., from June 14, 2000 to December 20, 2000, plus three days from March 9, 2002 to March 12, 2002), are added to the suspension period derived by operation of the first offer in compromise. Each of the statutory amendments discussed applies to the second offer, and section 6502(a)(2) of the Reform Act applies to the first offer, because the Forms 656 that Mr. Ryals executed specifically reference any statutory periods of limitation, and the statutes at issue were each enacted before expiration of the limitations period(s) agreed upon. See Foutz v. United States, 72 F.3d 802, 806 (10th Cir.1995) ([T]he Form 900 that taxpayer signed . . . expressly referenced extending the `statutory period.' . . . Treating the waiver not as a contract but as an extension of the statute of limitations, the 1990 amendments were made before the time for collection had expired.). Because the first offer served to toll or suspend the statutory limitations period until December 31, 2002, and adding six months and nine days to that date extends the period until July 9, 2003, the suit was timely filed on May 20, 2003. 24 Mr. Ryals raises two principal arguments in support of his position that the suit is not timely. The first is that the Reform Act had absolutely no effect on the original tax collection statute of limitations expiration date, and thus did not extend the suspension period of the first offer in compromise from November 29, 2002 7 to December 31, 2002. This argument is premised on Mr. Ryals attempting to discern congressional intent in first limiting (Reform Act), and then eliminating (Renewal Act), and then reinstating (Worker Assistance Act), the tolling or suspension associated with offers in compromise in the various statutes discussed above. The argument, Mr. Ryals insists, finds support in regulations promulgated during the relevant time period, and even in the initial position the Government expressed in its motion for summary judgment. 25 The second argument is that because the IRS did not suspend its collection activities while the second offer in compromise was pending, the collection statute of limitations was not suspended. This argument is premised on the language of the applicable statute and regulation. 26 Addressing Mr. Ryals' first argument, the lower court correctly discerned the effect of the Reform Act on the first offer in compromise, because it applied the clear words used in the statute. The Reform Act certainly limited the Government's ability to contractually extend the statute of limitations. However, as to requests to extend the period of limitation made before December 31, 1999, as this one was, that remained pending on December 31, 1999, a sunset provision stated that the statute of limitations expires on the latest of — (A) the last day of the 10-year period; (B) December 31, 2002; or (C) in the case of an extension in connection with an installment agreement, the 90th day after the end of the period of such extension. See Reform Act, § 3461(c)(2), 112 Stat. 685, 764 (1998) (emphasis added). This express statutory language applied to the first offer in compromise. Whether or not such a construction is at odds with temporary regulations issued, 8 congressional intent, or the initial position of the Government as stated in its motion for summary judgment 9 is irrelevant because the clear words of the statute command this result. See United States v. Orozco, 160 F.3d 1309, 1313 (11th Cir.1998) (where a statute's language is plain, the sole function of the courts is to enforce it according to its terms) (citations omitted). 27 Mr. Ryals' second argument is that the statute of limitations on the IRS' collection suit should not be considered suspended during the pendency of his second offer in compromise (from June 14, 2000 to March 12, 2002), because the IRS continued collection activities during that period of time in violation of the relevant statute. In 1991, the IRS issued a wage levy 10 to Mr. Ryals' employer, and bi-weekly payments from his employer have been sent to the IRS since that time. The wage levy issued by the IRS in 1991 continued in effect throughout the pendency of Mr. Ryals' second offer in compromise. 28 Mr. Ryals' argument that the statute of limitations should not be considered suspended during the pendency of his second offer in compromise is based on the interplay between two provisions of 26 U.S.C. § 6331. The first one, contained in section 6331(k)(1)(A), provides that: No levy may be made . . . on the property . . . of any person with respect to any unpaid tax — during the period that an offer-in-compromise by such person . . . is pending with the Secretary. The second one, contained in section 6331(i)(5), 11 provides that: The period of limitations under section 6502 shall be suspended for the period during which the Secretary is prohibited . . . from making a levy. Relying on these two provisions, Mr. Ryals argues that, to the extent the IRS continued to levy on his property (his bi-weekly paychecks) during the pendency of his second offer in compromise, the IRS acted contrary to section 6331(k)(1)(A) and should not be permitted to benefit by having the statute of limitations on its collection suit suspended during that period. In effect, Mr. Ryals asks us to remedy the IRS' alleged violation of the statute by treating the statute of limitations on the collection suit as having run throughout the pendency of the second offer in compromise. 29 The Government acknowledges that the IRS is generally prohibited from making new levies during the pendency of an offer in compromise, but argues that this prohibition does not affect continuous, one-time levies (like the wage levy challenged by Mr. Ryals) first made before the offer in compromise became pending. The Government thus argues that the IRS did not violate section 6331(k)(1)(A) when it left in place the pre-existing levy on Mr. Ryals' wages and that, in any event, there is no indication that Congress intended a violation of section 6331(k)(1)(A) to be remedied by running the statute of limitations on the IRS' collection suit. Because the statutory text supports the Government's position that the IRS did not violate section 6331(k)(1)(A), we reject Mr. Ryals' argument to the contrary and have no occasion to decide what remedy is appropriate where such a violation has occurred. 30 For purposes of construing section 6331(k)(1)(A)'s general prohibition on levies made during the pendency of an offer in compromise, Congress has directed us to apply [r]ules similar to the rules of . . . paragraph[] (3) . . . of subsection (i). 26 U.S.C. § 6331(k)(3)(A). The cross-referenced provision — section 6331(i)(3) — in turn contains a rule that states: This subsection [subsection (i)(1), which generally prohibits levies from being made during the pendency of certain refund proceedings] shall not apply to . . . any levy which was first made before the date that the applicable proceeding under this subsection commenced. 26 U.S.C. § 6331(i)(3)(B)(ii). By analogy, then, a rule similar to the rule contained in section 6331(i)(3)(B)(ii) would state: This subsection [subsection (k)(1)(A), which generally prohibits levies from being made during the pendency of an offer-in-compromise] shall not apply to . . . any levy which was first made before the date that the offer in compromise became pending. The upshot of the rule Congress has told us to apply in situations like this is that the IRS is not prohibited from levying on a taxpayer's property during the pendency of the taxpayer's offer in compromise, so long as the levy was first made before the date on which the offer in compromise became pending. Applying that rule to this case, we conclude that the IRS did not violate the general prohibition on levy set forth in section 6331(k)(1)(A). We therefore reject Mr. Ryals' claim to the contrary and hold that the statute of limitations was properly suspended during the pendency of his second offer in compromise. 31