You did the math. The return was due more than three years ago. The assessment is more than 240 days old. You are ready to file.

Then your lawyer asks a question you did not expect: have you ever filed bankruptcy before, made an offer in compromise, or asked for a Collection Due Process hearing? If the answer is yes, your math is probably wrong.

The basic clocks

Income tax is a priority claim, and nondischargeable through § 523(a)(1)(A), when it falls within the time periods in § 507(a)(8)(A). The two that matter most here:

  • The 3-year rule, § 507(a)(8)(A)(i): the return was last due, including extensions, within three years before the petition. See the 3-year rule.
  • The 240-day rule, § 507(a)(8)(A)(ii): the tax was assessed within 240 days before the petition. See the 240-day rule.

Tolling means time gets added to those periods. The window you have to wait out gets longer.

Where it started: Young v. United States

In Young v. United States, 535 U.S. 43 (2002), the debtors filed a Chapter 13, then moved to dismiss it, then filed a Chapter 7 the day before the dismissal was entered. By the time of the Chapter 7, the return for the tax year at issue had been due more than three years earlier. They argued the tax was discharged.

A unanimous Supreme Court said no. The Court held that the three-year lookback is a limitations period subject to equitable tolling, and that it was tolled while the earlier Chapter 13 was pending, because the automatic stay kept the IRS from protecting its claim. The Court also said tolling applies whether the first case was filed in good faith or solely to run down the clock.

Congress then wrote it into the statute

After Young, Congress added language at the end of § 507(a)(8), usually called the hanging paragraph. It says an otherwise applicable time period in paragraph (8) is suspended for:

  • any period during which a governmental unit is prohibited under nonbankruptcy law from collecting a tax as a result of the debtor's request for a hearing and an appeal of a collection action, plus 90 days;
  • any time during which the stay of proceedings was in effect in a prior bankruptcy case, plus 90 days;
  • any time during which collection was precluded by one or more confirmed bankruptcy plans, plus 90 days.

Because it applies to the time periods "specified in this paragraph," the suspension reaches the 3-year rule and the 240-day rule alike.

The 240-day rule has its own built-in extensions

Section 507(a)(8)(A)(ii) separately excludes from the 240 days:

  • any time during which an offer in compromise for that tax was pending or in effect during the 240-day period, plus 30 days; and
  • any time during which a stay was in effect in a prior bankruptcy case during the 240-day period, plus 90 days.

Read the text closely. The offer in compromise extension is written into the 240-day clause. It is not in the hanging paragraph's list. So, on the face of the statute, a pending offer adds time to the 240-day count but is not one of the listed events that suspends the 3-year count. Collection is restricted while an offer is pending (IRC § 6331(k)(1) bars levy while an offer is pending and for 30 days after a rejection), which is why the offer matters to the 240-day clock at all.

Collection Due Process hearings

When you get a final notice of intent to levy and timely request a CDP hearing, IRC § 6330(e)(1) suspends the levy actions that are the subject of the hearing while the hearing and any appeals are pending. That is the kind of "prohibited from collecting" period the hanging paragraph is talking about, and it adds the hearing time plus 90 days to your lookback periods.

A late request is different. If you miss the CDP deadline, you can ask for an "equivalent hearing," but under Treas. Reg. § 301.6330-1(i), Q&A-I4, collection action is not required to be suspended during an equivalent hearing. Whether a particular equivalent hearing stretched your lookback is a fact question that turns on what the IRS was actually barred from doing.

A quick example

Suppose your return for a year was due April 15 and you filed it on time. Three years later, you would normally clear the 3-year rule. But two years in, you filed a Chapter 13 that was dismissed after 10 months. Under the hanging paragraph, add the 10 months the stay was in effect, plus 90 days. Your 3-year date just moved about 13 months later.

Now add a timely CDP hearing that took five months from request to final determination. Add five months plus 90 days on top of that. The dates stack. This is why we run the numbers from transcripts, not from memory. Our discharge calculator is a good first look, but tolling events need to be counted one by one.

What does not appear in the list

Some things people expect to toll the clocks are not named in § 507(a)(8). Installment agreement requests, for example, also restrict levy under IRC § 6331(k)(2), but they are not listed in the hanging paragraph or the 240-day clause. And the 2-year rule for late-filed returns lives in § 523(a)(1)(B)(ii), not in § 507(a)(8), so the hanging paragraph's text does not speak to it. Courts may still be asked to apply equitable principles in unusual situations, so do not assume an omission is a free pass. Ask.

Prior bankruptcies count even if they went nowhere

A case dismissed in a few weeks still counts. So does a case your spouse filed jointly with you. The question is whether the automatic stay was in effect for your tax debt during that time. If you have a dismissed case on your record, it matters to your tax timing too. See what a dismissed bankruptcy does to your tax debt.

Warning: Filing a quick Chapter 13 to stop a levy, then dismissing it and refiling under Chapter 7 once the 3-year date passes, does not work. The Supreme Court closed that door in Young, and the statute now adds 90 days on top.

How to get the dates right

  1. Pull IRS account transcripts for every year. They show assessment dates, offer in compromise activity and bankruptcy indicators.
  2. Pull the dockets for every prior bankruptcy case: filing date, dismissal or discharge date, and any confirmed plan.
  3. Find your CDP request dates and final determination dates, and note any Tax Court appeal.
  4. Add each tolling period plus its 30 or 90 days to the right clock.
  5. Build in a margin. Filing one week early can cost you an entire tax year.

The same events often extend the IRS's ten-year collection statute, too, which is a separate calculation. See the IRS collection statute of limitations guide and how bankruptcy pauses the 10-year clock.

If you have a prior case, an offer or a CDP hearing in your history, call (813) 229-7100 and have Darrin T. Mish, a tax attorney, count the days with you before you file. Every case turns on its own transcripts and dates; this page is general information, not legal advice for your situation. The calendar in your head is not the calendar the court uses.