Barred Collection on Assessment Closes Unlimited Statute of Limitations on Assessment (9/24/12)

In ILM 201238028 (6/19/12), here, the IRS held that, even if the IRS otherwise has an unlimited statute of limitations (either for a fraud return or failure to file per Section 6501(c)(1) and (3)), once the IRS assesses a tax for the year, the unlimited statute on assessment becomes moot if the IRS does not collect the assessed tax within the 10-year collection statute of limitations period in Section 6502(a), here.  Under the facts in that memo, the IRS made the assessment after making a substitute for return under Section 6020(b) and issuing a notice of deficiency.  Once the assessment was made, the 10 year limitations period under Section 6502(a)(1) commenced and expired.  The IRS's reasoning is:

The Service may execute a return for any taxpayer who fails to make a return required by any internal revenue law or regulation at the time prescribed, or who makes, willfully or otherwise, a false or fraudulent return. I.R.C. § 6020(b). The execution of a section 6020(b) return will not start the running of the period of limitations on assessment and collection without assessment. I.R.C. § 6501(b)(3) [here]. Accordingly, until the taxpayer files his own return, there will be no deadline by which the Service must assess the tax or file a suit to collect without assessment. Once the Service chooses to assess the tax, however, a 10-year period of limitations on collection of that assessment begins. I.R.C. § 6502(a)(1).