Suspended passive losses become deductible in the year in which there is a complete disposition of the property in a fully taxable event to an unrelated party. The fact that the losses remained suspended during the years of personal use does not erase them; the losses become deductible in the year of sale without regard to passive activity income.
The IRS action of fixing tax liability that sets in motion collection procedures, such as charging interest, imposing penalties, and, if necessary, seizing property.