What Are the IRS Statutes of Limitations On Collections
IRS collection statute expiration dates
One of the most common questions that clients ask is “Isn’t there some kind of collections statute? I owed this balance way back in 1995, how can the IRS still be trying to collect it from me?”. I have heard many clients and potential clients say they know with certainty that “the law is the IRS has 6 years to collect”, or that “the IRS can only go back 7 years to collect”, and so on. In fact neither of those answers is true, and although sometimes it is as simple as knowing there is a specific date after which the IRS will no longer be able to collect on a balance, and it will eventually get “written off” (more on that later, there are many nuances to calculating that date, and understanding how to leverage proximity to that date to get the greatest benefit. The following discussion of IRS collection statute expiration dates, commonly known as CSEDs, will provide a crash course in understanding how CSEDs function, how long until they are reached, calculating those dates, and much more.
By statute, the IRS can collect on a balance for 10 years from the date of assessment. That includes any interest and penalties that have been tacked on to that balance since it was assessed. The assessment date is typically several months after a return is filed. When a tax return is filed it takes several days for the IRS to receive the return (depending on the method of transmission) where it then goes to the bottom of the stack of returns to be processed and reviewed. Once the return is approved there can be another period of up to several weeks even for a routine return with no issues before it is actually assessed. This means that for someone who files their taxes on time this year (April 15 2020) and who will owe a balance, they can expect the assessment date to be somewhere between April 25th-May 25th of 2020. The collection statute expiration date will be 10 years out from the date of assessment. But that is not the end of the story.
The general rule is that 10 years is the maximum length of time that the IRS can legally collect on a balance. Some might think it should be easy then to maybe lay low for a decade and when that date rolls around climb out from under the rock you have been hiding under, scot free. But there are a couple very important things to consider when talking about collection statute expiration dates, calculating them, and how they work in practice, not just hypothetically. The first thing to consider is that each tax year is treated separately. That means the collection statute expiration date for 2005 will be different from 2006 and so on. For taxpayers who owe balances for a number of years, this can create serious problems. Just because one year is dropping off soon does not mean that the rest of the tax years will be, and in many cases, the oldest year may be the smallest because any payments over that 10 year period would have been applied to the oldest year. This is why it is crucial to determine the collection statute expiration date for each specific year individually to get a clear picture of what the collection timeline might be.
Another issue related to calculating collection statute expiration dates is that the clock may not always be ticking, so to speak. Imagine having a $100,000 balance that was assessed on April 25th 2010. You have spent the last 9 years and 9 months artfully dodging the collections actions that the IRS has thrown at you and are at the doorstep of getting that $100,000 written off completely, without paying a cent, and starting fresh. It is now April 26th 2020, and brimming with confidence, you call the IRS because you want to hear them tell you “There appears to be no balance associated with this account”. To your horror, what should have been a victory lap is now a nightmare come true. Not only is the $100,000 still on the books, but the IRS representative on the phone informs you that it is still collectible until 2025. Believe it or not, we have dealt with this exact situation on several occasions. Although the general rule is that collection statute expiration dates are 10 years from the date of assessment, there are several events that stop that clock from ticking. Some events stop the clock for a few weeks, some can stop the clock for several months, but others can stop the clock for years. Probably the most critical factor in understanding, calculating, and being able to actually utilize your collection statute expiration date to your advantage is knowing what stops the clock, and how long it will be stopped for. The table below contains the most common clock stopping events.
|Action||CSED extended time|
|Bankruptcy||Bankruptcy period + 6 months|
|Collection Due Process Appeal Request||Appeals request through decision period (not less than 90 days)|
|Offer in Compromise||Offer review/appeal period + 30 days (Offers after 3/9/2002)|
|Installment agreements||·Time proposed installment agreement is pending
·30 days after rejection of an installment agreement
·30 days after a termination of an installment agreement
·Any appeal of the termination or rejection of an installment agreement
|Innocent spouse||The collection period is suspended from the filing of the claim until the earlier of the date a waiver is filed, or until the expiration of the 90-day period for petitioning the Tax Court, or if a Tax Court petition is filed, when the Tax Court decision becomes final, plus, in each instance, 60 days|
|Taxpayer living outside US||Period outside of U.S. (if absence > 6 months)|
|Combat zone||Period while in combat zone plus 180 days|
|Taxpayer Assistance Order||Period receiving assistance from Taxpayer Advocate Office (Note: the IRS rarely “inputs” this extension)|
CSEDs can be a powerful tool in wiping out tax balances owed to the IRS. However, the IRS is well aware of this and does everything they can to make sure CSED dates are extremely difficult to meet, and to ensure full and complete collection before they are even close to those dates. That is why a professional investigation into a taxpayer’s account history, with an eye trained to calculate the CSEDs accurately, and the experience to develop an implementable strategy to leverage them against the IRS is the best approach. Calculating CSEDs is an integral part of The W Tax Group’s initial investigation in every single case.
Lead Tax Attorney, The W Tax Group