Statute of Limitations

Ten years to collect

In theory, the IRS has only 10 years from an assessment to collect. But this limitation has so many exceptions, waivers and extensions that it is often difficult to compute the true “collection statute expiration date” (or CSED in IRS-speak). Nevertheless, thorough planning requires an understanding of how the statute of limitations applies to each case, and a consideration of the consequences of other actions, such as filing an offer in compromise, requesting an installment agreement, seeking a collection due process hearing, or filing a petition in bankruptcy.

Exceptions

The general statute of limitations is found in IRC 6502(a)(1): “(w)here the assessment of any tax . . . has been made . . . such tax may be collected by levy or by a proceeding in court, but only . . . within 10 years after the assessment . . .” If that was the whole story, life would be simple. But there are exceptions, and then exceptions to the exceptions, including:

  • The time during which the taxpayer’s assets are under the control or custody of a court, plus 6 months;
  • The time during which the taxpayer is outside the U.S. for a period of at least 6 months, and for 6 months after his return;
  • The time the IRS holds property wrongfully seized from a third party, or during which it wrongfully has a lien in place against the property of a third party, plus 30 days; and
  • The time when collection action is barred because the taxpayer is in bankruptcy, plus 6 months.

In addition, an extension can result from a voluntary agreement between the taxpayer and the IRS (e.g. a Form 900 Tax Collection Waiver), or because the taxpayer invokes some other collection-related procedure, such as requesting a Collection Due Process (CDP) Hearing, seeking “innocent spouse” protection under 6015(b) or 6015(c), filing an Offer in Compromise, requesting an installment agreement, or requesting a Taxpayer Assistance Order from the Office of the Taxpayer Advocate.

Knowing how to determine the statute of limitations bar date is important. And knowing how to use it effectively to resolve a client’s tax problems is even more important. If you have questions about the statute of limitations, we can help.

WANT MORE INFORMATION?

See our article on The Statute of Limitations on Collection, published by the Maryland Society of Accountants in “The Freestate Accountant,” as part of Mr. Haynes’ series on “Dealing with the IRS Collection Division.”

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