An Overview of the Collection Statute of Limitations
Understanding the collection statute is essential to IRS tax debt engagements
The IRS does not have unlimited time to collect an unpaid balance. Under §6502(a)(1), the tax (and any related penalties and interest) may be collected by levy or a court proceeding, but only if the levy is made or the proceeding begins within ten years after the assessment of the tax.
The end of the ten-year period is the collection statute end date (CSED). After the CSED, the IRS cannot initiate enforced collection actions; therefore, the IRS will write off the balance owed, and the taxpayer no longer has a legal obligation to pay it.
Assessment Date
The assessment date is different from the return filing date. Once the IRS receives the return, it reviews the information on the return and assesses tax based on that information. Once the tax is assessed, the taxpayer legally owes that tax amount, and the IRS sends notice and demand to pay the amount due.
A tax period can have two or more assessments, each with its own CSED. This usually occurs with an examination adjustment to an original return or a later amended return filed by the taxpayer that self-assesses additional tax.
Under §6020(b), the IRS can assess tax without the taxpayer filing a tax return if the taxpayer fails to file their required tax return. The §6020(b) substitute for return (SFR) assessment begins the ten-year CSOL; if a later return is filed reducing the tax shown (which is the most common scenario), the original assessment’s CSED is unchanged. See Internal Revenue Manual 25.6.1.9.4.5 (10-05-2016).
Tolling Events
Many events and actions can toll, or suspend, the collection statute of limitations for a specified period. Internal Revenue Manual 5.1.19.3 (02-07-2020) has a detailed explanation of tolling events. The most common tolling events include:
Bankruptcy. It is tolled for the period of the legal proceeding plus six months.
Collection Due Process (CDP) Hearing. It is tolled for the period of the pending CDP hearing plus 30 days.
Installment Agreement Pending, Rejected, or Terminated. It is tolled during the period the installment agreement is pending, 30 days after an installment agreement is rejected, and 30 days after an installment agreement is terminated.
Offer in Compromise. It is tolled for the period the OIC is pending plus 30 days.
Outside the United States. It is tolled during the period of absence if it is for a continuous period of at least six months. Upon return, if less than six months are left on the CSOL, then the CSOL is extended to six months after the return date.
Before taking actions on a taxpayer’s IRS collection case, it is critical to understand how those actions will impact the CSOL. For example, multiple failed OICs could add several years to the time the IRS has to collect a taxpayer’s tax liabilities.
Statute Expiration as a Case Strategy
Allowing the CSOL to expire is one way to resolve a taxpayer’s unpaid tax balances. However, the taxpayer may be at risk of enforced collection actions if the taxpayer has not entered into a collection alternative with the IRS.
The CSOL continues to run while the taxpayer is in an installment agreement, or if the account has been deemed “currently not collectible” because of a financial hardship. In both cases, the IRS refrains from taking enforced collection actions.
If a taxpayer’s unpaid tax balances are assigned to a private debt collector, the company is responsible for collecting the debt. The IRS generally takes no action on the balances while the accounts are assigned to the company, and the CSOL continues to run. A private debt collector has no legal authority to take enforcement collection actions against a taxpayer; only the IRS can do that.
Basic Example
Here are sections of an IRS account transcript for a late-filed 2021 Form 1040. The filing date is the first entry, and the assessment date is the second entry, on this portion of the transcript:
In the second section, the date of the TC 150 entry also contains the assessment date. It is also helpful to note that specific entries on the account transcript will include the IRS’s calculation of the CSED; for example, the CSED of July 1, 2034, is disclosed in the TC 166 entry.
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