Limiting Tax Liabilities with the IRS Collection Statute of Limitations

Our Firm works with each of our clients to get the best possible resolution of their tax problem.  One of the tax resolution tools we evaluate in each case is the Collection Statute of Limitations.

Collection Statute of Limitations

The Internal Revenue Service does not have an unlimited amount of time to collect a tax debt.  The Internal Revenue Code provides that in general the IRS only has ten years from the time the tax is determined (“assessed”) to collect the tax from you.  Afterwards, the IRS can no longer collect the tax and writes off this debt – this date is known as the Collection Statute Expiration Date (“CSED”).

Many people are unaware of the limitations period for IRS collection actions.  The IRS does not typically tell taxpayers if the statute of limitations to collect their taxes is about to expire.  An invaluable benefit of having a tax professional evaluate your case is learning whether the period for collections has expired and if there are now taxes you don’t have to pay, as well as the actions to take if the collections statute is about to expire.

Tolling The Collection Statute Clock

Many actions that will stop (“toll” or “suspend”) the collection statute of limitations and cause it to expire later than ten years from the assessment of the tax.  Generally during these times, the IRS is legally prohibited from collecting the tax.  To successfully use the IRS’s CSED as a tax resolution tool, one must limit the time the statute is tolled while waiting for the collection period to end.

Some of the actions that can suspend the collection statute of limitations are as follows:

  • Filing for Bankruptcy Relief – the statute of limitations is suspended during the time the IRS is prohibited from taking enforced collection action to collect the tax plus for six months after the debtor is discharged from bankruptcy;
  • Requesting an Installment Agreement – the statute of limitations is suspended during the time an installment agreement (also known as an IRS payment plan) is pending and for 30 days after it is accepted.  The IRS collection statute expiration date is also extended for 30 days after an installment agreement is rejected or terminated.  However, during the time the installment agreement is in effect and monthly payments are being made, the statute continues to run;
  • Requesting an Offer-in-Compromise – the collection statute of limitations is suspended from the date the IRS sends a letter stating that they have received a valid offer-in-compromise until they make a decision to accept or reject it, for 30 days after rejection of an offer, and during an appeal of a rejected offer;
  • Requesting a Collection Due Process (“CDP”) Hearing – the IRS collection period is suspended from the date the Internal Revenue Service receives a timely request for a Collection Due Process hearing until the IRS Appeals determination becomes final;
  • Filing for Innocent Spouse Relief – the collection period is suspended from the time the innocent spouse claim is filed until a waiver of restrictions on collections is signed or the end of the 90-day period to petition the Tax Court from an IRS determination, plus 60 days (in each case);
  • Being Out of the Country for at Least Six Months – the collection statute of limitations is suspended while a taxpayer is outside of the United States for a continuous period of at least six months and for a minimum of six months after their return to the United States;
  • Waiver by Taxpayer – under limited circumstances a taxpayer may waive the ten-year collection statute of limitations.  If the IRS agrees to a Partial Payment Installment Agreement by which the taxpayer agrees to make monthly payments that will not fully pay the tax liability before the CSED, the IRS can request a waiver in writing to extend the CSED for no more than five years plus one year for other administrative actions.  The waiver expires 90 days after the period for collection agreed upon in writing with the IRS; and
  • Suit to Reduce Assessments to Judgment – the Internal Revenue Service can extend the CSED by filing a lawsuit to convert the assessed tax into a judgment.  The collection statute is tolled once the lawsuit is filed and in Washington State a judgment lien will give the IRS an additional ten years to collect the tax.

The IRS won’t notify you when the collection statute of limitations has expired, so you should keep track of the collection statute of limitations yourself.  Our Firm calculates the collection statute of limitations as part of its evaluation of the taxes owed by each of our new clients.  Once the statutory period for collection has expired, you can request documentation from the IRS that the debt no longer exists and you can ask the IRS to release any liens.

Our firm has been able to save our clients substantial sums of money, because their tax debts became uncollectible due to the IRS Collection Statute of Limitations.  If you have tax debt which you believe may not be collectible anymore, please contact us to find out.  We are here to help.

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