As a taxpayer, you may not be aware that the Internal Revenue Service (IRS) only has 10 years to collect a tax debt. In other words, there is a statute of limitations for tax debt and it is called the Collection Statute Expiration Date (CSED).
If you this is the first time you have heard of CSED, you might conclude that once 10 years have gone by since the taxes were due, the IRS can no longer collect them. For example, if a taxpayer did not pay all the income taxes he owed for 2002 by April 15, 2003, then you might expect the IRS to have until April 15, 2013 to collect that tax debt or say good-bye to that money forever. That’s a logical conclusion, but it is not the way the CSED actually works.
So, just how long does the IRS have to collect a debt? The answer is that the IRS has 10 years to collect a debt after it is assessed. Assessment starts the clock running on the ten years. Assessment is not the date the taxes are due. Instead, it’s the date an IRS official signs off on a certain form.
Suppose our taxpayer from the example described above never filed his 2002 return, but the IRS took it upon itself to file a Substitute For Return (SFR) for him in 2008. An SFR operates as an assessment, so the CSED would not begin to run until 2008 and the IRS would have until 2018 to collect the 2002 tax.
Sometimes, the CSED clock gets a “fresh start” because of taxpayer actions. For example,we can imagine that our imaginary taxpayer did file his 2002 return on time, but made an error and underpaid his taxes. In that situation, the assessment took place when the IRS processed the return in 2003. This gave the IRS had until 2013 to collect the taxes. If the IRS contacted the taxpayer about the underpayment and the taxpayer filed an amended return in 2004, a fresh assessment took place when the IRS processed the amended return. The IRS then had until 2014 to collect the taxes.
When the IRS contacts a taxpayer or places a lien against her assets, the taxpayer’s natural impulse if often to get the situation under control and free up her assets as quickly as possible. She may be tempted to enter an agreement with the IRS and it may be in her best interests to do so. In addition, she may consider financial management options like filing for bankruptcy.
These can all be beneficial actions for a taxpayer to take. However, without skilled legal management of the case, these very strategies can backfire by “tolling” or temporarily stopping the CSED. This is because these strategies prevent or slow the IRS from taking action against the taxpayer. In exchange, the law extends the overall time the IRS has to collect delinquent tax. The most common taxpayer actions that toll the CSED are bankruptcy, military deferments, offers in compromise, collection due process hearings and filing appeals of IRS assessments.
At the Law Office of Shawn N. Wright, we know how to negotiate with the IRS on your behalf. The IRS does not inform you when you have reached your CSED. It requires expertise and a knowledge of the dozens of events that can toll the CSED to determine the CSED start date for every year’s delinquent taxes. For a reasonable fee, we can obtain IRS account transcripts and review them for dates of assessment and other events that can affect the CSED. Armed with that information, we can work with you to construct a strategy to protect you from aggressive IRS collection action.