By Attorney Steven A. Leahy
Most business professionals facing IRS problems have been battling the IRS for years. There are many reasons for this – taxpayer procrastination, and ignorance of IRS collection practices are chief among them. They fear their IRS problem will NEVER go away. The good news is – if taxpayers focus on the future, rather than their existing tax problems, there may be a predictable end to their IRS problem. Many taxpayers have heard of some sort of “Statute of Limitations.” But are unsure how that may help them,
Let me explain. The IRS defines a statute of limitations as “a time period established by law to review, analyze and resolve taxpayer and/or IRS tax related issues.” There are really three IRS “Statute of Limitations.” Assessment Statute Expiration Date (ASED), Refund Statute Expiration Date (RSED), and Collection Statute Expiration Date (CSED). Each referred to by their acronyms (the IRS LOVES acronyms). When the ASED expires, the IRS can no longer assess an additional tax. When the RSED expires, taxpayers can no longer claim a refund. And, when the CSED expires, the IRS can no longer taken collection actions against a taxpayer.
This article focuses on the “Collection Statute Expiration Date” (CSED). Before the IRS can collect a tax, the tax must first be assessed. Each assessed period has a CSED. For example, if I filed my 2017 return on time, the date of assessment would be the due date April 17, 2018 (notice the date is the 17th and not the traditional date of April 15th). Then, if I were to file my 2018 return on time, the assessment would be the due date April 15, 2019. Now, assume, I amended my 2017 tax return on September 29, 2019, and incurred an additional tax obligation. That additional tax obligation would be “assessed” on the date I filed the amended return, September 29, 2019.
Each “assessment,” each tax return, and the additional tax from the amended return, would have a different CSED. Generally, the CSED is 10 years from the date of assessment. So, without more, the CSED would be April 17, 2028, for the 2017 return, April 15, 2029, for the 2018, and September 29, 2029 for the assessment for the amended 2017 tax return.
The key phrase here is “without more.” There is often, something more. What taxpayers do not understand is there are actions that suspend or eliminate the CSED. First, the IRS may file a lawsuit to collect the assessed tax. The IRS must file the case BEFORE the CSED. If the IRS obtains judgment, the CSED is eliminated, and the IRS can collect until the tax liability or judgment is satisfied or becomes unenforceable. The IRS doesn’t routinely seek a judgment against taxpayers. But it does happen.
Next, whenever the IRS ability to collect is suspended, that time is added to the 10 years statute. For example, an Offer-in-Compromise, Bankruptcy, entering a combat zone, moving out of the country and a Collection Due Process Appeal stay the tolling of the CSED, adding time for the IRS to collect. The good news is these events run concurrently. Meaning, if more then one event is happening at a time, they overlap, rather than add time independently.
A few events even add time beyond the activity itself. For example, if a taxpayer files for protection under the bankruptcy laws, the CSED is suspended while the IRS is prohibited from collecting, PLUS six months thereafter. This can make calculating the CSED difficult.