Time Limits to IRS Collection Efforts

By Steven A Leahy

One of my clients recently experienced a wonderful event. Something he has been waiting a number of years for – an IRS claim for more than $900,000.00 in back taxes, penalties and interest along with the IRS Tax Lien that went along with it, has expired. That means he and his wife can sell their house, free and clear of the IRS claim. Great news!! But to understand this we have to go back to the beginning.

This client ran a company with a number of employees. The manager of the company failed to pay payroll taxes for two quarters. Instead, the manager took that money for himself. The IRS obligation totaled more than $900,000.00! The resulting effects cost my client his business – and a personal tax obligation in the form of the Trust Fund Recovery Penalty for more than $500,000.00.

He battled the IRS for a number of years before he contacted my office. He insisted that an Offer-in-Compromise was his best option. I never reach a conclusion until we gather all the facts and complete an investigation. First thing we did was protected him from IRS collection efforts – so the IRS could not attach his bank account or levy his social security any more. Next, we conducted an investigation and determined the best course of action. He was already 5 years into his battle with the IRS, and he had some equity in his home, that made an Offer-in-Compromise unattractive.

What many don’t know is the IRS has a time limit to collect IRS obligations; a sort of Statute of Limitations. Each tax assessment has a Collection Statute Expiration Date (CSED) – a date after which the government’s right to pursue collection ends. Normally the CSED date is 10 years from the date of assessment of a tax liability.

There are numerous events that can delay, suspend and/or extend the CSED. 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. That’s why a full investigation should be completed to deduce the actual CSED date.

For my client, trying to resolve the IRS obligation through other means, such as an Offer-in-Compromise may have worked against him. As it turned out, he was granted Currently Not Collectible status with an outstanding balance at the time of more than $800,000.00! Then he rode out the remaining CSED time. In the interim, the IRS did come back, several years later, and required us to re-establish his Currently Not Collectible Status. But all in all, not a bad result – he walked away from more than $900,000.00 in taxes, penalties and interest.

Now, the IRS can bring an action to collect a tax obligation in court. Once a judgment is entered, the CSED date is no longer applicable. Judgments do not have a statute of limitations. But, in most cases, the IRS does not pursue court action against taxpayers. Court is generally reserved for those egregious cases you may read about in the news. Also, depending on the case, the IRS may ask a taxpayer to waive the CSED date – sometimes that’s a good thing – sometime it isn’t. That should be determined on a case by case basis after consultation with your IRS attorney. That isn’t the kind of decision a taxpayer should make without a complete understanding of the consequences.

So, if you have an IRS problem, you should consult with a local attorney. The strategy you use will make ALL the difference in how your life progresses. Before you do anything, you should give me a call. We can discuss your options, complete your an investigation and determine the best course of action. – Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation.