I consider it odd.
I have two files in my office waiting on the
collection statute of limitations to expire.
It is not a situation I often see.
Audits, penalty abatements, payment plans, offers and
innocent spouse requests are more common.
Let’s talk about the running of the collection statute
of limitations.
COMMENT: I do not consider this to be valid tax planning, and I am quite reluctant to represent someone who starts out by intending to do the run. That said, sometimes unfortunate things happen. We will discuss the topic in the spirit of the latter.
Let’s set up the two statutes of limitations:
(1) The
first is the statute on assessment. This is the familiar 3-year rule: the IRS
has 3 years to audit and the taxpayer has 3 years to amend.
COMMENT: I do not want to
include the word “generally” every time, as it will get old. Please consider
the modifier “generally” as unspoken but intended.
(2) The second is the statute on collections. This
period is 10 years.
We might conversationally say that the period can
therefore go 13 years. That would be technically incorrect, as there would be
two periods running concurrently. Let’s consider the following example:
· You
filed your individual tax return on April 15, 2020. You owed $1,000 above and
beyond your withholdings and estimates.
· The
IRS audited you on September 20, 2022. You owed another $4,000.
· You
have two periods going:
o
The $1,000 ends on April 15, 2030 (2020 +
10 years).
o
The $4,000 ends on September 20, 2032
(2022 + 10 years).
Alright, so we have 10 years. The expiration of this
period is referred to as the “Collection Statute Expiration Date” or “CSED”.
When does it start?
Generally (sorry) when you file the return. Say you
extend and file the return on August 15. Does the period start on August 15?
No.
The period starts when the IRS records the return.
Huh?
It is possible that it might be the same date. It is
more possible that it will be a few days after you filed. A key point is that
the IRS date trumps your date.
How would you find this out?
Request a transcript from the IRS. Look for the
following code and date:
Code Explanation
150
Tax return filed
Start your 10 years.
BTW if you file your return before April 15, the
period starts on April 15, not the date you filed. This is a special rule.
Can the 10 years be interrupted or extended?
Oh yes. Welcome to tax procedure.
The fancy 50-cent word is “toll,” as in “tolling” the
statute. The 10-year period is suspended while certain things are going on.
What is going on is that you are probably interacting with the IRS.
OBSERVATION: So, if you file your return and never interact with the IRS – I said interact, not ignore – the statute will (generally – remember!) run its 10 years.
How can you toll the statute?
Here are some common ways:
(1) Ask for an installment payment plan
Do this and the statute
is tolled while the IRS is considering your request.
(2) Get turned down for an installment payment
plan
Add 30 days to (1) (plus Appeals, if
you go there).
(3) Blow (that is, prematurely end) an installment
payment plan
Add another 30 days to
(1) (plus Appeals, if you go there).
(4) Submit an offer in compromise
The statute is tolled
while the IRS is considering your request, plus 30 days.
(5) Military service in a combat zone
The statute is tolled while in the combat zone, plus 180 days.
(6) File for bankruptcy
The statute is tolled
from the date the petition is filed until the date of discharge, plus 6 months.
(7) Request innocent spouse status
The statute is tolled
from the date the petition is filed until the expiration of the 90-day letter
to petition the Tax Court. If one does petition the Court, then the toll
continues until the final Court decision, plus 60 days.
(8) Request a Collections Due Process hearing
The statute is tolled from
the date the petition is filed until the hearing date.
(9) Request assistance from the Taxpayer Advocate
The statute is tolled
while the case is being worked by the Taxpayer Advocate’s office.
Unfortunately, I have been leaning on CDP hearings quite
a bit in recent years, meaning that I am also extending my client’s CSED. I
have one in my office as I write this, for example. I have lost hope that
standard IRS procedure will resolve the matter, not to mention that IRS systems
are operating sub-optimally during COVID. I am waiting for the procedural
trigger (the “Final Notice. Notice of Intent to Levy and Notice of Your Rights
to a Hearing”) allowing the appeal. I am not concerned about the CSED for this
client, so the toll is insignificant.
There are advanced rules, of course. An example would
be overlapping tolling periods. We are not going there in this post.
Let’s take an example of a toll.
You file your return on April 15, 2015. You request a
payment plan on September 5, 2015. The IRS grants it on October 10, 2015.
Somethings goes wobbly and the IRS terminates the plan. You request a
Collection Due Process hearing on June 18, 2019. The hearing is resolved on
November 25, 2019.
Let’s assume the IRS posting date is April 15, 2015.
Ten years is April 15, 2025.
It took 36 days to approve the payment plan.
The plan termination automatically adds 30 days.
The CDP took 161 days.
What do you have?
April 15, 2025 … plus 36 days is May 21, 2025.
Plus 30 days is June 20, 2025.
Plus 161 days is November 28, 2025.
BTW there are situations where one might extend the
CSED separate and apart from the toll. Again, we are not going there in this
post.
Advice from a practitioner: do not cut this razor sharp, especially if there are a lot of procedural transactions on the transcript. Some tax practitioners will routinely add 4 or 5 weeks to their calculation, for example. I add 30 days simply for requesting an installment payment plan, even though the toll is not required by the Internal Revenue Manual. I have seen the IRS swoop-in when there are 6 months or so of CSED remaining, but not when there are 30 days.
