IRS Collections Statute of Limitations

The IRS Collection Statute Expiration Date (CSED) is the deadline by which the IRS can legally collect tax debt from you. This period usually lasts for 10 years from the date the tax was assessed. This assessment date is when the IRS officially records your tax liability, which can happen after you file a tax return, an audit, or the IRS files a substitute return on your behalf. After the 10-year period, the tax debt is considered expired, and the IRS can no longer pursue collection actions like wage garnishments, bank levies, or property seizures.

However, this 10-year period can be extended or paused (also called “tolling”) under certain circumstances, which may include filing for bankruptcy, being on a payment plan with the IRS, having an OIC under review, leaving the US for more than six (6) months, etc.

After the CSED expires, the IRS will write off your debt, and you are no longer legally responsible for paying it. However, it’s important to ascertain that the IRS has the correct Collection Statute Expiration Date on file to avoid any surprises.

An assessment is the official process where the IRS determines the amount of tax you owe. It’s a formal recording of your tax liability in the IRS’s records. Once an assessment is made, the IRS can begin collection activities, such as sending you a bill, garnishing wages, or placing a federal tax lien on property if you don’t pay. There are various types of assessment adopted by the IRS:

• Automatic / Summary Assessment happens when you file your tax return and owe money – you are allowing the IRS to automatically assess the tax. If you have a balance due, the IRS will send you a notice, and that amount is immediately considered official. This type of assessment can also happen if you’re late filing, which could result in penalties being added.
• Deficiency Assessment happens after a long process where the IRS reviews your tax return or files one on your behalf if you didn’t. If the IRS finds you owe more than you reported, it sends a notice of deficiency. Before the IRS can collect any additional taxes, you and the IRS must either agree on the amount, or a court will decide. During this process, the IRS cannot collect any money from you until everything is resolved.
• Jeopardy / Termination Assessment is rare and only happens if the IRS believes that you might try to avoid paying your taxes by leaving the country or hiding your money. In such cases, the IRS can bypass normal procedures and immediately assess and collect the taxes. You would then have to challenge the assessment afterward. However, it’s hard for the IRS to prove this, so they rarely use it.

Income tax is one of the most common types of taxes that individuals and businesses must handle. Here’s how the IRS collection statute of limitations applies to income tax:

For individual income tax, the CSED is generally calculated based on the tax assessment date, which is usually the due date of the return or the date the return was filed. However, if you request an extension to file your income tax return, the IRS will still calculate the CSED from the original due date, but the extension can provide extra time to pay. Additionally, time spent on tax audits and appeals can extend the CSED. During these processes, the clock on the CSED is effectively paused.

Business income tax, including corporate income tax, follows a similar CSED calculation as individual income tax. It is generally based on the assessment date and subject to the same factors like extensions and audit periods.

For traditional employees, taxes are automatically withheld from their paychecks by the employer. This means their tax liabilities are typically settled throughout the year. The risk of unpaid taxes is lower, so the CSED rarely applies in their case. If an employee fails to report additional income, like side gigs, or if there are errors on their tax return, the IRS may assess additional taxes to collect tax debts. In such cases, the CSED would apply from the date the tax was assessed. However, because of regular employer reporting, this is less common for traditional employees.

For freelancers, they are responsible for reporting their own income and paying estimated taxes quarterly. Because freelancers manage their own taxes and may not always withhold the correct amount, they are more likely to owe taxes at the end of the year. If they don’t pay, the IRS can assess the tax owed, and the CSED will apply, giving the IRS 10 years to collect unpaid taxes. Additionally, freelancers are more prone to late payments, missed quarterly tax deadlines, or filing errors, which can lead to penalties. If these penalties or additional taxes are assessed, the CSED starts from the date of assessment, just like with employees.

Estate tax is a tax imposed on the transfer of a deceased person’s estate. It has unique considerations when it comes to the CSED. The CSED for estate tax is generally triggered by the filing of the estate tax return (Form 706). The clock starts ticking from the date of filing. Extensions may be granted for filing the return, but these extensions do not affect the CSED for paying the tax.

Now that we’ve explored how the CSED applies to income tax, payroll tax, and estate tax, let’s highlight some key differences among these tax types:

• Based on assessment date, the starting point for calculating the CSED varies. For income tax, it’s typically the due date of the return or the filing date, while estate tax is triggered by the filing of Form 706.

• Based on extensions, income tax allows for extensions, which can affect the CSED. Payroll tax and estate tax extensions, if granted, usually don’t impact the CSED for paying the tax.

• Based on audit and appeals, time spent on audits and appeals can extend the CSED for income tax, but this is not a factor for payroll tax or estate tax.

• Based on liability type, payroll tax can lead to personal liability through the Trust Fund Recovery Penalty, which has a specific CSED. Income tax and estate tax liabilities are generally tied to the taxpayer’s overall financial situation.

It’s important to maintain accurate financial records for smooth tax filing to safeguard you in cases of audits or other IRS activities. To be sure you stay compliant, it’s best to consult with our experienced tax attorneys at Victory Tax Lawyers for professional guidance.

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The easiest way to find your CSED is by getting a tax account transcript from the IRS. The tax transcript shows your tax liabilities, payments, and assessment dates. You can request it online through the IRS website by creating an account or using the IRS Get Transcript tool. You can also request it by mail by filing Form 4506-T, “Request for Transcript of Tax Return” or by calling the IRS automated phone transcript service at 800-908-9946.

Moreover, a tax attorney, enrolled agent, or certified public accountant (CPA) can help you determine your CSED by reviewing your tax records and transcripts. They can also help identify any actions that might have paused or extended the CSED. If you’ve received IRS notices about unpaid taxes, they may include the assessment date. You can calculate the CSED by adding 10 years to that assessment date unless there have been events that extended it.

You can also sign up for an IRS online account, which allows you to view your tax records, balances, and assessment details. This account can give you a clear picture of your tax liabilities and help you estimate your CSED.

The CSED is important for both taxpayers and the IRS because it affects how both sides approach tax liabilities and collection efforts. Here’s what this IRS statute means for taxpayers and for the IRS.

The CSED provides taxpayers with a degree of protection from indefinite IRS collection efforts. Once the CSED expires, the IRS cannot continue to pursue collection activities for that specific debt. Moreover, knowing your CSED can be helpful in tax planning and negotiations with the IRS. It can provide a clear timeline for resolving your tax debt. Additionally, for taxpayers struggling with tax debts, the CSED represents a potential fresh start. If the CSED is nearing, it may be possible to wait it out and have the debt discharged.

The statutory period serves as a deadline for the IRS to take collection actions. After the CSED passes, they lose their legal authority to pursue that particular debt. The IRS must balance its efforts to collect taxes with the constraints imposed by the CSED. This ensures that taxpayers are not subjected to endless collection attempts.

Do you know that the Internal Revenue Service has many tax programs that you can utilize to your advantage? The Collection Statute Expiration Date is just one example of these programs. Many people enter negotiations with Internal Revenue Service personnel in hopes of getting relief from their taxes. If you don’t know the specific rules or laws of IRS collections, you may not be able to maximize these IRS tax programs.

If you are struggling to get ahead of any unpaid tax issues from the past few years, we strongly suggest you contact a professional tax lawyer to assist you in the most accurate calculation of your liabilities owed to the IRS. Our experienced tax attorneys at Victory Tax Lawyers can help you and other taxpayers in need understand these programs. Discuss your IRS tax issue plan of action with a tax professional to avoid doing anything that may lead to the IRS extending the statute beyond its current timetable.

You can reach out to Victory Tax Lawyers at 866-640-0640 or send an email to [email protected]. We will help you resolve your tax disputes with the Internal Revenue Service because we have dedicated ourselves to understanding and comprehending the IRS tax laws in order to help uninformed taxpayers receive relief from the IRS back taxes they deserve.