The Collection Statute Expiration Date (CSED) marks the point when the IRS’s authority to collect your tax debt ceases. Typically, the IRS has ten years from the date of assessment to exercise its powers as necessary to retrieve all unpaid taxes and any associated penalties and interest; this is known as the collection period. During this time, the IRS can enforce collection actions, such as garnishing your wages, seizing your assets, filing a tax lien, or levying your bank accounts. That’s why you need to understand your CSED so you can make better plans on how to resolve your tax issues and avoid harsh legal actions by the IRS.
You can find out your CSED by requesting your IRS transcript of tax returns or calling the IRS automated phone number. If you’re not aware of your CSED, you may unintentionally extend the time, thereby giving the IRS more time to take action to recover its tax money.
With over 10 years of experience, our expert tax attorneys at Victory Tax Lawyers can help you understand your IRS CSED and manage your tax situation to avoid trouble with the IRS. If you’re overwhelmed by tax debts, we can show you how to set up a payment plan with the IRS to make your tax payment easier. Schedule a free attorney consultation with us today; let’s discuss your tax issue and help you find the appropriate solution immediately.
In this blog, we’ll walk you through what the CSED is, how to find out your specific CSED, and strategies you can use to manage your tax debt before the expiration date.
What Is The Collection Statute Expiration Date (CSED)?
Tax assessments have a Collection Statute Expiration Date (CSED), which is the maximum time period that the Internal Revenue Service (IRS) has to collect your unpaid taxes. The CSED is 10 years from the date the tax was originally assessed.
After this period, the IRS can no longer pursue collection actions to collect the debt, the tax debt is considered expired or no longer enforceable, and the taxpayer’s payer liability is essentially forgiven. However, just because your tax can expire doesn’t mean you should attempt to “wait out” the IRS because doing so can have long-term effects on your finances. You’d probably have a lot to deal with before the collection period elapses.
In fact, during the 10-year collection period, the IRS will usually aggressively employ different collection actions to collect as much of the tax balance before the deadline as possible. It may garnish your wages, file a Notice of Levy, which allows them to confiscate and sell your property to clear your tax debt, file a lien on your property, and so on. So, why you may win in year 11, you will most likely pay dearly before that clock runs out. Instead, understand when your debt will potentially expire and how to maximize the debt timeline to your advantage.
How to Find Out Your IRS CSED?
Tracking your CSED is very important, especially if you’re handling multiple years of back taxes. Each tax year’s balance has its own CSED; in essence, your balances won’t all expire at the same time. Here’s how to calculate your CSED:
- Determine the Tax Assessment Date: As mentioned, the 10-year collection period starts when your taxes are assessed. You can confirm this detail on your Notice of Federal Tax Lien if the IRS has filed a lien against you.
- Obtain a Tax Account Transcript: The best approach, though, is to request a transcript of your IRS account. In the transcript, you’ll find the date your taxes were assessed, when they were filed, as well as your yearly tax liability.To access your tax account transcript, simply sign in to your IRS Online Account or create one if you don’t already have one. Once you’ve logged in, you can then go on to request and download it directly. Alternatively, you can fill out Form 4506-T, Request for Transcript of Tax Return. Previously, others could use this form to request transcripts on behalf of others; however, since July 1, 2019, third-party requestors are no longer allowed to request account transcripts using this form. If you prefer, you can also call the IRS hotline at 800-908-9946 to request a copy of your transcript.
- Locate the Transactions Section: After you’ve got the transcript, go to the Transactions Section and look for the 3-digit IRS transaction code with a date below it. Generally, this date is the CSED plus any time the IRS has added by law. If you’re not clear about the information on your transcript or need further clarification, you can contact the IRS directly and ask them to confirm the CSED for your account.
- Adjust for Any Tolling Events: A tolling event is an action that extends or suspends the CSED, and it must be factored into your calculation to be accurate. Tolling events include bankruptcy, Installment Agreements, Collection Due Process (CDP) Hearings, Offer in Compromise, etc. These are explained in detail below.
Not paying your taxes when due can get you in trouble with the IRS. That’s why you need to understand your CSED so that you can take the necessary actions to clear your tax debts on time. We recommend that you work with a tax professional, such as a tax attorney, to accurately calculate the expiration date.
Can I Get a CSED Extension?
Generally, the IRS does not formally extend the CSED. However, they may pause or suspend the CSED in certain circumstances, effectively extending the time the IRS has to collect tax debts. Some circumstances that may cause CSED extension include the following.
1. When You File for Bankruptcy
The IRS is legally prohibited from taking collection actions while the bankruptcy case is ongoing. This means it cannot enforce collection actions like levies, garnishments, or liens on you. Furthermore, the collection statute of limitations is automatically suspended when you file for bankruptcy and remains suspended all through until the case is dismissed or closed.
During this entire period, the IRS cannot act. Once the bankruptcy case is eventually concluded, the CSED is then extended by an additional six months. For example, if your bankruptcy case lasts nine months, the IRS will pause collections for that period and add an additional six-month extension, leading to an extension period of 15 months in total.
2. When You Submit An Offer in Compromise (OIC)
The IRS pauses the CSED while it reviews your offer. An Offer in Compromise (OIC) is a proposal you can submit to the IRS to settle your tax debt for an amount that is less than your full debt. If the IRS rejects the offer, the CSED starts counting again, but the period during which your OIC was under review, which could take months or even years, is added to the 10-year CSED.
If the IRS accepts the offer, the debt will be settled, and the CSED no longer applies. However, if you default on the terms of an accepted offer, the IRS can reinstate the full amount of the tax debt, and the CSED will resume as if you never submitted the OIC.
3. If You Request an Installment Agreement or IRS Payment Plan
The IRS generally suspends the collection period while it reviews your request for an Installment Agreement or IRS payment plan. The time it takes to approve or reject the installment agreement request is added to the expiration date. Additionally, if the IRS later terminates your installment agreement, the CSED will have been extended by the time the agreement was in effect, and the IRS will have more time to pursue collection.
4. If You’re Outside The U.S. For More Than Six Months
The IRS will pause the CSED for the entire period of your absence, plus six months after you return. This is because of the additional challenges the IRS often faces when trying to collect from taxpayers who are living abroad. The extension allows the IRS sufficient time to resume its collection efforts once you return to the U.S.
5. If You File a Collection Due Process Hearing (CDP)
The CSED is paused until the IRS makes a final decision. The CDP hearing is a request you can file if you receive an IRS notice of intent to levy or file a lien. It gives you the opportunity to contest the collection action or propose alternatives like installment agreements or an OIC.
Apart from these mentioned scenarios, there are other factors that may also affect your CSED. For example, if you take any legal action against the IRS, such as lawsuits or petitions in Tax Court, the CSED may be paused until the legal matter is resolved. If you are serving in a combat zone, the CSED will be suspended during your active service and for an additional 180 days afterward. If you apply for an innocent spouse claim to avoid joint liability for tax underpayments caused by your spouse, the CSED is paused while the IRS reviews your claim.
Consequences of Not Knowing Your CSED
If you ignore your CSED, you may run into some serious financial troubles especially if you’re dealing with unpaid taxes.
First, the IRS may use various tools to aggressively collect taxes when you’re not expecting it. For instance, in order to settle the tax debt, the IRS may garnish your wages, which entails taking a portion of your paycheck straight from your employer. They may also impose a federal tax lien on your properties, including your house or business assets, which may make it difficult for you to sell or refinance the property.
Moreover, you stack up penalties and interests for yourself when you don’t pay off your tax liability. The longer you wait, the more your tax liabilities will grow. You may incur a failure-to-pay penalty, which can be up to a maximum of 25% of your tax debt, or a failure-to-file penalty, which may be up to 5% of your tax debt per month.
Plus, if the IRS files a federal tax lien, it becomes public record and can seriously affect your credit score. When they report the lien to major credit bureaus, you may find it hard to obtain loans, get favorable interest rates on credit, or get approved for business financing.
In addition, you may unintentionally extend the CSED when you don’t even know when the deadline is. That way, you give the IRS more time to collect and further damage your financial health. To avoid these consequences, know your CSED and do your best to settle your tax debts. It’s recommended to work with an experienced tax attorney for professional guidance.
Can the Refund Statute Expiration Date (RSED) Affect my CSED?
Yes, the Refund Statute Expiration Date (RSED) can affect your CSED. The RSED is 3 years from the original tax return filing date, which is the deadline to claim a refund. It refers to the time limit you have to file your tax return or an amended return to receive a refund for any overpaid taxes.
If you file an amended income tax return or claim a refund after the RSED but owe taxes, the IRS will still apply your refund to any unpaid tax debts. However, if you don’t file your return and are owed a refund, the IRS will keep the refund after the RSED passes, but the debt collection through the CSED continues. This means you lose the right to a refund while the IRS can still collect any taxes you owe within the CSED’s time frame.
For example, if you fail to file your tax returns for a year where you’re owed a refund and have an outstanding tax debt from a previous year, the IRS can use your refund to offset that debt, but only if you claim it before the RSED expires. If the RSED has passed, the refund is forfeited, and the CSED still holds.
How to Manage Your IRS Tax Debt Before the CSED?
Admittedly, handling IRS debts can be stressful sometimes, but you need to take the necessary actions before the Collection Statute Expiration Date. Thankfully, the IRS offers taxpayers several ways to deal with their tax debt and avoid harsh collection actions. Here are some of the most common ways you can offset your tax debt while stalling the CSED:
- Set Up An Installment AgreementIf you request a payment plan or an installment agreement, and it’s approved, the IRS allows you to pay off your tax debts in installments over a period. The CSED is suspended when you submit a request for an IA and remains paused while your request remains under review. If the request is rejected, it is suspended for 30 days more. Similarly, the collection period is suspended for 30 days if you default on your agreement payments and the IRS proposes terminating the agreement.
- Submit An Offer-in-CompromiseWith an Offer in Compromise (OIC), you can pay less than you owe the IRS if you can prove that paying the full debt would create financial hardship. This might be a good option if you can’t afford to pay off the debt in full and need a way to resolve your liability before the CSED.
- Request The Currently Not Collectible (CNC) StatusThe IRS considers your CNC if you cannot afford the tax debt or cannot pay without financial hardship. If your CNC is approved, the IRS will temporarily stop all collection actions until your financial situation improves.
- Apply For Penalty AbatementA penalty abatement helps reduce the total tax you owe and makes it easier to pay back taxes before the CSED. The IRS may consider your request if you have a valid reason, such as illness, financial hardship, or natural disaster.
- Work With A Tax ProfessionalIf your tax debt is significant or you don’t know the best way to handle it, you should hire a tax professional, such as a tax attorney or tax resolution specialist, to help you. Tax attorneys know the law and can help you explore all the options available to you, given your unique circumstances. They can also help you negotiate with the IRS, if it comes to that, for a more favorable outcome.
Need Help with Tax Litigation?
Understanding your CSED will help you manage your back taxes effectively, avoid aggressive IRS collection actions, and prevent accruing penalties and interest. While the CSED provides a hard deadline for the IRS’s legal right to pursue what it is owed, certain strategies, such as installment agreements, Offers in Compromise, or Currently Not Collectible status, can both suspend and extend the collection period and, ultimately, the CSED.
If you’re unsure about your CSED or how to handle your IRS tax debt, it’s always a good idea to consult a tax professional. Our experienced tax lawyers at Victory Tax Lawyers will help you understand your tax deadlines and even help you set up a payment plan that best suits your tax situation. Schedule a free consultation with us today!
FAQs
Does The CSED Apply to All Types of Tax Debts?
The Collection Statute Expiration Date applies to most types of federal tax debts, including income taxes, payroll taxes, and self-employment taxes. Nonetheless, a few exceptions have different regulations, like criminal tax penalties or civil tax fraud.
How Can You Confirm Whether Your Tax Debt Has Been Erased?
If you’re not sure if your tax debt has been clear,d you can find out by:
- Reviewing your IRS Notices, particularly any correspondence that pertains to the status of your tax debt.
- Requesting your Tax Account Transcript from the IRS. Your transcript provides details on your tax payments, unpaid tax debt, and current balance.
- Contacting the IRS directly on their hotline.
- Utilizing the IRS’s online tools. Once logged in to your IRS online account, you can view your balance and payment history.
- Checking in with your tax professional. You can and should definitely consult with your tax advisor if you have one to clarify your status and help you move forward with a plan to handle your tax debt.
What Happens to Interest and Penalties After The CSED?
After the CSED has passed, the IRS cannot pursue the original tax debt, nor can it go after any interest or penalties related to that specific liability. However, you’ll continue to accrue significant penalties and interest on your unpaid balance until the CSED date arrives, which is why you can’t afford to wait out the IRS’s collection window.
Can The IRS Collect After The CSED Has Passed?
Legally, the IRS cannot collect on the tax balance after the CSED has passed unless it receives permission to extend the statute. However, in rare cases, the IRS may try to argue that the CSED was extended due to specific events, so it’s essential to track your CSED and consult a tax professional if necessary.
What Can I Do To Prevent Extending The CSED?
Unless absolutely required, steer clear of actions like bankruptcy filings or an offer in compromise to prevent inadvertently extending the CSED. Make sure you also follow any installment agreement terms to prevent starting a CSED extension.
