An Overview of the IRS Tax Collections Process for Non-Tax Lawyers
18. The Statute of Limitations on Collections
Briefly I want to talk to you a little bit about the Statute of Limitations on Collections.
By law, the IRS has 10 years to collect on a liability from the daily assessment. The IRS when a liability is assessed, let’s say the taxpayer will file the return on April 15th of 2010, then, the IRS would have until April 15th of 2020 to collect on that liability.
Now, the date of assessment is really important for determining statute of limitations because there are multiple things that would cause the Statute of Limitations to talk.
For example, if you have a 2010 return which is due in 2011 and you don’t file it until 2014, then the date of the assessment is not 2011, it is 2014. Correspondingly, if you file a return on 2011 and then amend the return in 2014, that will re-trigger the Statute of Limitations on Collections.
Also note, if you got a client with SFR filings, a Substitute for Returns, and you go and file the tax return, that will reset the collection’s Statute of Limitations.
So, it’s very important to be mindful of the collection’s Statute of Limitations. The Statute of Limitations also tolls in certain circumstances, meaning it can be extended.
If you set your client up on a payment plan, then the IRS may ask you to toll the Statute of Limitations until the liability is paid in full.
Correspondingly if you apply for an Offer in Compromise or you requested an Instalment Agreement, the IRS will toll the Statute of Limitations while that is under consideration. Bankruptcy also tolls the Statute of Limitations.
It is possible if you’ve got a client that has filed multiple Offers in Compromise in the past or has unsuccessfully discharged taxes in bankruptcy, then than Statute of Limitations even if the day of the assessment is back in 2011 has tolled that statute of limitations beyond that date.
Really important, when you call Collections, know what the date of the assessment is, and also ask Collections for the CSED or Collections Statute Expiration Date. That expiration date will tell you the timeframe for how long the IRS has to collect on your client.