IRS Statute of Limitations on Collections: CSED Rules for Tax Liability

Your taxes owed can become uncollectible if the IRS statute of limitations on collections expires. Typically, this period is ten years from the date of your tax assessment. The IRS can extend or suspend the collections period upon certain action, such as submitting an offer in compromise.

If your collections period is expiring soon, expect the IRS to become more assertive in their attempts to collect the tax. Contact a tax professional if you need help determining the expiration date for the collection of your taxes owed.

How the Collection Statute Expiration Date (CSED) Works

Your CSED is the date your IRS taxes owed becomes uncollectible. The law takes away all of the IRS collection powers on this date. You will no longer have to worry about an IRS levy of your assets, and the IRS should release its tax liens.

The date your tax is assessed, the clock starts ticking on the statutes. Tax can be assessed in several ways:

• If you file an accurate tax return, the IRS will asses your tax when you file your return.
• If the IRS audits your return or determines that you owe additional tax, the IRS can make a deficiency assessment. The IRS will send you a notice of deficiency that details how much tax they have assessed.
• If you don’t file a return, the IRS can file a substitute return on your behalf. The filing of a substitute return assesses the tax against you.

If you never file a return, the tax is not assessed, which means the collections period never starts. The IRS can go back several decades and assess tax for unfiled returns, although this rarely happens. Once the IRS has assessed the tax, they still have ten years to collect.

How to Find Out Your CSEDs

You need to know your tax assessment date to determine what your CSED is. It’s possible that you could have several different tax assessment dates if you have liability from multiple tax years or had a deficiency assessment.

Some IRS notices may state your tax assessment date. You can also request your personal tax transcripts from the IRS online or by mail. A tax professional can request transcripts on your behalf once you sign an IRS power of attorney form.

Once you know the tax assessment date, add ten years to figure out the CSED. But if you take specific actions that suspend the collection period, the IRS may get extra time to collect your taxes owed.

Can the IRS Collect After Ten Years?

There are some cases where the collection period is suspended or tolled temporarily. In these situations, the IRS adds the suspension period to the ten-year collection period. The IRS could have more than ten years to collect if you or the IRS took any of the following actions during the collection period.

In many cases, the IRS agrees to suspend the collection period because collection activities are halt while it considers a request from the taxpayer.

Actions by Taxpayer

• Filing for bankruptcy. During bankruptcy, the IRS cannot collect tax. Due to the inability to collect the tax owed, the collection period gets suspended. The CSED is generally suspended during the automatic stay and for six months after the stay is lifted.
• Requesting a Collection Due Process (CDP) hearing. You have the right to request a CDP hearing when the IRS takes certain collection actions, such as a levy of your bank account. The IRS tolls the collection period if you request a timely CDP hearing. Once you withdraw your request or your decision becomes final is when the tolling stops.
• Submitting an Offer in Compromise (OIC). The IRS tolls the collection period while they consider your OIC and for 30 days after the IRS makes a decision. If you appeal the rejection of the OIC, the collection period tolls during the appeal.
• Submitting an Installment Agreement. The period tolls while a request for an installment agreement is pending. The suspension also applies during an appeal of a rejection or termination of an installment agreement, and for 30 days after a rejection or termination is given.
• Requesting Innocent Spouse Relief. Collections suspend while the IRS considers your innocent spouse request. The collection period resumes when your deadline to petition the Tax Court expires or when a Tax Court decision becomes final, plus 60 days.
• Living Outside the U.S. The IRS suspends the collection period if you live outside of the U.S for a continuous period of six months or more. When you return, the IRS gets at least six months to attempt to collect, even if the period would otherwise have expired. You can’t wait out the IRS collections period by fleeing the country.
• Military Deferment. The CSED suspends during a taxpayer’s military service, plus 270 days thereafter. The CSED also suspends during service in a combat zone, plus 180 days thereafter.
• Request for Taxpayer Assistance. If you request assistance from the Taxpayer Advocate, the CSED suspends while your request is pending.

Actions by IRS

• Filing of a lawsuit. If the IRS takes you to court to get a court judgment on your taxes owed, the collection period suspends until the judgment is satisfied or becomes unenforceable.
• Wrongful levy or lien. If the IRS wrongfully levies or puts a lien on the property of a third party, the collection period suspends until the property is returned or the lien is withdrawn, plus 30 days. The suspension only applies to the value attributable to the wrongfully levied property or the value of the interest in the wrongful lien.

How the IRS Applies Your Payments

The IRS can receive payments from taxpayers in several ways. Taxpayers pay voluntarily through installment agreements and Offers in Compromise. The IRS also takes payments by seizing assets or garnishing wages.

Whenever the IRS receives a payment, they apply it to the taxes owed with the earliest CSED. If your taxes owed has several different CSEDs, the IRS will attempt to collect the liability set to expire first.

Voluntarily Extending the CSEDs

The IRS may ask a taxpayer to waive or extend the CSED. Waiving or extending the CSEDs can happen when the taxpayer requesting a partial payment installment agreement and the taxpayer is expected to acquire assets after the CSED. For most other installment agreements, the IRS should not secure CSED waivers.

CSED waivers are typically for five years, plus one year to provide for administrative actions, plus 90 days. If you are nearing your CSED, you may be better off letting the IRS attempt to collect instead of agreeing to an extension. However, this will depend on the terms of your installment agreement, your financial situation, and other factors.

What Happens When CSEDs Expire?

The IRS can’t collect from you once the CSED expires unless your case has been taken to court to get a judgment. If you have other taxes owed with CSEDs that haven’t yet expired, the IRS may continue to pursue collection of these liabilitys. Once your CSED expires, you may have any federal tax liens on your property released.