Under the general rule, the IRS must collect taxes within 10 years of the date of assessment. Almost any time the IRS is prevented from collecting by law, time is added to extend the IRS’s statute of limitations period (the allowed time per law) to collect. Some common actions extending the IRS’s time to collect include Requests for IRS Installment Agreement or Payment Plan, requesting an Offer in Compromise, requesting a Collection Due Process Hearing, or filing Bankruptcy.
The general rule is that the IRS must collect taxes within 10 years of the date of assessment. The assessment date is the date of the filing of the return (or 4/15 if later) or the date audit/exam liabilities are entered as assessments in the IRS’s records. However, bankruptcy and requests for installment agreement, among other things, can extend the statute of limitations pursuant to Section 6503 of the Internal Revenue Code. Certain actions extending the collections period are discussed below. For more specific information, a tax professional should be contacted.
Installment agreements: Section 6331(k) of the Internal Revenue Code prevents the IRS from enforced collection actions while the installment agreement is pending and for 30 days after denial or termination. The statute of limitations is tolled (extended) during the “pending” period plus 30 days.
Offer in Compromise based on Doubt as to Liability, Effective Tax Administration, or Doubt as to Liability: The statute of limitations for the IRS to collect is extended for the amount of time the Offer in Compromise is “pending” plus 30 days. For this reason, if a taxpayer’s account is not under immediate threat of collection, it may be preferable for some taxpayers to pursue either audit reconsideration, file an amended return, or file a claim for refund instead of an OIC based on doubt as to liability.
Collection Due Process Hearing (CDP): The collection limitations period is extended from the date the request for a Collection Due Process hearing is received by the IRS for as long as it is pending. If it is withdrawn, the date of the withdrawal is the last date for computing the extension. If a determination is made by the IRS, the last date for computing the period of extension is when it goes “final.” The filing of a Tax Court petition keeps the determination from going final until the Tax Court case is resolved. The final day is generally the date of the determination letter plus 30 days. One exception is where there is less than 90 days left on the limitations period when the CDP determination becomes final, then they get 90 days regardless.
Bankruptcy: With respect to a bankruptcy proceeding under Title 11 U.S.C., the running of the limitations period is suspended for the period during which the government is prohibited from collection (the duration of the bankruptcy proceeding unless a stay is lifted by motion of a creditor) plus 6 months thereafter.
The IRS can file suit to foreclose or reduce a tax liability to judgment at any time before the end of the IRS’s collections period.
The above is not an exhaustive list of the statutory time extension or tolling rules, but are applicable in many cases, but not to all cases. This can be a very technical area of law, with serious repercussions if the precise rules applicable to a taxpayer’s case are not personally evaluated and applied with great attention to detail. A tax professional should be consulted before making any decision that relies on or may affect the IRS’s time to collect.
Daniel W. Layton, Esq., is a former IRS trial attorney, former federal prosecutor, and currently a partner in Layton & Lopez Tax Attorneys, LLP, in Newport Beach, Orange County, California.