The IRS is the greatest collection agency in the world. It’s charged with collecting billions and billions of dollars in tax each year. Although it may seem like the Service makes its own rules, there are laws that protect taxpayers from the long arm of the IRS Collection Division. One law the IRS must adhere to is the ten-year collection statute. This law is like our very own Terminator, sent here to protect from the big, bad IRS. So by default, that makes the IRS the T-1000, that scary creature from “Terminator 2: Judgment Day,” made of molten metal, dressed like a cop, constantly changing shape and the rules of the game, always seeming to outrun and outlast the good guys. Now, this isn’t a James Cameron fantasy. We know we can’t stop the T-1000 / IRS, we can only hope to contain it. Our safest bet is to play by the rules of tax compliance and do what we can to make the IRS play nice. That said, I’m glad the Terminator (the ten-year collection statute) is on our side.
But I digress. The IRS typically has ten years to collect a back tax debt, with the last day to collect the liability being called the Collection Statute Expiration Date (CSED). Internal Revenue Manual 184.108.40.206 states that “each tax assessment has a CSED. Internal Revenue Code section 6502 provides that the length of the period for collection after assessment of a tax liability is ten years. The collection statute expiration ends the government’s right to pursue collection of a liability.”
“Pursue” is a key word in the IRS statement above. A little known fact is that although the IRS is not allowed to pursue the tax liability after the CSED has expired, it may still apply funds to the liability should the Service get its hands on them. For example, the IRS may apply an overpayment to a back tax debt that is past the CSED.
Certain actions extend the CSED, suspending it for a length of time. These actions include submitting an Offer in Compromise, filing for bankruptcy, submitting certain Appeals, Pending Installment Agreement status, litigation with the IRS, a Taxpayer Assistance Order, military deferment and other items. Essentially, if the IRS is prevented from collecting the tax, the CSED will most likely be put on hold. You can see why the CSED may play a role in how you and the IRS resolve your back tax debt.
The CSED and other important facts, such as your age, health and education, may play a role in whether or not the IRS will accept your Offer in Compromise. If you have a lot of years left on your CSED, you’re relatively young, healthy and educated, the IRS may just reject your Offer with the belief that your earning potential will increase allowing you to full pay in the tax debt within the CSED. In other words, you’re broke now, but you may not be in a couple of years.
Your Installment Agreement may also be affected by the CSED. A case in which the IRS would usually allow a taxpayer to pay a tax debt monthly over 72 months may have to be collected in less time, significantly increasing the monthly payment amount. The CSED could also influence your decision to commit to any action that would extent the time the IRS has to collect. I hope you enjoyed this blog. I’ll be back…
If you want more information about how the IRS’ Collection Statute Expiration Date may affect you, contact M&M. We specialize in resolving business and personal tax liabilities. Complete our contact form at http://mmfinancial.org/contact.html, or call us at 866-487-5624 to find out how M&M’s Tax Resolution System can help you.