Many who owe taxes know that the IRS can not collect on a tax debt forever. Each tax assessment has what is known as a Collection Statute Expiration Date (CSED). Internal Revenue Code (IRC) section 6502 provides that the length of the period for collection after assessment of a tax liability is 10 years. Once the CSED has been reached, it ends the government’s right to pursue collection of a liability.
Items that stop the 10 year clock. What is important to understand is that while the normal time to collect is 10 years, various circumstance may “extend” the CSED. What these circumstances essentially do is push the CSED date forward in time. The IRC speaks to “suspension” of the period of limitations, during which the CSED “clock” stops running. Such suspension periods lead to the extension of the CSED.
So what actions stop the clock and for how long? The most encountered suspension (or tolling) events often include:
- Bankruptcy: CSED is tolled from the date of filing the petition until the date of discharge, plus 6 months. IRC § 6503(h)(2).
- Pending Installment Agreement: CSED is tolled from the date of the request for an installment agreement, plus appeals, plus 30 days. IRC § 6331(k)(2) and 6631(k)(3).
- Termination of Installment Agreement: CSED is tolled 30 days from the date of termination, plus appeals. IRC § 6331(k)(3).
- Pending Offer in Compromise: CSED is tolled from the date of acceptance for processing of the OIC plus appeals after rejection, plus 30 days. IRC § 6331(k)(3).
- CDP Hearings: CSED is tolled from the date of a timely request until final disposition. Additionally, if it is less than 90 days from the CSED, the CSED is reset to 90 days from the date of final disposition. Reg. § 301.6330-1(g)(3).
- Military-related Service in a Combat Zone: CSED is tolled the length of service, plus 180 days. IRC § 7508(a)(1)(i).
What does this look like in reality?
To help one understand how this may look when they analyze an IRS Account Transcript, we’ll review a few examples.
Let’s say a 2018 tax return is filed on the due date of 4/15/19. The tax assessed on 4/15/19 ordinarily has a CSED of 4/15/29. The taxpayer request an installment agreement that is reviewed from 8/1/19 until 9/1/19. This will toll the CSED for 30 days for the review and another 30 days post review (or 60 days total). As such, the new CSED will be 6/15/29. Easy enough right?
In a more involved example, let’s say a taxpayer files their 2017 tax return on 4/15/18, reflecting a tax liability of $11,906. The normal CSED would be 4/15/28. The taxpayer then files a bankruptcy petition on 5/15/18, and receives a Chapter 7 discharge on 8/15/18. The CSED is suspended for the period of the bankruptcy (92 days) plus six months. Accordingly, the new CSED is 1/12/29. Still fairly straightforward.
Where things often get confusing (for taxpayers as well as for IRS employees calculating the CSED) is when there is an intersection of suspension events. What is important for the taxpayer (as well as the IRS employee calculating the CSED) to know is that more than one case action can suspend the running of the collection statute at the same time. Overlapping suspensions run concurrently; they are not cumulative.
To illustrate this, let’s look at one last example. Taxpayer Rogers owes 1040 taxes for the period ending 12/31/08. The tax assessment date is 06/01/09 which established the original CSED as 06/01/19. Rogers, who is in the Army Reserves, gets called up for combat duty and enters the combat zone on 05/10/14. He subsequently leaves the combat zone on 03/01/15. He submits an offer in compromise on 04/20/15, it is rejected on 10/17/15 and the rejection is not appealed.
Both case actions, entering the combat zone and submitting the offer in compromise, suspend and extend the CSED. The combat zone duty suspends the CSED from 05/10/14 through 03/01/15 plus 180 days (through 08/28/15). Consideration of the offer in compromise suspends the CSED from 04/20/15 through 10/17/15 plus an additional 30 days for the rejection appeal period (through 11/16/15).
However, because these case actions overlap, the CSED will be suspended only from the date Rogers enters the combat zone (TC 500 cc 56 on 05/10/14) through the date the offer in compromise is rejected and the rejection appeal period ends (TC 481 on 11/16/15). In this case, the overlapping of the two case actions (from 04/20/15 to 08/28/15) is considered in the CSED extension only once. If you are a tax geek looking for guidance, see IRM 22.214.171.124(2). As a result of the above, the CSED will be extended 555 days from the original CSED of 06/01/19. The new CSED will be 12/08/20.
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