Taxation & Estate Planning

IRS statute of limitations on collection: Be careful, these actions will extend it.

By howardlevy

Tax problems do come to an end – the IRS has 10 years to collect a tax debt.  

But be careful:  The time the IRS has to collect can be unknowingly extended by you. 

The decisions you make in attempting to resolve your tax problem can impact when it ends.  As your collection statute gets closer to expiring, carefully think through the benefits of taking any of the following actions that will extend it: 

(1)     Offer in compromise.  The filing of an offer in compromise will extend the statute of limitations on collection by the time it is pending plus 30 days.  The IRS can take six to twelve months to investigate an offer in compromise, and if it is accepted, the IRS will allow you up to two years to pay the settlement amount. Submitting an offer is not always in your best interest. 

(2)     Collection due process appeal.   Timely responding to an IRS Final Notice of Intent to Levy – known as a collection due process hearing  – will extend the time the IRS has to collect while your hearing is pending. 

A really good strategy:   A late-filed collection due process appeal – defined as filed within one year of the date of the Final Notice -  does not extend the collection statute but does entitle you to an appeals “equivalent” hearing.  See IRC 6330(e), IRM 5.1.9.3.6 and Treas. Reg. § 301.6330?1(g)(3), ex.1.

(3)     Bankruptcy.  Bankruptcy extends the statute of limitations on collection by the time you were in bankruptcy plus six months.  If you filed bankruptcy but did not eliminate all of your tax liabilities, the IRS will have more time to collect the non-discharged taxes from you.  See IRC 6503(h) and IRM 5.9.4.2.

(4)     Innocent spouse relief.  The collection period is suspended from the filing of the request for innocent spouse relief until the 90 day period for petitioning the Tax Court expires.  If a Tax Court petition is filed on an IRS denial, time is tolled until the Tax Court decision becomes final, plus 60 days.  See IRC 6015(e) and IRM 25.15.1.8.

(5)     Taxpayer Assistance Order (911).  If communications breakdown to the point of needing a Taxpayer Assistance Order to stop the IRS, the filing of Form 911 will suspend the statute of limitations on collection while your case is pending for review.  See IRC 7811(d) and IRM 13.1.14

(6)     Installment agreements.  If the IRS refuses or defaults an installment agreement, you have the right to appeal that decision.  If you do, the collection timeframe is extended during the appeal.  See IRC 6331(k)(2)(d).

The IRS gets more time because these actions prevent them from collecting from you.  What the IRS gives you – no enforced collection activity – they get back.  Before proceeding, always make sure the potential for success (i.e., high chance of offer acceptance) is greater than the risk of extending the collection timeframe and making your problem linger.

Full post as published by IRS and the Law on February 02, 2010 (boomark / email).