Taxation & Estate Planning

IRS statute of limitations - without waking up the IRS

By howardlevy

A client came in today with an older tax liability that appeared to have only two years left on the IRS statute of limitations on collection.  The client had not heard from the IRS in years.

A statute of limitations is the time the IRS has to do something.  For IRS collection cases, it is the time the IRS has to collect  - 10 years.  After 10 years, the liability is cleared off the IRS books.  

When was the end for my client?

Since all had been quiet, it was important to get a better feel for when the IRS statute of limitations began and ended without waking a sleeping giant.  

The answer to determining a quiet end for my client was a review of the Federal tax lien the IRS had filed against him.  

A Federal tax lien lists the date the IRS statute of limitations on collection begins, and lists the date it ends. Federal tax liens are public record, filed at a county clerk’s or recorder’s office.   After obtaining the tax lien, we had a good idea of when the statute of limitations on collection ended without having to call the IRS and disrupt still waters.

As part of the reliance on tax liens, it is important to get a clear understanding whether any events have transpired that could change the statute date that would not be evident from the Federal tax lien.  The most common events that will add to the collection timeframe shown in the Federal tax lien include the submission of offer in compromise, filing a collection due process appeal or innocent spouse claim, or going into bankruptcy.   

With an initial determination made on the statute of limitation on collections from the Federal tax lien, we set a later date to contact the IRS - when we believed the liability would no longer be collectible, rather than while it still was.

Full post as published by IRS and the Law on April 18, 2009 (boomark / email).