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The IRS Statute of Limitations | How Long Can The IRS Collect

Updated: Nov 11, 2020

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How the IRS Determines the Statute of Limitations on Collections. The statute of limitations period for IRS collection enforcement is generally ten years from the date the tax liability is assessed. A taxpayer with an overdue tax liability may not be fully aware of the impact the statute of limitations (SOL) can have on a tax debt and dismiss its relevance because the statute of limitations date is years into the future. This assumption can be a costly mistake. Many taxpayers who have a balance due on their return and cannot afford to pay in full will consult a tax professional or the IRS website to review the tax relief programs available. However, an equal number of people will avoid addressing the tax due until their situation turns dire, and their bank checking account is levied or their employer receives an IRS wage garnishment order seizing your wages/paycheck. This is one example where understanding the statute of limitation history on the account can be a great benefit.


How the Statute of Limitations is Determined

For the IRS to begin collection proceedings, tax must be assessed. The date of assessment begins the statute of limitations for collection purposes. An assessment is made when a taxpayer’s liability is recorded and signed by an assessment officer in the office of the Secretary of the Treasury in accordance with rules or regulations prescribed by the Secretary. To qualify for assessment, an income tax return must include reportable gross income and qualified deductions and calculate the taxpayer’s net taxable income “with such uniformity, completeness, and arrangement that the physical task of handling and verifying returns may be readily accomplished.” The IRS must assess any tax due within three years from the date the taxpayer files the return. The three-year tax assessment statute may be extended under certain circumstances.

The Internal Revenue Manual (IRM) refers to the date that ends the period in which collections may be enforced as the Collection Statute Expiration Date or CSED. There can be more than one assessment date and CSED for a tax year. If a return is audited or a taxpayer files an amended return and additional tax is owed, the date the added tax is assessed will start the ten-year collection statute on taxes assessed in the audit or amended return. Many penalties carry their own CSED transaction codes on IRS account transcripts. The CSED for a penalty can be the same as the underlying tax, but this is not always the case. Examples of penalties that carry their own CSED date are the Estimated Tax Penalty, Deposit Penalty, Delinquency Penalty, various Civil Penalties, Fraud Penalty, and Negligence Penalty.

It is important to understand that assessed and filed are two different actions. Filed refers to the process of submitting a return to the IRS. For e-filed returns, the IRS generally considers the filing date as the date the return is electronically submitted to the IRS. For paper-filed returns that are mailed, the filing date is generally the postmark date. The filing date for a return that is submitted in-person at an IRS service center is the date the return is physically delivered. Should a taxpayer timely files their tax return by the original due date, the assessment date will be a few weeks after the return is filed. Once a tax return is filed, it takes the IRS five to six weeks to process it. The same holds true for tax returns that are filed by the extended due date or later. For an individual income tax return filed on or before April 15, the assessment date for any unpaid tax will typically be sometime during the last week of May or first week in June. An income tax return that is not filed by the taxpayer can also be subject to collection enforcement actions. When enough income is reported to the IRS that a taxpayer meets the filing requirements but does not file a return, the IRS may prepare the return on their behalf. An income tax return prepared by the IRS is called a Substitute for Return or SFR. The collection statute of limitations begins on the date the IRS assesses the tax on the SFR. It is important to understand that the statute of limitations on assessment does not begin with the preparation of the SFR.[4] Only a taxpayer-filed return has a date of assessment. Even if the taxpayer agrees with the completed SFR, the SOL on assessment will not begin. If a taxpayer files a tax return for a year for which the IRS already prepared a Substitute for Return (#SubstituteforReturn), the SOL on assessment will begin, but the collections statute of limitations will not restart with the submission of the return filed by or on behalf of the taxpayer. However, any additional tax assessed on the taxpayer’s submitted return will have a new collection assessment date.

For those taxpayers who file a false or fraudulent return, the statutes of limitations on assessment and collections do not begin. In other words, a tax liability may be assessed, and the court may begin collection proceedings at any time without regard to the ten-year limitation. Keep in mind that the burden of proof rests with the IRS in situations of fraud. The above article is provided by the tax professionals at Flat Fee Tax Relief. For more than a decade, our tax pros have been providing valuable tax relief help at a very affordable fee. We are strategically located in Clearwater, Florida, and San Diego, California. This allows our teams to service our clients from coast to coast.

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