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Volume 15 Issue 5

Nov/Dec 2003

IRS Collections 10-Year Statutory Limit

© by Tax & Business Professionals

Many taxpayers and some practitioners are unaware that the Internal Revenue Service (IRS) must collect a tax debt within 10 years. The 10-year period begins to run with the date of the “assessment,” not the tax year for which taxes are due. For example, if the return for 1995 is not filed until 1998 and the tax is assessed in 1999, the 10-year period begins to run in 1999 and expires in 2009.

 The date of assessment is the date the tax liability is assessed on a particular form at an IRS Service Center. When the applicable form is signed by an IRS official, the 10-year period for that tax liability begins to run. Later additions of interest and late payment penalties (as well as other penalties) tacked onto the underlying tax debt must be collected within the same 10-year period.

When Does the Clock Start?

To determine when the collection period begins for a particular liability, the best approach is to obtain a transcript of the taxpayer´s IRS account. Transcripts should exist for each tax year and provide basic information such as the date of assessment, date of filing, and tax liability. Our March-April 2002 newsletter discussed some of the uses and needs for this basic data.

Many Tax Practitioners can order transcripts using the IRS Tax Hotline in their local jurisdiction, but only if a power of attorney has been filed. Taxpayers can request transcripts on their own behalf by filing IRS Form 4506 and hoping for an answer. (See our March-April 2000 Newsletter, “Nailing Jell-O® to the Wall.”)

No Notice of IRS Actions

The IRS seems to be under no obligation to notify a taxpayer or a tax collection service that the tax liability is no longer collectible, even though the IRS´s internal records may reflect that the debt has been discharged. Similarly, if tax liens have been filed, those liens could still be on file with the local recording office, even though they can no longer be enforced.

In some cases, the IRS will voluntarily file a Release of Lien and not inform the taxpayer. Another pattern, not uncommon, is to find an unenforceable IRS lien against the property after the underlying tax debt is uncollectible.

Some delinquent taxpayers, whose tax debts are uncollectible because the 10-year period has expired, still have adverse credit reports with notations about the existing tax liability.

Before recent tax reform legislation, it was common practice for the IRS to insist that taxpayers waive the statute of limitations on collections. It was not uncommon for the IRS to ask for waivers extending the period during which taxes could be collected for up to 20 or 30 years.

In the 1990s, one middle-aged taxpayer was asked to sign such an extension, extending the collection period beyond his life expectancy, in order to avoid a levy on his military retirement benefits.

In 1998, Congress decided to curtail such practices and enacted legislation that banned the IRS from using such waivers in the future. The law also said that any waiver of the 10-year statute of limitations executed before December 1999 would expire on the earlier of: (1) the last day of the 10-year period; (2) December 31, 2002; or (3) in the case of extensions in connection with installment payment agreements, the 90th day after the expiration date specified in the extension.

10 Years Not Always the Limit

There are a number of other ways the 10-year collection period may be extended. For example, during the period an Offer in Compromise is pending, the statute of limitations is extended accordingly. Similarly, if bankruptcy is declared, while the bankruptcy proceeding is pending, the 10-year statute of limitations on collection is extended by the duration of the bankruptcy proceeding.

Many types of court actions may also suspend the running of the 10 years. The filing of an IRS levy or a judgment entered in a Federal Court in a suit by the Department of Justice can also extend the 10-year period. The IRS can ask the Department of Justice to institute a collection proceeding in Federal District Court. If such a proceeding is begun and the United States Government prevails, then the statute of limitations on collection on that judgment is extended for the period generally allowed to collect such judgments, and such judgments can be renewed subject to the discretion of the Court.

If you need help with a statute-of-limitations problem, please contact The Tax and Business Professionals, Inc.

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Published jointly by The Tax & Business Professionals, Inc. and the law firm of Newland & Associates as a service to their clients.

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