Congress limited the time the IRS has to collect an old tax debt. Once the tax has been assessed, a ten-year collection clock begins to run. When it runs out, the IRS can no longer take action against a taxpayer and the debt is discharged in IRS records. The end of this collection period is called the “Collection Statute Expiration Date” or CSED for short. Generally, 26 U.S.C. § 6502 governs the time for tax collection but other statutes may extend the time for collection under various circumstances.
When a taxpayer file a settlement offer under the Offer in Compromise program, and the offer is accepted for processing by the IRS, collection action is prohibited until the settlement offer has be accepted or rejected. The ten-year IRS collection clock is suspended during the period of time an offer in compromise is pending, for 30 days after the offer has been rejected, and during any time an appeal of the rejection is pending. The ten-year IRS collection clock is suspended during the period of time an offer in compromise is pending, for 30 days after the offer has been rejected, and during any time an appeal of the rejection is pending.
In addition to Offer in Compromise, bankruptcy will stop collections and suspend the collection clock as well. According to IRC § 6503(h), the ten-year time for collection is extended for the period of time during which the IRS is prevented from collecting a tax due to a bankruptcy proceeding, plus an additional 6 months after the bankruptcy stay has been released.
When a taxpayer is outside of the United States for a continuous period of at least 6 months, the collection statute is suspended for the time during which the taxpayer is out of the country. The department of homeland security keeps records of time out of the country and will make that information available to the IRS if they ask for it. A brief return visit to the US may not be enough to avoid this extension. Plan to stay for a meaningful amount of time, perhaps a week or two.
When a taxpayer requests an installment payment agreement from the IRS, collections are suspended while the IRS considers whether or not to permit payment of delinquent tax in that manner. Because the IRS can’t collect until a decision is made, the collection clock stops.
The period of time allowed for collection can be extended by consent of the taxpayer: It is possible to extend the collection period voluntarily if the taxpayer signs an agreement to do so. This may be important when it is necessary to extend the time for collection and avoid levy or other types of enforced collection.
The IRS can further extend the collection statute if, before the collection statute expires, a Federal Court proceeding is commenced to reduce the amount of tax due to a federal court judgment. Once the judgment has been entered, the IRS can use it to collect the debt for an additional extended period.
Overall, understanding the IRS collection clock and the various factors that can affect the time allowed for tax collection is important for taxpayers who are dealing with old tax debts. If you have concerns about your tax debt and the CSED, it’s important to consult with a tax professional or tax attorney who can help you understand your options and the potential consequences of each.