Most people have heard of a “statute of limitations” in criminal law. There is a period of years after a crime is committed during which the authorities can prosecute the people they believe committed it. Once that time limit has passed, charges can’t be brought.
Did you know that there is a “statute of limitations” on the IRS’s ability to enforce tax collection? There is. It’s the “10-year collection statute.”
Here’s an example of how it works:
- John and Jane Q. Public e-file their 2024 tax returns on 4/1/25.
- The IRS processes its electronic return on 4/5/25, and if there is a balance due, it “assesses” the tax due on that date.
- The IRS has until 4/4/35 to collect that tax by statute.
The key date here is when the tax is “assessed”. The statute says 10 years from the assessment date, not from the filing date or the due date.
There are several actions that can cause the 10-year statute to “toll” or stop running. They are:
- Filing for bankruptcy
- Requesting a Collection Due Process Hearing
- Filing an Offer in Compromise
- Defaulting on an Installment Payment Agreement
The statute will start running again once the time period to consider these alternatives has finished. In the case of a bankruptcy, an additional 6 months is added to the collection period after discharge.
Why is all of this important?
Before considering the various tax resolution options available to a client, the tax professional has to know what the CSED (collection statute expiration date) is for each tax year in which the client has a balance due.
By knowing this, the tax professional can employ a strategy to resolve the taxpayer’s debts at the lowest possible cost to the taxpayer.
For example, if there is only a year or two left on the collection statute and the taxpayer just lost their job, got divorced, or had a major medical expense that set them back, you could request a Currently Not Collectible status due to hardship. The IRS will revisit your situation in 12-24 months.
If there are many years left and the same scenario as above, you might make an Offer-in-Compromise to try to settle the debt for less than its face value.
Understanding when the 10-year collection statute of limitations expires for each year of a client’s tax debt is critical to formulating a strategy to resolve their tax debts.
For questions on this topic or any other tax topic, feel free to call me at 203-434-5626, email me at mikeo24@bythebooktaxes.net, or visit my website at www.bythebooktaxes.net.
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