Volume 15 Issue 6 -- November/December 2003
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.
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
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,
to the Wall.”)
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
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 latest 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.
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
By Tax and Business Professionals, Inc.
9837 Business Way
Manassas, VA 20110
While designed to be accurate, this publication is not intended to constitute the rendering of legal, accounting, or other professional services or to serve as a substitute for such services.
Redistribution or other commercial use of the material contained in Tax & Business Insights is expressly prohibited without the written permission of Tax and Business Professionals, Inc.