There are certain time limits on the IRS to collect a tax liability, which is ten years from the time it is assessed. The "Collection Statute Expiration Date (CSED)" is the last day the IRS has to collect any unpaid taxes. Once the collection statute expires, the IRS loses its right to pursue collection of a tax liability. But there are certain things that can "toll" or "stop" the statute of limitations clock from ticking.
What Actions Can Extend IRS Statute Of Limitations?
By Filing an Offer in Compromise
Filing an offer in compromise will toll the collection statute by the time the IRS considers the offer, plus 30 days. The offer can take up to twelve months to be investigated, and if accepted, the IRS allows up to two years to complete the settlement process. Remember, submitting an OIC will largely work towards the best interest of the IRS.
Leaving the Country
Living outside the United States for more than six months may stop the clock on the CSED from running. So don't assume that you can run out the IRS statute of limitations while you are staying abroad. For that reason, the IRS very specifically asks about these details on its form 433A Collection Information Statement.
Filing of a Bankruptcy
The ten year statute of limitations period will be suspended if you file for bankruptcy – the suspension will last for the entire time you are under the protection of the bankruptcy court, plus six months. This period for Chapter 7 bankruptcies would be around 6-9 months. For Chapter 13 bankruptcy, the suspension of the CSED period can last for several years.
Installment Agreement Request
If your proposed Installment Agreement is pending with the IRS, the statute of limitations will be tolled during the entire waiting period. If the IRS rejects the proposed agreement and you appeals against it, the CSED is tolled while the appeal is pending.
IRS Collection Due Process (CDP) Hearing
The CSED is tolled after the Collection Due Process (CDP) hearing request is filed and it will last until the hearing is over. The hearing process may take six months to complete; sometimes, this can take longer time if you use the appeal right to go to tax court. But an Equivalent Hearing does not suspend the IRS statute of limitations on collections.
Fraud Cases
If the taxpayer attempts for any fraudulent action to evade taxes or files a false return, then there will be no statute of limitations on IRS collections whatsoever.
Waiver/Extension
A taxpayer may voluntarily agree to extend the statute of limitations by signing a waiver form 900. The IRS is limited to request statute extensions only in conjunction with an Installment Agreement and when the taxpayer wants to pay a lower amount each month.
Wrongful Levy (Seizure)
The limitations period will be extended during the time where the taxpayer’s assets are under the custody or direct control of a state or federal court. The same applies during the time the IRS wrongfully has a lien in place against the property or when it has wrongfully seized the property from a third party.
