What Tolls the 10-year Statute of Limitations on IRS Tax Debt Collections?

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.

Tax Debt Relief: Know Your IRS Tax Settlement Options

The IRS offers numerous settlement options to taxpayers who are struggling to settle their tax owed. In this post, we will discuss about the advantages and disadvantages of some of the most common IRS tax settlement options.

1. Audit Reconsideration

Advantages: There are many situations in which a taxpayer may qualify for this option. Even in cases where the time limit to appeal is expired, the taxpayer can still request audit reconsideration.

Drawbacks: Your tax return should be audited originally and you should have valid reasons with evidence for not attending the audit. The process can take very long and sometimes, you may be required to appeal.

2. Full Payment Installment Agreement

Advantages: An easiest settlement plan to obtain, a full payment installment agreement can help avoid levies and garnishments. Liens will be withdrawn once full payment of taxes is made.

Drawbacks: A collection information statement is required, if the tax amount owed is over $25,000. One biggest drawback is that the interest and penalties will continue to accrue while you still owe. You may get limited time to repay and the IRS can also file a tax lien, when needed.

3. Partial Pay Installment Agreement (PPIA)

Advantages: Partial Payment Installment Agreement allows taxpayers to pay an affordable monthly payment, based on their financial situation. It is easier to obtain than an offer in compromise and you settle the debt for less than the total amount owed.

Drawbacks: It requires full financial disclosure and you will be even required to pay down your debt with any liquid assets. The IRS will reassess your financial situation every so often. Furthermore, the federal tax lien and its impact remain in place right until the expiration of the collection period.

4. Penalty Abatement

Advantages: Tax penalties that start out as a small amount can quickly spiral out of control, so in certain cases, a penalty abatement can stop the accrual, or even remove them completely.

Drawbacks: For many, penalty abatement isn't an appropriate solution because of their bad history of non-compliance. Even if you qualify, you still need to pay the base amount of owed tax in full.

5. IRS Offer in Compromise

Advantages: An offer in compromise allows the taxpayer to pay a reduced amount of the original tax liability. During the negotiation process, the IRS will suspend collection activity and when accepted, any tax liens on the taxpayer’s property will be lifted.

Drawbacks: This offer in compromise program is not for everyone and it can be difficult to get approved. The OIC will be kept in the public records for a year or more. The IRS has the right to intercept your tax refund and any payments you make. For a period of 5 years from the time the IRS accepts your offer, you must stay current with tax filings and payments.  If not, the IRS has the power to revoke the Offer.

6. Currently-Non-Collectible (CNC)

Advantages: This plan will prevent all "enforced collection" activity from the IRS (like levies and garnishments) and you don't have to pay any monthly payments till your financial condition improves.

Drawbacks: The drawback of “Non-collectible" status is that all outstanding liabilities will continue to accrue interest and penalties. This option will provide some temporary relief but does not solve all of your tax problems.

7. Bankruptcy

Advantages: Chapter 7 bankruptcy allows full discharge of older tax debts. The process is really quick; a taxpayer can receive a bankruptcy discharge within 4 months of filing.

Drawbacks: Trust fund taxes are not dischargeable in Chapter 7 bankruptcy. It will damage your credit rating drastically. Even in bankruptcy, the tax lien will not go away.

Common Myths Related to the IRS Tax Settlements

With years of experience in resolving various tax problems, it is time for me to explore the common myths surrounding the IRS tax settlement. So if you or someone you know owes taxes to the IRS, just do everyone a favor and read the following top tax settlement myths. 

Bankruptcy isn't an option in settling back IRS taxes

It is true that you can file personal bankruptcy, but there are myriad rules to be followed. Within Chapter 7 bankruptcy, all old 1040 tax returns could be fully discharged even if there are tax liens against your home.  

Tax resolution lawyers can wave a magic wand and cut down my taxes and penalty charges

No, this is not correct. An individual in sound financial standing cannot avoid paying the IRS taxes without good reason, and as a matter of fact, these people should pay the required taxes in full. Also, be careful of those fraudulent firms who claim to lower your penalty charges and interest automatically, as there is no such type of procedure in the IRS. 

IRS tax settlement firms are really fraudsters

There are some people who think that all tax settlement companies are a complete scam. We know that this is not true. Whenever someone comes to us, we provide tax consultation for a fixed flat fee. Someone then tells them that they could get it done cheaper or can choose to do it themselves or by a regular CPA. Then, a year later, they come to us again and say, “I wasted a year and lots of money by not hiring you... Will you help me now?” You have to be very careful not to fall victim to scam companies, and you should only get involved with an established firm where tax consultation is not a hobby. 

The IRS filed a tax lien against the properties which are in my spouse’s name

Tax liens could be filed against any of your properties. Unlike judgment liens, the IRS doesn’t need a court ruling to file a federal tax lien. Therefore, if a tax lien is addressed to your spouse’s property, it doesn’t mean that there is a lien against the property.

The IRS can't do anything if I don't open their letters

It doesn’t matter whether you open the IRS’s letters or not, as they can enforce a collection action after specific time frame. Furthermore, you may lose right to tax court and important appeal rights if you don’t open the letters. 

The IRS must produce a court order to levy my wages or bank accounts

No, they don’t. The IRS will send you 3 letters, and if no action has been taken by you, they’ll just wait thirty more days after the final letter has been sent. After that, they have full rights to levy your wages. 

If I simply get rid of my assets by gifting to my friends and family, the IRS can’t touch me or my property

The IRS will consider this approach as fraudulent, and they are allowed by law to disregard the gift. Second, it will take extra work for the IRS to undo the fraudulent conveyance, and this definitely will anger them further. 

It’s a daunting task for many people to get their IRS tax settlement accepted. That’s why we have created a free comprehensive guide, “7 Steps to Sanity,” which provides full guidance in reaching the best possible settlement. Just enroll now to receive your copy.

           

How it is Easier to Pay-off the IRS Tax Debts When Compared to Other Type of Debts?

It is true that the Internal Revenue Service gives a great deal of suffering to the lives of people who have unsettled tax dues, but when we compare with student loan debt industry, the IRS is far more reasonable with regards to tax settlements. In fact, the number of options you get to solve your tax issues is lot more than what you get in a student loan sector. You'll find three big things that separate the IRS from the more evil student loan industry.

The first big bonus to the IRS is that they have a limited time to collect pending tax dues. They have only ten years to collect the debt and this can be a huge help to someone who is settling debts. There are some constraints, such as if you leave the country, the ten year clock will pause. The IRS can take the debt issues to the court, if they think that you cause problems to them. But in the case of student loans, you've got no other choice rather than to repay them. There is absolutely no escape out of this and even if you file bankruptcy, student loans are not dischargeable.  

The next thing is, based on your income, expenses and your present financial situation, the IRS will prepare a reasonable plan to pay back the debts you owe to them. Even when all hopes are lost, the Offer in Compromise (OIC) program helps you to see some light by the end of the tunnel. This method helps the struggling taxpayers to resolve all payment concerns without adding any unnecessary burden on them. However with student loan debts, the only real option you've is by asking for partial or full deferment on payment of federal loan.

Tax debts are dis-chargeable in Chapter 7 bankruptcy provided you have filed income tax returns for the previous two years. This can be a blessing in disguise considering the fact that you will get full discharge of allowable debts under Chapter 7. To qualify for this, the taxpayer should not been found guilty for any deliberate act of evading the tax laws and also his/her tax return shouldn’t be identified as fraudulent or frivolous. You can put student loan payments in Chapter 13 plan and you will have to pay off in 5 years. But still you've got to repay the complete amount.

The IRS is one of most powerful debt collector in the United States which means they do whatever things possible to get back pending taxes. But when compared with student loan debts, you will get many options like the ones mentioned above to pay off your IRS tax debts. Student loans don't have any statute of limitations and under most circumstances, you need to pay back the loans entirely as there is no way of escaping it. Though the IRS has horrible reputation, you have various solutions to get out of any tax problem.