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.