Answer: It depends. Generally speaking, the IRS can collect a tax by levy or by a court proceeding if the levy has been made within ten (10) years from the date of an assessment. See IRC 6502(a). An assessment is a bookkeeping notation that is made when the IRS posts the liability on its database.
The IRS has three (3) years to assess a tax from the date a tax return is filed. If a taxpayer did not file their taxes, then the IRS can prepare a return for the taxpayer by filing what is known as a Substitute for Return (SFR). The date of assessment would be the date that the IRS processes the SFR.
There can be multiple assessment dates from where the ten (10) year period begins to run. If you are audited and assessed an additional tax liability, then the collection statue (also known as CSED) would run from when the original return was processed and when the additional liability was assessed. For example, if the IRS assessed your 2012 tax return on April 15, 2013 and then audited your return and assessed an additional tax on July 16, 2014, there would be TWO (2) CSED statutes. The IRS could collect the tax within 10 years from April 15, 2013 (April 15, 2023) and within 10 years from July 16, 2014 (July 16, 2024). In other words, there would be two CSED statutes running simultaneously.
When the 10 year collection statute is approaching expiration, the IRS may recommend a suit to reduce the tax lien to judgment. If the IRS files a judgment, then the period of time is controlled by state statute. In New Jersey, a judgment provides the IRS an additional 20 years to levy, garnish, seize, etc. The judgment can be renewed by a motion to revive every 20 years. That would provide the IRS with an unlimited amount of time to levy bank accounts, seize assets, garnish wages, etc. Generally speaking, the IRS will recommend suit if there are assets with equity to seize or egregious activity has taken place by the taxpayer in an effort to evade paying taxes.
The IRS can continue to collect after the 10 year collection even if a judgment was not filed. Treasury Regulation §301.6343-1 allows the IRS to levy on a fixed and determinable right to a payment which right includes payments to be made after the period of limitations expires. Some examples of a fixed and determinable right to a payment is social security, pension, or disability payments. Therefore, if the IRS makes a pre-CSED levy on your social security, pension, or disability payments, then the levy may continue after the 10 year period to collect expires.
Deciphering when the 10 year collection statute ends is not easy. Certain taxpayer events can toll, stop, the collection statute. Generally speaking, any time that the IRS is precluded from collecting back taxes, will add time to the collection statute. Some events that add time to the collection statute are when the taxpayer files for bankruptcy, files an offer in compromise (OIC), is continuously out of the country for at least 6 months, files for innocent spouse relief, requests a collection due process hearing, or contacts the taxpayer advocate. The statute of limitations does not run while the above actions are pending. Therefore, if the statute is near expiration, then executing any of the aforementioned actions may be a mistake.
Understanding when the 10 year collection statute ends is essential to resolving back taxes.
Todd Unger is a tax attorney whose practice focuses exclusively on finding the right solution to resolve individual and business tax problems. At the Law Offices of Todd S. Unger, Esq. LLC, we can provide you with an accurate analysis of when the 10 year collection period expires and craft the appropriate solution to resolve your matter based on our findings. Contact tax attorney, Todd S. Unger, Esq. today.