The IRS has a limited amount of time to collect your tax debt. This blog post discusses some of the your actions or reasons why that time period could be extended (tolled). To put it in simple terms, tolling is bad or hurts the taxpayer.
The IRS through the United States Department of Justice can file an action in the United States District Court pursuant to 26 U.S.C. 7401 to reduce your tax debt to judgment on the very last day of the expiration of the statute of limitations. If the action is timely, the statute of limitations is no longer relevant since (assuming a judgment is entered) the tax debt is reduced to judgment. As such, exact calculation of the statute of limitations is critical. Here are some matters that could have extended your period.
Absent events that toll the statute of limitations, 26 U.S.C. § 6502(a) provides a general ten-year collection statute of limitations starting on the date a tax is assessed. The collection statute of limitations is tolled under 26 U.S.C. § 6330(e) anytime there is pending a collection due process hearing under 26 U.S.C. § 6330(a)(3)(B). A taxpayer is entitled to request such a hearing before the IRS levies. See 26 U.S.C. § 6330(e).
The collection statute of limitations is further tolled under 26 U.S.C. § 6330(e) for 90 days after the day on which there is a final determination of a collection due process hearing under 26 U.S.C. § 6330(a)(3)(B).
The collection statute of limitations is also tolled when an offer to enter into an installment agreement is pending between the taxpayer and the IRS. See 26 U.S.C. §§ 6502(a)(2), 6331(i), (k). The collection statute of limitations is tolled for thirty days following the rejection or termination of an installment agreement. See 26 U.S.C. § 6331(i), (k).
So if your installment is pending for a year and then terminated, the statute of limitations would be tolled for a year plus thirty days.
The statute of limitations tolling begins on the day you th taxpayer request an installment agreement even though it could take months for the IRS to accept or reject that request. For example, assume the IRS receives your request on July 20, 2015, to enter into an installment agreement for tax years 2011 and 2012. That request was pending until December 16, 2015 when the IRS granted the installment agreement request for tax years 2011 and 2012. Accordingly, the pending installment agreement request tolled the collection statute of limitations for tax years 2011 and 2012 for at least 149 days (July 20, 2015 to December 16, 2015).
There is some debate over the 90 day period. Under 26 U.S.C. § 6330(e), the statute of limitation period shall not expire “before the 90th day after the day on which there is a final determination in such hearing.” The collection statute of limitations is not further tolled for 90 days but if the final determination is less than 90 days from the date the period expires, then the statute of limitation period is from the 90th day after the date of final determination. See also Reg. § 301.6330-1(g)(3).
related content:
Unpaid taxes – Offers in Compromise
Tax Liens, Tax Levies, Collection Due Process Hearings
If you would like an analysis of your collection period statute of limitations, please contact me (303) 626-7000 phil@coloradolegal.com.