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By Michael S. Anderson of Anderson Tax Law logo for Arizona tax attorney Michael S. Anderson P.C.
  • IRS STATUTE OF LIMITATIONS ON COLLECTION OF DEBT – Sometimes you shouldn’t stop it

    The IRS has 10 years to collect a debt. Yes, you read that right. This rule is commonly called the IRS Statute of stop sign-thumb-375x248-49503Limitations on Collection. It is real, and it is responsible for the elimination of millions in tax debt each year.

    Unfortunately, many taxpayers don’t understand that it exists or how it works. They believe that the debt will never go away on it’s own.

    The problem: If the statute period is getting close to it’s “expiration” date, you may unknowingly or even unnecessarily extend it.

    The following is a list of the ways that this commonly happens:

    1. Bankruptcy – IRC 6503(h) and IRM 5.9.4.2

    Bankruptcy stops the clock and extends the statute of limitations period for the time in the bankruptcy plus six months. If a bankruptcy is filed but it didn’t eliminate all the tax debt you have given the IRS more time to collect.

    If the only reason you are filing the bankruptcy is to get rid of the tax debt and the statute period is only a few years from running out, you should get some good advice. It is possible that a payment plan or non-collectible status combined with sitting still will cost less and do you more good than the bankruptcy filing.

    2. Innocent Spouse Relief – IRC 6015(e) and IRM 25.15.1.8

    The period for collection is extended from the date you file the Innocent Spouse request until the 90-day period for petition the Tax Court ends. If you file a tax court petition add time in Tax Court plus 60 days.

    Again, if the statute period is not far away and you are a candidate for non collectible status or a small payment plan, it may be much more cost effective and quick to let the IRS statute of limitations kill the debt rather than to fight with the IRS and the spouse/ex-spouse about who did what and when.

    3. Installment Agreement Appeal – IRC 6331 (k)(2)(d)

    If the Installment Agreement doesn’t work out the way you want it to, you have the ability to appeal the negative decision. The statute period is extended while you are in the appeal.

    Even if you are using the Installment Agreement negotiation to wait out the clock, sometimes appealing it is necessary to make sure you can afford the payment and that there will be debt remaining once the 10-year period arrives.

    4. Taxpayer Assistance Order – IRC 7811(d) and IRM 13.1.14

    Sometimes the Revenue Officer or Collections employee just isn’t “cooperating”. There is an office that is supposed to step in and help in these situations call the “Taxpayer Advocate”. When you asked them for help using the appropriately named form 911, you stop the clock from running. Sometimes it is necessary.

    5. Offer In Compromise

    An Offer in Compromise will of course lengthen the statute. Time in plus 30 days.
    Same issue applies here. If the period is relatively close and you may be able to get on a small payment plan or NC status, it may make a lot more sense just to wait out the clock.

    6. Collection Due Process Appeal – IRC 6330(e), IRM 5.1.9.3.6 and Treas. Reg Section 301.6330-1(g)(3), ex.1

    When the IRS has assessed a tax debt it must issue a “Final Notice of Intent to Levy” before it can grab a paycheck or a bank account. That Final Notice can be appealed using something called a Collection Due Process Appeal. This Appeal stops collection activity until a hearing is held but it also stops the clock from running.

    Sometimes it makes more sense to file the collection due process appeal request late. Yes, I said “late”.

    The reason is that filing it late doesn’t stop the 10 year clock but does give you an appeal “equivalent” hearing and the IRS as an internal policy will usually stop collections anyway.

    The equivalent hearing is only provided if the late-filed collection due process appeal is filed within one year of the final notice of intent to levy.

    Conclusion

    If nothing else, this is what you should be taking away from the above. If you have serious IRS debt and the statute of limitations period has been running for a while, it must be considered in determining your best course of action.