When I speak with clients about the IRS' 10 year statute of limitations and mention the word “toll”, I get the impression that people think I'm saying “troll”. I understand the confusion. The IRS is scary.
There are ways to challenge the monster however, One way is to use the law that requires the IRS to consider a debt to be non-existent after 10 years…better known as the “CSED” or the Collection Statute Expiration Date.
The IRS has only 10 years from the date the debt is assessed to collect it. That may sound like a long time, but the IRS can be slow and situations change. As a result, many get rid of lots of tax debt as a result of the CSED.
Much to the IRS' chagrin.
The problem for the taxpayer? 10 years isn't actually 10 years. Certain things stop the CSED from running or “toll” it.
The tolling list:
Leave the Country If you are thinking about leaving the country for a few years to allow the clock to run…think again. The CSED stops running while you are away. You may ask – how will the IRS know that I'm gone? It knows because it shares info with Customs and Homeland Security.
Bankruptcy Filing The CSED is tolled while you are in the case whether a chapter 7 or chapter 13. So if the debt isn't discharged in the bankruptcy, it will be waiting and it will be waiting at the same spot on the clock as it was when you started.
IRS Offer In Compromise If you think the IRS collection department or the IRS Revenue Officer is encouraging you to file an Offer in Compromise because you are a good candidate for one, you are probably mistaken. Filing an offer allows the IRS to see all of your financial history and it stops the clock from running. In the IRS revenue officer's mind, your income may be going up while you wait for the offer to be rejected (the vast majority are) and he will be waiting at the end with the same amount of time to collect as when you filed the Offer. IF you don't have much time left on the CSED think twice before filing an offer. You may be better off in an IRS payment plan that allows the clock to run while it is in place.
Collection Due Process Hearing Request The IRS has to issue a “final” notice of intent to levy before it can hit your bank account and paycheck. When it does an opportunity arises for you to appeal collection and propose alternatives like a payment plan or an OIC. The problem with a CDP hearing request is that the CSED is tolled after it is filed and it continues being tolled until the hearing is over – which may be a long time if you use the appeal right to go to tax court. If you file the hearing request late and it is treated as an equivalency hearing, the CSED isn't tolled, but you still get to speak with appeals in most situations.
Installment Agreement Request This is a strange one and I don't think most people are aware of this, but while the IRS is considering your Installment Agreement Request…the CSED is tolled.
Fraud You can't defend a collection suit brought by the IRS by arguing that the CSED has run out if your own fraud prevented collection in the first place. Interesting scenario to imagine.
Agreement to Extend – Rare
Someone Else has Your Stuff The CSED is tolled when you things are in the control or custody of a Court, arguably someone else, and even by the IRS in some circumstances. (See Wrongful Seizure)