A statute of limitations is a time limitation on a person or entity’s ability to sue. Like any person with a right to sue another, the Internal Revenue Service (IRS) is beholden to the law’s time limitation on its ability to collect taxes. This is called the Collection Statute Expiration Date (CSED). This might come as a surprise to many, but it is important to keep in mind given that certain actions a taxpayer can take will “toll” the CSED, effectively lengthening the amount of time the IRS may have to collect outstanding tax revenues.
For example, a taxpayer’s submission of an Offer in Compromise may toll the CSED. Additionally, if a person seeks a Taxpayer Assistance Order (TAO) requiring the submission of Form 911, Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order), this may operate to extend the CSED for a certain period of time. Finally, the IRS may also be able to obtain a waiver of the CSED from the taxpayer under certain circumstances. Prior to 1999, the IRS was able to do this without restriction as to the length of the CSED extension, the number of times the CSED was extended for a particular taxpayer, and the circumstances under which the extension occurred. However, following the Restructuring and Reform Act of 1998 (RRA 98), the IRS’ ability to obtain a waiver was substantially curtailed. Now, the IRS can only obtain a waiver of the CSED at the same time an installment agreement is entered into, or prior to an IRS release of levy under IRC 6343 occurring after the CSED period expires.
Currently, the CSED is ten years, which means that the IRS has ten years from the date of assessment of a tax liability to collect on that liability. Given the aforementioned ways for extending the CSED, a taxpayer with an outstanding tax liability that believes that liability was assessed ten years prior, or even slightly less than ten years prior, should contact an experienced tax attorney before making any additional IRS filings. Failure to do so could result in an inadvertent tolling or extending of the CSED, thereby reviving the IRS’ ability to collect on an outstanding tax liability.