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The 10-Year Collection Statute – why it is so important

Did you know there is a statute of limitation on the IRS’ ability to enforce tax collection? The 10-Year Collection Statute, commonly referred to as the Collection Statute Expiration Date (CSED), is one of the most important pieces of legislation you need to be aware of. The IRS can attempt to collect your open tax liability for up to ten years from the date the taxes were assessed, with some exceptions. It’s important to note that the statute says 10 years from assessment not 10 years from the filing date or filing due date of the return. There are several actions that can stop (toll) the 10-year statute. They are:

• Filing for bankruptcy
• Requesting a collection due process hearing
• Filing an offer in compromise
• Requesting an installment payment plan
  • While the CSED is not suspended while an installment agreement is in effect, the CSED is suspended during periods when the IRS is prohibited from levying, which includes the time an installment agreement request is pending with the IRS.

The statute will start running again once the time period to consider these alternatives has concluded. In the case of a bankruptcy, an additional six months is added to the collection period once the bankruptcy is discharged.

 Why is it important to be aware of this collection statute?

Before considering the various tax resolution options available to a client, the tax professional must know what the CSED (collection statute expiration date) is for each tax year in which the client has a balance due. By knowing this, the tax professional can employ a strategy to resolve the taxpayer’s debts at the lowest possible cost to the taxpayer.

Once the CSED has expired, the IRS cannot collect the tax liability for that year. If the IRS has placed a tax lien on your property, then that lien will expire once the 10-year period is up and the tax debt is no longer collectible.