IRS Expiration of Statutes

Audits

The IRS generally has 3 years form the date a return is filed to Audit that return. For example, if you file your 2002 return on August 7, 2007, the IRS has until August 7, 2010 to audit that return. If the IRS determines that you had a 25% understatement of income in a given year under exam, they can go back and audit the last 6 years!

If the IRS alleges fraud or criminal activity, the statute is open indefinitely. The IRS can go back as far as they like in this case.

Collection

The IRS has 10 years from the date of assessment (usually close to the filing date) to collect all taxes, penalties and interest from the taxpayer. The taxpayer does not owe the IRS anything after the 10-year date has passed.

As with all IRS rules, there are exceptions to this rule. Examples include:

  1. If the taxpayer agrees in writing to allow the IRS more time to collect the tax by signing a waiver
  2. If the taxpayer files bankruptcy during the 10 year period
  3. If the taxpayer files an offer in compromise during the 10 year period
  4. If the taxpayer files an application for taxpayer assistance order (Form 911-ATAO) during the 10 year period
  5. If the taxpayer timely files a Request for a collection due process hearing (Form 12153-CDP) during the 10 year period.

In all of these situations the period for the IRS to collect is extended for a specific time, beyond the 10 years. Taxpayers that are approaching this 10-year date should request copies of their IRS transcripts to verify the assessment date, so they can accurately compute when the 10-year statue to collect will expire.

If the IRS is attempting to collect a tax liability which has expired under the 10 year statue, then the tax payer must inform the IRS in writing that they no longer have the right to collect this tax liability. If the taxpayer is correct, the IRS will write off the tax liabilities which have expired.

One of the services we provide is called a Collection Statute Expiration Date (CSED) Tax Transcript Analysis. We obtain special records of your account that the IRS has on your behalf. We analyze these to inform the client if the 10 year CSED has, or when it will, expire. If it has expired the IRS writes off (reduces it to $0.00) whatever the balance is for that particular year. The IRS will NEVER inform you when the 10 years are up. They will continue to send you invoices and collect on the debt. It is up to the taxpayer to prove to the IRS that the 10 year CSED has in fact expired. The IRS is barred, by operation of law, from collection on an expired debt.

We have saved money for our clients just by advising – and strategizing with – them to wait out the 10 year expiration date, especially if they are close. This is a wonderful tool for resolution if you know how to use it. Generally, we can also simultaneously obtain a certificate of Lien Release (if a lien was filed) so that your credit score has an opportunity to recover as well.