What we’re going to talk about today is something called the Collection Statute Expiration Date. That’s a fancy word for statute of limitations.
What is a statute of limitations? A statute of limitations, in this instance, means that the IRS has 10 years from the date of the assessment of the tax to go ahead and collect it. If the IRS fails to collect that money within 10 years and does not seek to reduce the tax lien to judgment, which is a very rare instance indeed, then the IRS has to write off the tax liability, penalties and associated interest and it goes back to zero. In other words, the government does not have a permanent ability to collect this money from you. For whatever reason, Congress decided to put a 10-year time clock on the IRS and that’s what we’re talking about today.
One of the things you should wonder is, “What the heck does the word ‘assessment’ mean?” The assessment is actually the action of reducing the liability to a legal obligation. So what that means in most people’s cases, is there is an assessment when you file your tax return and there is a liability of some sort due. It doesn’t mean that there is an unpaid liability. Any liability or any tax that you were obligated for that particular year would actually be an assessment on your records. So there can actually be additional assessments in cases as well.
What does that mean? If you think about it, if you were to file a return and it didn’t reflect that you owed a balance due but there were some tax due, that that would be first assessment. The IRS, in most cases, has at least three years to go ahead and audit your return. And in certain circumstances, they can go beyond that three years, but let’s just take the three-year example for one.
The three years – the IRS has up to three years to audit your return. Well if they were to audit you and they applied an additional assessment at year one and half, then that would be an additional assessment and it would start a new 10-year time clock running. Probably a little bit more complicated than we need to be in this particular video, but I thought I would mention it anyway.
There are sometime tolling factors that can apply and lengthen the time allowed to collect the tax. Let me give you some examples.
What does tolling mean? Tolling means that the time clock is stopped during the pendency of this tolling factor. Let me give you an example. If the taxpayer were to file a bankruptcy, the general rule is that the collection statute expiration date is tolled for the number of days the bankruptcy is pending plus six months. So there is an example.
Another example would be an Offer in Compromise. If you file an Offer in Compromise, the collection statute is tolled for the number of days that the offer is pending plus some period of days.
So you can usually find out what your Collection Statute Expiration date is by ordering IRS transcripts. The ones that you get from the IRS, just for calling, don’t typically have the Collection Statute Expiration date on them. Typically, you need to go ahead and file a Freedom of Information Act request in order to obtain the transcripts that I’m referring to here.