ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – THE IRS STATUTE OF LIMITATIONS FOR COLLECTION – WHEN IS IT OVER?
By Robert S. Schriebman
Every taxing agency, whether it is the IRS, FTB, or EDD has two basic statutes of limitations. The first is the statute relating to time limits for audits. The second is the statute relating to time limits for collection of deficiencies. The FTB collection statute is 20 years. The EDD collection statute is 30 years. However, the IRS statute is 10 years. Seems simple enough on the surface, but as Yogi Berra, the famed Yankees’ catcher once said, “It ain’t over till it’s over.” When it comes to the IRS collection statute, Yogi really knew what he was talking about.
I recently read the US District Court case of Stephen R. Koncurat v. IS District Court, D. Maryland, September 7, 2022. In Stephen’s case the IRS 10-year collection statute expired but the IRS sought to reduce the tax debt to a court judgment enabling the IRS to collect the debt in the same manner and over an additional period of time as if the IRS was a civil creditor collecting a civil judgment.
After reading the Koncurat case it occurred to me just how complex the IRS statute of limitations truly is, and to show you in this article the events that can impact the IRS 10-year statute. Perhaps the best place to start is to discuss not when the collection statute ends, but when it begins. Thereafter, I will discuss the various factors and events that can extend the life of the collection statute.
The IRS Collection Statute – When Does It Begin?
In order for the IRS collection statute to begin, there must initially be an underling tax deficiency, such as an income tax owed, payroll tax owed, excise tax owed, and estate or gift tax owed. A tax debt usually arises in two ways: (1) a self-assessment such as filing an income tax return but not fully paying the amount owed. An additional debt may be owed due to late filing and late payment penalties; or (2) an audit assessment. Once the deficiency is determined, the IRS will record the deficiency on its internal books and records as an account receivable. The day the deficiency is recorded internally marks the beginning of the collection statute.
The IRS Account Transcript
If you want to get the exact date the collection statute begins, consider ordering an IRS account transcript in English. The IRS also has account transcripts in Transaction Codes. For example, code entry “150” indicates the date the return was filed; “670” indicates when a payment was received. You can begin to count the 10-year collection statute from the “150” date.
Extending the 10-Year Collection Statute
The collection statute may be extended either voluntarily or by events that the taxpayer sets into motion. Let’s look them.
Form 900 is not used today as much as it was used in the past. This form is prepared by the IRS collector and extends the statute to an arbitrary date set by the collector. It used to be standard procedure for the IRS to require Form 900 in conjunction with granting the taxpayer an installment payment agreement or hardship suspension. I have not personally seen the IRS use Form 900 for quite some time.
Collection Due Process Proceeding (CDP)
The basic rule provides that a CDP proceeding automatically extends the collection statute for the entire time the proceeding is in effect. This extension will include conferences with the assigned settlement officer or filing a petition in either the US Tax Court or the US District Court in the event there is an unresolved dispute in the CDP process. In other words, the CDP process can extend the collection statute for years.
Offer In Compromise (OIC)
The OIC process will also extend the collection statute for as long as the OIC is pending including any administrative appeal if the OIC request is initially denied.
Bankruptcy rules are complicated and there are several bankruptcy chapters available to debtors. The usual rule of thumb is that the IRS collection statute is extended automatically for the duration of the bankruptcy proceeding plus a number of additional months.
Foreclosure of Federal Tax Lien
The case of Stephen Koncurat discussed above is a recent example of a rare option used by the IRS to extend the collection statute. Prior to the expiration of the statute, the IRS is allowed to file a lawsuit in federal court to reduce the federal tax lien to a civil judgment against the taxpayer in the same way of a civil creditor. It is more common to see a local tax collector obtain a judgment for unpaid property taxes or other unpaid assessments. Once the court grants a judgment, the old tax debt takes on a new life and collection is now allowed pursuant to state law. This may give the government an additional 10 years to collect the civil judgment
When to Exhale
As you can see, Yogi Berra’s words ring true. It really ain’t over till it’s over. There is a unit within the IRS that will determine when the IRS tax lien expires. If the lien expires and the IRS does not obtain a civil judgment, the IRS will send the taxpayer notices of lien releases. Once the taxpayer has these notices in hand can one truly exhale.
As you can see the IRS has many factors that impact and extend the basic 10-year collection statute. California taxing agencies such as the FTB and the EDD, do not permit collectors to extend their respective statutes. There is no CDP process in California. Most will agree that the California collection statutes are way too long and oppressive.
Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD, and he is not employed by the EDD or any other agency of the State of California.
Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
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