It may be tempting to avoid paying unpaid taxes until they are passed the collection statute expiration date (CSED) — a date after which the Internal Revenue Service (IRS) cannot collect on unpaid tax amounts — but doing so only creates more problems. The agency might put a tax lien on your house, for example, a situation that can quickly become complicated, stressful, and even more expensive than you might have imagined.
It’s thus best to avoid having your tax debt go to collections in the first place, as paying your taxes on time helps you avoid the penalties, disruptions, and hassles that come with the IRS collection of back taxes. U.S. taxpayers who find themselves in such debt may need help from a tax professional to navigate the system, make a payment plan, and create a strategy for moving forward. Here’s what you need to know about the collection statute expiration date.
How a Tax Debt Goes Into Collections
If you do not pay your full tax liability when it’s due, the IRS will send you a bill for the unpaid amount, plus penalties and interest. This is the start of the collections process, and there are several facts you should keep in mind:
- Interest compounds daily and late fees are assessed monthly, so you need to take action quickly.Â
- You may have the option to create an installment payment plan, a partial payment installment agreement (PPIA), or an offer in compromise (OIC).Â
- If you don’t make some kind of payment agreement for your tax liability, the IRS will find a way to collect the money on their own.Â
This could include a federal tax lien, seizure of assets (like bank and retirement accounts) or property, or withholding of future tax refunds. You are now in collections.
Collection Statute Expiration Date
The collections process cannot go on indefinitely, though: There is a collection statute expiration date that occurs 10 years from the date of assessment, and each tax assessment in one year has its own CSED. After that period, the IRS no longer has a right to collect your tax debt.
Your tax debt may be assigned to a private collection agency in certain circumstances, but you will still make all payments directly to the IRS. The latter notifies you by mail in advance if collection action will be taken by a private agency.
7 Must-Know CSED Extensions
Certain taxpayer actions can extend the CSED, and the rules surrounding each are relatively immovable. These are written into the Internal Revenue code, and include:
- Bankruptcy
The CSED is suspended during the bankruptcy period, and extended for six months afterward.
- Collection Due Process Appeal Request
The CSED is extended for at least 90 days or as long as it takes between the taxpayer’s request for appeal and when a decision is made.
- Offer in Compromise
No tax collection can occur while an offer in compromise is pending with the IRS, and the CSED is suspended for 30 days after a rejection of the offer and during the appeals period (if the rejection is appealed).
- Installment Agreements
The CSED is suspended while the installment agreement is pending and for 30 days after a rejection or the termination date. It’s also suspended during the appeals process, if either the rejection or termination is appealed.
- Innocent Spouse
If you believe you’re being held responsible for a tax liability for which only your current or former spouse should be responsible, you can file an innocent spouse claim. The CSED will be suspended from the date you file it through the signing of the waiver or the expiration of the 90-day window for petitioning the Tax Court. If you do file the Tax Court petition, it’s extended through the date of the court’s decision plus 60 days.
- Taxpayers Living Outside the U.S.
Your CSED is suspended for the time you’re out of the country if you’re gone for six continuous months or more. It gets extended for six months after you return to the U.S. so the IRS has time left on the collection period to settle your tax balance.
- Service in a Combat Zone
The CSED is suspended during military members’ time serving in combat zones or hazardous duty areas, or if they are hospitalized as a result of that service. It’s extended for 180 days after their last day of service/hospitalization.
There are other situations that may result in CSED extensions, but those listed above are some of the most common.
An important note: The IRS is fallible, and date miscalculations do occur. This can lead to a collection period that extends beyond the actual collection statute expiration date, which would be a violation of your rights as a U.S. taxpayer. It therefore pays to know the expiration dates associated with your IRS account.
What Happens When the CSED Expires?
After the collection statute expiration date, the IRS no longer has a right to collect payments from you on the related taxes. That debt is written off. The IRS won’t tell you that your date has come and gone, but will simply stop trying to collect the tax debt.
While that can seem like a relief, your tax problems may not be over. Each tax assessment in each tax year has its own IRS CSED, so you may still have to work to pay down other tax debt. It’s also important to look at your tax situation going forward so you don’t miss future payments and run into the same issues again.
Tax Problems? Schedule Your Free Consultation!
The complicated tax laws in the United States can be confusing and overwhelming, but help is available. If you’re dealing with late tax payments, penalties, and collections, reach out to a tax attorney for help. The staff at Silver Tax Group knows the system and can help you ensure you know your rights, take advantage of available payment options to get back on track, and meet all deadlines to keep the process as simple as possible.
Contact Silver Tax Group to speak with an expert about any IRS collection statute expiration date questions you might have.
