All About IRS Statute of Limitations

Everything You Need To Know About The IRS Statute Of Limitations

Debt Collection
Debt Collection

If you’re behind on your taxes, then the statute of limitations may apply to you. According to the IRS, collection enforcement tends to happen roughly 10 years after the date when your taxes were assessed. Hence, new tax practitioners can easily misinterpret how the statute of limitations acts against cases. So, read on as we dive into everything you need to know about the IRS statute of limitations.

How The Statute Of Limitations Is Determined
Before the IRS can begin proceedings collections, taxes must be thoroughly assessed. However, the assessment date usually initiates the statute of limitations. This occurs mainly for the purpose of collection.

Whenever assessments are made indicating that a taxpayer is liable, it is signed and then recorded by the assessing officer. To successfully qualify for the assessment, taxable income returns should include deductions and a gross income. However, this must also be an accurate representation of the taxable net income of the taxpayer.

From a general point of view, the IRS should ensure that assessments are conducted anywhere within a three-year period after a taxpayer files for their return. However, if needed, the statute can be extended if certain circumstances exist. If you’re looking for the end date of the collection period, this can be found within the Internal Revenue Manual. This period usually relates to when collections may be enforced.

Within a tax year, there can also be several assessments being conducted. If for some reason the taxpayer files for an amendment or the return is audited, the assessment date will begin when these are returned. When it comes to account transcripts or transaction codes, each has a specific penalty attached. Some common penalties include the Deposit Penalty, the Estimated Tax Penalty, the Negligence Penalty, the Fraud Penalty, and the Civil Penalty just to name a few.

The entire taxation process can often seem like quite a hassle for persons. However, it should be noted that filed and assessed refer to two entirely different concepts. When you file a tax return, it simply means that you are starting the filing process where you submit the return to the organization. In the case of e-filed returns, the filing date is the date that is submitted.

For mail, the postmark date is the filing date and for those submitted to the service center, the date is taken as the date delivered. In the case of the assessment date, this is simply a date that is decided a couple of weeks after the return is filed. After filing, it usually takes a couple of weeks for processing to take place.

If for some reason a return is not filed, it may be subjected to collection actions. This tends to occur after there is enough evidence which indicates that sufficient income is reported to the IRs department. So, when persons fail to file for their returns, the IRS can easily prepare the return for them.

Whenever income taxes are prepared in this manner, it is referred to as the Substitute for Return. The IRS Statute of limitations begins on the date when the department first assesses the Substitute for Return. In the instances where fraudulent returns are filed, the statute of limitations doesn’t begin.

Suspension Of The Statute Of Limitations
The collections associated with the statute of limitations can be either extended or suspended depending on the actions of a taxpayer. In essence, the IRS will be unable to collect or enforce any actions against the taxpayer. The following are common actions that can lead to suspension:

  • Filing for Bankruptcy – Whenever a person files for bankruptcy, the proceedings automatically suspend the statute. Hence, it is important to always keep in mind that the statute of limitations will be suspended even if the IRS and the person involved have come to an agreement.
  • Collection Due Process Request – The hearing request suspends the statute of limitations from the date collection is made until the date of the appeal becomes final. The suspension continues until the taxpayer pays the full amount. If for some reason they file a petition, the statute of limitations remains suspended. When only 90 days remain, the determination date becomes final and extends to 90 days.
  • Filing Offers In Compromise – This suspends the statute of limitations as long as the compromise is still pending. Whenever appeals are in process, the IRS can reject and further suspend the statute of limitations. In this case, the taxpayer is able to file for an appeal. If the offer is rejected once more by the IRS, an additional 30-day suspension is added to ensure that they have enough time to file.
  • Innocent Spouse Request – The statute of limitations can be suspended for a spouse who files for this request. The request should be filed at an earlier date so that the waiver can be successfully filed or for the period until the petition is passed. When these petitions are passed, the CSED will likely be suspended for an additional 60 days.
  • Installment Agreement – When proposed installments are pending, the statute of limitations can be suspended. However, this occurs during the appeals process if the request was rejected. When these installment requests are terminated or rejected, the suspension period extends for 30 days.

In the case of CSED reasons, installment agreements can be terminated after a period of 60 days. More information on this can be found in the IMF Installment Agreement Notice, the CP523, on Letter 2975, or in the Notice of Defaulted Installment Agreements. If taxpayers request the collections appeal, termination can happen within a 30-day period after termination. Hence, suspension of the CSED continues.

As we conclude, we have just looked at the IRS statute of limitations. The IRS statute of limitations is generally applied to a period of 10 years after the assessment date of your taxes. In some instances, the statute of limitations may be suspended. However, suspension conditions include those mentioned above but are not limited to our list.

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