In January of this year I wrote about a problem with the Collection Statute of Limitations (CSED) that my clinic encountered. In our quest to resolve the CSED problem, we involved the Local Taxpayer Advocate office. It confirmed that the CSED had run, despite the fact that the taxpayer’s account was still open, and told us there was a glitch in the system; however, we were not told what the glitch was. A strong suspect for the glitch has now been identified.
The recently published National Taxpayer Advocate Objectives Report to Congress (Fiscal Year 2022) provides some information on the glitch. The glitch was first publicly identified in a blog post by then-NTA Nina Olson. In that post, Nina said the IRS was working to address a glitch that was causing the IRS computer system not to recognize the CSED in certain cases in which taxpayers had sought installment agreements. She indicated in her post that the issue surfaced two years prior in 2016 and her office had been working to identify cases.
Her blog post identified five different buckets of cases in which the IRS was incorrectly calculating the CSED:
- Bucket 1 = multiple pending IAs with only one corresponding rejected IA determination
- Bucket 2 = one pending IA and one approved IA where 52 or more weeks have passed
- Bucket 3 = multiple pending IAs with one approved IA, where 26 or more weeks have passed
- Bucket 4 = one pending IA with one rejected IA, at least 52 weeks later
- Bucket 5 = one pending IA, with no other action on the IA request for at least 52 weeks
Prior to her post, the IRS had agreed to review the cases TAS identified in Bucket 3 and found that 83% had incorrect CSEDs.
Three years later and five years after the problem was identified, the recently published objectives report contains Objective 16 which is “CONTINUE ADVOCACY EFFORTS TO CORRECT ERRONEOUS COLLECTION STATUTE EXPIRATION DATES DUE TO PENDING INSTALLMENT AGREEMENTS.” This section of the report states the following:
In 2017, TAS identified a population of taxpayer accounts with unreversed or improperly reversed pending IAs that led to incorrect CSED calculations and erroneously added time to the tax debt collection period. TAS also found inconsistent IRS procedures related to CSED guidance. The IRS agreed to correct taxpayer accounts with erroneous CSEDs and the underlying problems that led to the miscalculations.
In July 2020, TAS identified and provided the IRS with over 6,000 taxpayer accounts with CSEDs erroneously extended by one year or more. As of December 2020, the IRS had not finished reviewing and correcting these cases. TAS has recently provided the IRS with several thousand more taxpayer accounts that appear to have the CSED incorrectly extended by a year or more. Despite efforts to find and correct unreversed and improperly reversed pending IAs, TAS continues to find errors, resulting in incorrect CSED extensions of a year or more.
I did not include the footnotes contained in this quote, which primarily refer to emails between TAS and an unidentified part of the IRS.
I assume without being sure that the problems described in the Objectives Report detailing a continuation of the issues first publicly identified in the NTA blog post in 2018 resulted in the problem in the case in my clinic. Now that we know the problem has continued long after it was identified and brought to the attention of the IRS and that it appears to be widespread for those taxpayers who entered into a failed installment agreement, all practitioners should be on the alert for IRS efforts to continue collection past the expiration of the statute of limitations.
This is not a problem that should be ongoing. The IRS should have fixed this problem long ago. It should be affirmatively notifying taxpayers and affirmatively refunding money to them. A high percentage of installment agreements fail. Employees of the Automated Call Sites routinely convince taxpayers to enter into installment agreements that the taxpayer cannot support over the long haul and taxpayers routinely have a rosier forecast for their financial future than turns out to be the case. It’s easy to imagine even the best planned installment agreements failing in large numbers over the past 16 months given the impact of the pandemic on employment.
The IRS needs to make public announcements on what it is doing to fix this problem and how it is going to put taxpayers back in the right position. A problem like this has a disproportionate impact on low income taxpayers who generally lack representation and lack the knowledge to challenge the IRS calculation of the CSED. Even the most sophisticated taxpayers face challenges in calculating the CSED because of its complexity, as noted in this post from several years ago. For this problem to continue for half a decade after it was brought to the attention of the IRS is unacceptable.