The Collection Statute Expiration Date (CSED) is the maximum time period the IRS is allowed to collect tax debt. The CSED is commonly known as the statute of limitation. Usually, the CSED is 10 years from the date which your tax debt was originally assessed.
If the IRS cannot collect a tax debt in 10 years from the date it is assessed, the entire amount of tax debt is forgiven. Even though the IRS usually gives up on their claim after 10 years, there have been tax debt cases where the IRS went back decades to collect back taxes. But in the majority of the cases, the IRS will not pursue collection of tax debt after the 10 year statute of limitations.
Extension or Suspension of CSEDs
There are separate CSEDs for penalty, additional taxes, extension to pay taxes, etc. There are occasions where a taxpayer or the IRS can extend or suspend a CSED. These include:
� Extension of time to file – By filing for an extension of time to pay, the taxpayer extends the CSED for another six months.
� Bankruptcy – Filing for bankruptcy under certain sections suspends CSED.
� Offer in Compromise – A pending Offer in Compromise request suspends CSED.
� Military deferment suspends CSED.
� Waiver extension – The IRS can ask a taxpayer to sign a waiver to extend the statute of limitations by a maximum of 5 years. Taxpayers have the right to refuse to sign.
� Incorrect CSED calculation or wrongful seizures – Any mistake on the part of the IRS can either suspend or extend a CSED.
� A court judgment can extend or suspend a CSED.
� A Collection Due Process (CDP) appeal suspends a CSED until the hearing and extends the collection deadline.
There are various events that affect a CSED. If more than one event extends a CSED and each has a different extension period, only one extension period will apply to the CSED.
Collection Actions and CSED
In cases of non-filing of tax returns, the IRS can file a substitute tax return on behalf of a taxpayer. Usually, the IRS waits three years before filing a substitute tax return, as a taxpayer is granted a three-year time period to file returns. The ten year collection deadline begins from the assessment of the substitute tax return. The IRS does not file substitute tax returns for every non-filer.
As the CSED draws closer, the IRS becomes more aggressive in collection because in most cases, it is their last chance at collecting back taxes. At this point, arranging a repayment agreement is the best method to avoid aggressive collection actions and resolve the debt.
CSED Actions to Remember
If you failed to file your return, have a tax debt or are non-compliant with IRS policies in any manner, you must be aware of the CSED for each of the case so that you can protect your interest.
When you receive an IRS notice that requires you to take action, always check that the CSED is calculated correctly. In case of a miscalculation, you can correct the IRS by updating it on Integrated Collection System (ICS) and Integrated Data Retrieval System (IDRS). The IRS is likely to miscalculate a CSED when there are multiple factors affecting it or when deadlines overlapped.
Make early efforts to explore ways to get back into compliance by consulting or hiring a tax professional. Your CSED is one of the many things a qualified tax professional will keep in mind when negotiating a tax resolution on your behalf.