When the IRS needs to collect an outstanding tax liability, do they ever go away?
I had never heard of the Immortal Jellyfish until I saw it on the show, “Blacklist.” Turns out the Immortal Jellyfish will actually revert to a small polyp when threatened and then regrow back to a Jellyfish once the danger passes. I think it’s sort of like being a kid again and having to go through puberty. Probably easier for a jellyfish.
Most of my clients assume the IRS is immortal. That may be, but none of their actions are immortal. Of course, we are referring to fraud and other major criminal activity. The question most often asked is, “How long does the IRS have to collect my outstanding tax liability?” The good news is that they do not have forever to collect. The bad news is that they have a certain time period to collect. The badder (yes, I know this is bad English, but I just want to use it) news is that the IRS has many exceptions to this rule that will extend that period for them to collect.
The Rule on IRS Collections
The basic rule on IRS collections is it has 10 years from date of assessment to collect their money. This is by law. It’s actually 10 years and one day. The key here is the date of assessment. Generally, the date of assessment is the day you file your return, assuming you do so in a timely manner, by April 15th or October 15 with extension. Once the IRS processes your return, they will make a formal assessment. This begins the clock on the 10-year statute. Assuming no further actions from the IRS on that year’s balance, the CSED (collection statute expiration date) is the 10 years and one day.
Here’s the Sticky “Jellyfish” Part
Here is where it gets a bit sticky. If two years after you file your return, you receive a notice that the IRS has determined that the income you reported does not match their files (CP2000), it turns out to be true and you get reassessed (as in you owe them more taxes for that year), then the time from the original assessment date to the date of the additional assessment gets added to the 10 years. Therefore, in theory it is twelve years. Now, let’s say that in year 8, you decide to file an “Offer In Compromise” (settle what you owe the IRS for less), then from the day you file the OIC until it is either accepted or rejected, will pause the clock. This is referred to tolling the statute. In other words, it will add another 6–11 months (average time to process and OIC) to the now 12 years. Each time the IRS touches your return, a new CSED to be established.
Sounds good. Well maybe. If you owe more than $25K, the IRS will place a lien on you. This could prevent you from selling property (e.g. your home or rental). Also, to badder more badder, the IRS will do all in their power to collect those funds. Please, please do not ignore them. Call them, or your CPA, and get yourself on a payment plan.
Remember, the Immortal Jellyfish is forever, not so is the IRS ability to get your money—I mean their money.
Gary Weiss
Gary is a graduate of the Marshall School of the University of Southern California. He founded and operates a boutique accounting firm dedicated to bringing high - quality tax preparation, tax planning and tax resolution services to individuals, small businesses, small nonprofits, family owned businesses and start-ups, at an extremely affordable price. Visit Gary Weiss CPA.