Lawrence Lawler: Hi! I am Lawrence Lawler, National Director of the American Society of Tax Problem Solvers. This series covers solving common tax problems. The next topic that we are going to discuss has to do with the Statutes of Limitation, which have to do with how long the IRS has to assess tax, how long they have to collect tax, and what items might stop that statute from running temporarily.
The first item to be discussed is the Assessment Statute, and that means that the IRS has three years to assess tax, it's from the later of the due date or the filed date of a tax return. Therefore if the tax return, for example, was due on April 15th of 2002, the IRS will have to asses the tax that shows on that return within three years of that date.
However, if the taxpayer filed an extension, he didn't have to file tax return until October 15th, then they would have three years from that date. And you, of course, have the situation where a taxpayer is delinquent in their filings and files them several years after they were actually due, then the IRS has three years from that date to assess the tax. So, they always have three years to do an assessment based upon either the due date of the tax return or the date it was actually filed, whichever is later.
The next statute that you have to consider is the Collection Statute. Once tax has been assessed by the IRS, they have 10 years in which they can collect that tax. So, if the tax return was filed on April 15th and the tax on it was assessed, let's say, on the 18th of April, the IRS would have 10 years from the 18th of April to collect the tax that shows on that tax return if it was unpaid.
Generally speaking, that all starts with a series of notices going out, and it's done by mail when their balance is due, but it could go so far as to being turned over to a revenue officer who would actually visit the taxpayer in person to set out collection on that unpaid liability.
They will also levy bank accounts, they will levy wages, and they will place liens against assets of taxpayers during that 10 years period if they are not getting the taxpayer's corporation. It should be noted that any of these Statues of Limitation that we are talking about can be suspended, or as it's called under law, told, the statute does not continue to run in certain instances.
The best way for the layman to understand that is if the IRS is for any reason prohibited from taking collection action against the taxpayer, that's usually going to stop the statute from running. One of those things that might hold the statute would be a filing of a bankruptcy. Both of those are federal laws, the Internal Revenue code and the Bankruptcy code, but the Bankruptcy Code trumps the Internal Revenue code. Therefore, if a bankruptcy is filed and they have an automatic stay build into the bankruptcy which every bankruptcy does, that means the IRS is stopped from collecting the tax that is due.
Well, that period of time that they are unable to collect, because the law doesn't allow them, is tacked to the end of the 10-year period plus 30 days. So, things can stop the statute from running on collection. Another thing that might stop this is filing an offering compromise. During the period of time that that offering compromise is enforced, the IRS cannot collect from the taxpayer, and therefore that period of time is also added under the statute.
Another common instance is when someone asks for an installment agreement, the period of time while it's pending is also a suspension of the statute. So, if they ask for it on July 1st and they got an answer that it was approved on July 20th, those 20 days, plus 30 days, there is always that plus 30 days the IRS adds, is added on to the end of the Collection Statute.
So, those are the highlights of the important Statutes of Limitation that you have got to remember. The next thing we are going to talk about is the currently non-collectible status. That's where the IRS deems a taxpayer is not a position to pay what they owe.