Tax Controversy & Resolution: Statute of Limitation Suspension
IRS Tax Collection Deadline Expiration: Statute of Limitation Suspension (Exceptions)
IRC § 6502 provides that the length of the period for collection by the IRS after assessment of a federal tax liability is generally 10 years (subject to applicable exceptions). The statutory period generally starts on the date the tax is assessed and the statutory required notice letter is sent. Subsequent the collection statute date expiration, your federal tax debt may being extinguished (subject to applicable exceptions).
If a taxpayer does not pay its full tax liability from its related filed return, in general, the IRS will send written notice of the tax liability amount outstanding. The date on the written notice ("tax bill") may start the ten year limitations period. In general, the statute of limitations concerning IRS tax liabilities may be extended or tolled in various situations as further explained below.
Suspension of 10-Year Collection Limitations Period
The ten-year collection period can be suspended for one or more time periods. The time during which the statute of limitations is suspended does not count toward the ten-year deadline for expiration. For example, the collections period may be suspended during time periods the IRS is legally barred from taking collection action against the taxpayer.
As such, the limitations period may be suspended during the following situations:
taxpayer files for bankruptcy and the bankruptcy court issues an automatic stay preventing the IRS from taking collection action against the taxpayer (the suspension lasts for the period of the bankruptcy case plus six months);
IRS is evaluating your request for an installment agreement, offer in compromise, or request for innocent spouse relief;
while the taxpayer lives outside the U.S. continuously for at least six months; or
IRS may also extend the ten-year period by suing the taxpayer in federal court.
Voluntarily Extending the Limitations Period
The 10-year collections limitations period can also be extended if pursuant to taxpayer voluntary agreement.
For example, if a taxpayer enters into an Installment Agreement with the IRS, allowing for partial payment of the amount due, the IRS may request authorization to waive the 10-year limitations period. If the taxpayer's 10-year limitation period is nearing end and the tax debt still outstanding is material, the IRS may offer an installment agreement with more attractive terms in order to provide an incentive to extend the collection deadline. In this situation, careful consideration and consultation with tax professionals should be taken before agreeing to any extension, with the IRS. Depending on the situation, it may be more advantageous to the taxpayer to refuse to the deadline extension and allow the IRS to attempt to collect whatever amounts legally available before the end of the 10-year limitations period.
IRS administrative protocol is to limit the time of the waiver to no more than five additional years, plus one year to account for changes in the agreement to extend the statute expiration date. Form 900, Tax Collection Waiver, is generally only executed in connection with the granting a partial pay installment agreement in certain situations. See IRC § 6502(a)(2)(A); Treas. Reg. § 301.6502-1(b)(1).
These waivers remain in effect regardless of:
whether agreements fully pay taxes, and
lengths of extensions.
On or after January 1, 2000, waivers of the collection period must be in writing and are secured only when the extension is agreed to:
At the same time a partial payment installment agreement is made, when appropriate (see IRM 220.127.116.11.3,Waiver Procedures for Partial Payment Installment Agreements);
Prior to a release of levy under IRC § 6343 that occurs after the expiration of the statutory 10-year period for collection; and
The collection statute of limitations is suspended for the period agreed to in writing. If the extension (waiver) is in connection with a partial payment installment agreement, then the suspension lasts for an additional 90 days after the period agreed to in writing.
Actions that Suspend or Toll IRS Collections (10-Year Rule)
There are also other ways to suspend or toll the collection statute of limitation expiration date(s) for prior taxes debts.
Actions from a taxpayer can result in temporarily suspending the IRS from legally being able to collect which may toll the collection statute expiration. If two tolling events overlap, the IRS can only toll the days that overlap once. More than one case action can suspend the running of the collection statute at the same time. Overlapping suspensions run concurrently (not cumulative).
A brief summary of some of the various taxpayer or IRS actions that may suspend and/or extend a the collection statue expiration date are further detailed below.
(1) Taxpayer Actions: Suspension of Collection Statute
Bankruptcy: If a taxpayer decides to file for bankruptcy, the court issues an automatic stay for the tax periods included in the bankruptcy. The statute of limitations is generally suspended from the period the taxpayer is in bankruptcy plus six months. Because a taxpayer cannot always discharge taxes in bankruptcy, determining when the collection time period will resume can important in terms of tax planning strategy.
When a case is filed under the U.S. Bankruptcy Code, the collection statute expiration date may be suspended during the IRS prohibition (automatic stay in effect imposed during bankruptcy) from collecting against the taxpayer, and for six months thereafter. See IRC § 6503(h)(2). If the suspension of the collection statute expiration under IRC § 6503(h) no longer applies, the collection statute expiration may still be suspended when substantially all the debtor’s assets remain in the custody or control of the bankruptcy court pursuant to IRC § 6503(b). See also IRM 18.104.22.168, ASED/CSED.
Installment Agreement: If a taxpayer requests an Installment Agreement (alternate payment arrangement), the period from the request to the decision by the IRS, may toll the statute. The collection statute expiration date is also suspended for 30 days after a denial or termination of an Installment Agreement, or if the taxpayer appeals on a rejected Installment Agreement request. However, the collection statute expiration date does not generally suspend while an installment agreement is in effect. See IRM 5.14.2 Partial Payment Installment Agreements and the Collection Statute Expiration Date (CSED). The Community Renewal Tax Relief Act of 2000, effective December 21, 2000, amended IRC § 6331(k)(2). The effect of IRC § 6331(k) is to extend the statute for the period an installment agreement request is pending and which the administrative procedures for terminating an agreement are being pursued, but not for the entire time the agreement is effective. If the IRS wants to pursue a statute extension because the anticipated term of an installment agreement would carry it beyond the expiration date, it must generally request the taxpayer to sign a Form 900 Tax Collection Waiver.
For requests to extend the collection statute (on or after January 1, 2000) in connection with an Installment Agreement, the statute of limitations is suspended under IRC § 6502(a)(2) for the period agreed to in writing by the IRS and the taxpayer and for 90 days after that period expires.
Form 900, Tax Collection Waiver, is only executed in connection with the granting a partial pay installment agreement and only in certain situations. See IRM 22.214.171.124.3, Waiver Procedures for Partial Payment Installment Agreements. IRS policy dictates that a Form 900 be limited to no more than five years, plus up to one year to account for changes in the agreement.
When the IRS is prohibited from levying, the collection statute of limitations may be suspended during the following:
While the request for Installment Agreement is pending with the IRS
30 days immediately following rejection of the Installment Agreement request;
30 days after the date of termination of the Installment Agreement request; and
If an appeal is requested within the 30-day period, during the period while a rejection or termination of an Installment Agreement is being considered in Appeals
Relief From Joint And Several Liability On Joint Returns/Innocent Spouse: A request for Innocent Spouse Relief may toll (suspend) the statute until the expiration of the 90-day period to petition the tax court. If the taxpayer petitions the tax court regarding an IRS denial, statute of limitation may be suspended thereafter until the final court decision, plus 60 days.
Unless collection will be jeopardized by delay, collection by levy or proceeding in court against a requesting spouse, the statute of limitation is suspended if a qualifying request is made under IRC § 6015(b) or IRC § 6015(c). See IRM 126.96.36.199, Statute of Limitations on Collection.
The collection period is suspended from the filing of the claim until the earlier of the date a waiver is filed, or until the expiration of the 90-day period for petitioning the Tax Court.
If a request for relief is made in response to Collection Due Process procedures, collection is suspended as provided by IRC § 6330(e) for the period during which any administrative hearings, and appeals, regarding the levy are pending. The rules for suspension under IRC § 6330 differ from IRC § 6015.
In general, the latest suspension of collection and the collection period should control, which may require reviewing the suspension under both IRC § 6015 and IRC § 6330 where relief from joint and several liability is requested as part of an IRC § 6330 hearing.
If the requesting spouse signs a waiver of the restrictions on collection, the suspension of the period of limitations on collection against the requesting spouse will terminate 60 days after the waiver is filed with the IRS, limiting the collection statute expiration date extension to the period from when the claim was filed to the time the waiver was signed, plus 60 days.
A request for reconsideration is not a qualifying request for relief for purposes of Treasury Regulation §1.6015-1(h)(5), and may not trigger the restrictions on collection pursuant to IRC § 6015(e)(1)(B) or the suspension of the collection period of limitation under § 6015(e)(2).
Offer-in-Compromise (OIC): If a taxpayer submits an Offer in Compromise to the IRS, the period from submitting the OIC to when the IRS makes a decision tolls the statute, and adds and additional 30 days. The Service is prohibited from levying and the collection statute expiration date may be suspended under the following:
An offer is pending with the Service,
30 days immediately following rejection of the offer for the taxpayer to appeal the rejection, and
If an appeal is requested within the 30 days, during the period while the rejection is being considered in Appeals.
Collection Due Process (CDP) Hearing: When a taxpayer requests a Collection Due Process Hearing, the IRS suspends the statute of limitations on collection while the hearing is pending. This rule applies to CDP requests within 30 days after a final notice of intent to levy.
The statute of limitations is suspended from the date the IRS receives a timely filed request for a CDP hearing to the date the taxpayer withdraws their request for a CDP hearing or the date the determination from Appeals becomes final, including any court appeals. See IRC § 6330 (e)(1).
If less than 90 days of the statute of limitations remains when the determination becomes final, the statute of limitations is extended to equal 90 days. The collection statute is not extended for equivalency hearings. See IRC § 6330 (e)(1).
For more information see IRM 188.8.131.52.6, Suspension of Collection Statute of Limitations, and Treas. Reg. § 301.6330–1(g)(3), ex. 1.
Taxpayer Living Outside the U.S. for six months: If a taxpayer lives outside the U.S. for 6 months consecutively, the statute of limitations is suspended, and does not expire until 6 months after the taxpayer returns to the U.S.
The period of limitations on collection after assessment is suspended while the taxpayer is outside the U.S. if the absence is for a continuous period of at least 6 months per IRC § 6503(c).
The period of limitations does not expire (where the taxpayer has been out of the U.S. for 6 months or more) before a minimum of six months after the taxpayer's return to the U.S.
Military deferment: If the IRS ability to collect is impaired by the taxpayer’s military service, the statute of limitations can be suspended during the taxpayer’s military service plus 270 days. If the taxpayer is in a combat zone, the statute of limitations is suspended plus an additional 180 days.
Combat Zone or Contingency Operation: Under IRC § 7508 the deadlines for certain acts performed by either taxpayers and the IRS are postponed when the taxpayer serves in:
An area designated as a combat zone;
A contingency operation designated by the Department of Defense;
A qualified hazardous duty area as defined by Congress; or
Direct support of military operations, as certified by the Department of Defense, in a combat zone, contingency operation, or qualified hazardous duty area.
The acts specified in IRC § 7508 include:
Rev. Proc. 2007–56, or its successor, expands the list provided in the statute.
Paying Income tax, Estate, Gift, Employment or Excise Tax, and
Collecting any tax.
A deadline is postponed while the taxpayer serves in the area or operation and for any period of continuous qualified hospitalization from such service (limited to 5 years of hospitalization in the U.S.), plus 180 days after the last day of service in the area of operation or period of hospitalization. The deadline is also extended by the number of days of the filing season (i.e. the period from January 1 to April 15) that the taxpayer was in a combat zone, up to 105 days (106 in a leap year). See IRM 184.108.40.206, Accounts of Taxpayers Who Serve in a Combat Zone.
Pursuant to IRC § 7508(e)(1) and IRC § 7508(a) does not postpone bankruptcy or receivership proceedings, jeopardy assessments, jeopardy levies, or the IRC § 7429 proceedings that may follow these IRS jeopardy determinations, or Tax Court proceedings under IRC § 6901 involving a transferee of the taxpayer (or spouse) who is serving in the combat zone or contingency operation.
The collection statue expiration date is suspended from the entry date to the exit date plus 180 days. No additional dates are generally added to the collection statue expiration suspension for time served during a filing season.
(2) IRS Actions: Suspension of Collection Statute
Judgement / Litigation with the IRS and/or collection of back taxes. If the IRS sues the taxpayer for the collection of back taxes or the taxpayer is in litigation with the IRS, the statue of limitation may be suspended. Generally, the IRS files suit for the collection of back taxes.
Per IRC § 6502(a) a court action brought against the taxpayer for the collection of tax prior to the expiration of the collection statute extends the period to collect until the tax liability or judgment against the taxpayer is satisfied or becomes unenforceable.
When a judgment is entered in a case where assessments were reduced to judgment, 20 years from the date the judgment is generally entered as the new collection statute expiration date.
Wrongful Levy (Seizure)
A wrongful levy suspends the running of the period of limitation on collection pursuant to IRC § 6503(f)(1). The collection statute is suspended for a period equal to the period from the date property is wrongfully seized or received to the date returned under IRC § 6343(b) or the date on which a judgment under IRC § 7426 becomes final, plus an additional 30 days.
The suspension is only applicable to an amount equal to the amount of money or the value of the property returned. For more information see IRM 220.127.116.11, Wrongful Seizure - Payment of Claims After Sale.
A wrongful lien suspends the running of the period of limitations on collection. Under IRC § 6503(f)(2) the collection statute is suspended from the date any person becomes entitled to a certificate of discharge of lien under section IRC § 6325(b)(4) until the earlier of the earliest date on which the IRS no longer holds any amount as a deposit or bond under section IRC § 6325(b)(4) or the date on which a judgment under section IRC § 7426(b)(5) concerning the amount deposited or used as bond, becomes final.
Where the period of limitations is suspended pursuant to a wrongful lien, it is suspended only for the value of the interest of the U.S. in the property plus interest, penalties, additions to tax, and additional amounts attributable. See IRM 18.104.22.168.5.5, Suspension of the Running of the Statute.
Taxes assessed on Form 706 U.S. Estate (and Generation-Skipping Transfer) Tax Return, are allowed various special elections under the Internal Revenue Code that allow for deferral of payment of estate taxes due. Under IRM 6503(d) the collection statue expiration date is suspended for the period of any extension of time for payment that is granted under IRC § 6161, IRC § 6163, or IRC § 6166. See also IRM 22.214.171.124 Collection Statute Expiration Date.
IRC § 6166 generally allows for a five-year deferral and annual installment payments over a 10-year period. See IRM 5.5.7, Collecting Estate and Gift Tax Accounts.
IRC § 6161 allows an extension to pay estate taxes for up to 12 month increments for a maximum of 10 years for taxes reported on the return and a maximum of four years for amounts determined as a deficiency. See IRM 5.5.5, Processing Estate and Gift Tax Extensions.
An extension to pay under IRC § 6161 may be requested on annual installment payments deferred under IRC § 6166. If granted the additional period of time allowed to pay the installment payment should be added into the collection statute expiration date calculation.
The tax liens under IRC § 6324(a) and IRC § 6324(b) expire 10 years from the decedent's death or the date of the gift, respectively, whether or not any action for the collection of such tax has been commenced or the collection statute expiration date under IRC § 6502 remains open.