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What are some events that can suspend or extend the collection statute allowing the IRS more time to collect on an outstanding tax debt?
- Bankruptcy: When a taxpayer files for bankruptcy, the IRS is prevented from collecting against the taxpayer, as are all other creditors. Since the IRS cannot collect on the outstanding taxes due from the taxpayer during a pending bankruptcy, the IRS suspends the CSED during the bankruptcy and for six months thereafter.
- Judgment/Litigation: If the IRS files suit for the collection of unpaid taxes, the period during which the tax can be collected by levy is extended beyond the 10 year period. However, the levy or court proceeding must have started within the 10 year collection period.
- Suits to reduce the assessments to Judgment: the IRS will file a suit to reduce assessments to judgment to prevent the statute of limitations for collection from expiring prior to the collection of the debt. If tax assessments are reduced to judgment; (1) the tax lien continues until the underlying tax liability is paid in full or lien becomes unenforceable (lapse of time), (2) levy action can continue until the tax is paid in full or becomes unenforceable, (3) the IRS can foreclose on a property to collect from the equity under the tax lien.
- Offer in Compromise: A taxpayer who does not have the ability to pay the IRS tax debt in full may qualify for an offer in compromise. The taxpayer must submit current financial information (bank statements, proof of income and expenses, equity and assets) to support their financial position. While the IRS reviews the financial information of the taxpayer, the IRS places a collection hold on the account. The IRS cannot levy the taxpayer, so the IRS suspends the CSED until 30 days after the offer in compromise is rejected, or if a timely appeal protest is filed, after the appeal is rejected.
- Collection Due Process Hearing: A taxpayer has the constitutional right to request a hearing prior to a proposed levy. Generally, if a collection due hearing request was made timely, the IRS cannot collect on the tax liability for the specific tax periods in Appeals. Therefore, while the IRS is waiting for the taxpayer to have their opportunity to a hearing, the CSED is suspended up until the date the determination from Appeals becomes final, which includes any Tax Court proceedings.
- Pending Installment Agreements: A taxpayer can request an installment from the IRS by proposing a monthly amount with a due date that they would like to pay the IRS on the back taxes. Once the IRS receives such a request for a payment plan, the IRS will place the account in “pending installment agreement” status. During the time the installment agreement is pending, or an appeal filed on a rejected proposal, or during the installment agreement termination process, the IRS cannot collect on the outstanding balances due, so the IRS will suspend the CSED.
- Partial Pay Installment Agreements with Form 900, Tax Collection Waiver: The IRS will only execute a Form 900, Tax Collection Waiver (to extend the CSED) in only certain situations in conjunction with a partial pay installment agreement. The IRS will consider securing a waiver with a partial pay installment agreement where the taxpayer comes into possession of an asset after the CSED and liquidation of asset is the best case resolution. The CSED will not be extended no more than 6 years.
- Innocent Spouse Claim: An Innocent Spouse claim is generally filed by one spouse who claims that he or she should not be held liable for the taxes due on a married filing joint tax return. Once a claim is filed, the IRS places a collection hold on the account until the IRS has the opportunity to review the case which can take several months. The CSED is suspended from the date the claim is filed until the earlier of (1) date a CSED waiver is filed, or (2) 90-day period expires to petition Tax Court, or (3) if a Tax Court petition is filed, when the Tax Court decision becomes final.
- Taxpayers residing outside the United States: if a taxpayer is outside the United States for six months or more, the collection statute is suspended. The CSED does not expire until 6 months after the taxpayer returns to the United States.
- Combat Zone or Contingency Operation: If a taxpayer is in an area designated as a combat zone or a contingency operation designated by the Department of Defense, the IRS will place a “freeze on the account” for the period the taxpayer serves in the combat zone or operation plus for any continuous qualified hospitalization (limited to 5 years of hospitalization in the United States). The CSED will be suspended during combat or operation, plus an additional 180 days, but not extended during any periods of continuous qualified hospitalization as a result of injury received while serving in a combat zone or operation.
- Military Deferment: If a taxpayer is in the service and the collection of any tax is materially impaired due to the taxpayer’s military service, collections will be deferred up to 180 days (or 6 months). The CSED will be suspended during the taxpayer’s military service, plus an additional 270 days.
- Taxpayer Assistance: A taxpayer can request for assistance from the Taxpayer Advocate’s Office because the taxpayer is suffering or about to suffer a “significant hardship” such as a lien or levy. However, taxpayers file for taxpayer assistance when they have tried to resolve an issue through regular channels, but for whatever reason the issue cannot be resolved (i.e. CSED extended by 5 years for no reason, and nothing occurred to suspend or extend the CSED). The CSED can be suspended if the Advocate issue a Taxpayer Assistance Order which places the account on hold from collections.
