CSEDs – Part II

I have written about CSEDs before.  These are the statute of limitation periods in tax cases; the “Collection Statute Expiration Dates.”  In a previous blog post, I listed what kinds of events can suspend the CSED.  Here I would like to address a couple additional details.

1. Waivers / Extensions (IRM

If you are asked to sign a CSED waiver or extension, you are essentially agreeing to give the IRS additional time (beyond the standard 10 years) to collect the tax from you.  You are giving up the tax relief available to you at the end of the tunnel.  Before the 1998 tax reform, IRS revenue officers were essentially free to secure CSED waivers under any circumstances imaginable.  Also, there were no restrictions on how many waivers could be obtained from the same taxpayer or how far into the future the CSED could be extended.  Today CSED waivers have gone almost completely out of fashion, although some are still obtained in connection with installment agreements as required by law.

2. Substitute for Return (IRM

A Substitute for Return (SFR) is an IRS-filed return that leaves out important exemptions or expenses you may be entitled to and may overstate your real tax liability.  Some believe that if a taxpayer goes back and files his own original return, this action automatically resets the CSED for that particular tax year.  This is not necessarily the case.  If the original taxpayer-filed return results in a lower liability, the original CSED remains intact.  And if the original return results in a higher liability, the CSED is updated (extended) only on the additional assessment.  A fine distinction, but an important one nonetheless.

"Collection Statute Expiration Dates"

photo via wastedfood.com

Many of our tax relief clients know from personal experience that the IRS can very persistently chase taxpayers around for years trying to collect what is owed.  But the Statute of Limitations (SOL) prohibits the IRS from pursuing a taxpayer indefinitely.  Once the SOL is up, the tax debt “expires” and the IRS can no longer collect the debt.

The SOL for collection of a back tax debt is 10 years from the date of assessment.  Since each tax period/form is filed and assessed on different dates, each tax period normally has a different expiration date.  In the jargon of IRS Collections, this is called the Collection Statute Expiration Date (CSED).   See IRS Pub 594 for further details.

In a perfect world, a 2008 tax return is filed and assessed in April 2009 and then expires in April 2019.  However, there are a number of events that can toll (or extend) the SOL on a back tax debt:

  • IRS investigation of a request for Installment Agreement
  • IRS investigation of an Offer in Compromise
  • Appeals determination
  • If you live outside the US for a period of 6 months or more
  • Bankruptcy (SOL tolled while the automatic stay is in effect)
  • IRS Collection Due Process hearing
  • Tax Court Proceeding
  • Request for Innocent Spouse Relief

Some of these procedures can last several months, which automatically adds the same number of months to the SOL.  Anytime a taxpayer is considering one of the listed procedures, he/she should also take into account how it will affect the CSEDs.  An experienced tax attorney can help with this important analysis.