Today we welcome first time guest blogger Patrick Thomas. Patrick is an ABA Tax Section Christine A. Brunswick Public Service Fellow working at the Neighborhood Christian Legal Clinic in Indianapolis, Indiana. As a Public Service Fellow he receives a stipend for two years to work assisting low income taxpayers. Patrick was very generous with his time in assisting in the review of the 6th Edition of Effectively Representing Your Client Before the IRS which becomes available this month. He writes today on a topic that does not often receive attention but leaves both the IRS and practitioners confused – calculation of the statute of limitations on collection. Keith
It is a basic concept of law that once a statute of limitation has passed, no action barred by the statute may take place. Yet, as noted in the National Taxpayer Advocate’s 2014 Annual Report, the IRS often engages in forced collection action after the Collection Statute Expiration Date (CSED) has passed. Of course, the IRS does so not because they intend to flout the law; rather, Service employees may mistakenly apply the complicated rules by which the CSED is calculated. Indeed, the Annual Report, citing a 2013 TIGTA audit, indicates that “21 percent of CSED calculations were not accurate” in the CDP context. Given the volume of CDP cases each year—59,470 in FY 2012, including CDP and Equivalent Hearings—the IRS was making incorrect CSED calculations in over 10,000 CDP cases each year. Certainly, the problem is not endemic to Appeals alone, and likely affects many more cases every year.
The misapplication of the CSED in the CDP context is the most critical, however, as this is often the sole venue where a miscalculated CSED can be resolved. Even where the CDP officer upholds a miscalculated CSED, the Annual Report indicates that the Tax Court often cannot exercise independent review of the Settlement Officer’s decision, restricting itself instead to the administrative record and an abuse of discretion standard of review. The National Taxpayer Advocate accordingly calls on Congress to clarify that the Tax Court may always exercise de novo review of this issue, as it is fundamental to that basic concept of a statute of limitations. I wholeheartedly agree with the NTA’s recommendation. To that end, I believe a review of the CSED rules, and the ease with which they can be misapplied, would be helpful.
Normally, the CSED occurs 10 years after the date on which the tax is assessed. IRC § 6502(a)(1). However, various circumstance may “extend” the CSED—i.e., these circumstances push the CSED date forward in time. The Code speaks to “suspension” of the period of limitations, during which the CSED “clock” stops running. Such suspension periods lead to the extension of the CSED. (The interchangeability of these terms in the IRM, e.g., IRM 5.1.19, Collection Statute Expiration, may contribute to confusion among Service employees). The most often encountered periods include:
- Bankruptcy: From the date of filing the petition until the date of discharge, plus 6 months. IRC § 6503(h).
- Pending Installment Agreement: From the date of the request for an installment agreement, plus appeals, plus 30 days. IRC § 6331(k)(3).
- Termination of Installment Agreement: 30 days from the date of termination, plus appeals. IRC § 6331(k)(3).
- Pending Offer in Compromise: From the date of acceptance for processing of the OIC plus appeals after rejection, plus 30 days. IRC § 6331(k)(3).
- CDP Hearings: From the date of a timely request until final disposition. Additionally, if it is less than 90 days from the CSED, the CSED is reset to 90 days from the date of final disposition. Reg. § 301.6330-1(g)(3).
- Military-related Service in a Combat Zone: The length of service, plus 180 days. IRC § 7508(a)(1)(i).
The taxpayer may also elect to extend the CSED to a particular date, often in connection with an Installment Agreement.
Some examples help to clarify the rules. A tax assessed on 4/15/2015 ordinarily has a CSED of 4/15/2025. A suspension of that CSED for 30 days from 6/1/2020 until 7/1/2020 stops the CSED clock for that period of time; accordingly, the new CSED will be 5/15/2025. Easy enough.
In a more complicated example, let’s say a taxpayer files his 2014 tax return on 4/15/2015, showing a tax liability of $10,000. The taxpayer then files a bankruptcy petition on 5/15/2015, and receives a Chapter 7 discharge on 7/15/2015. The CSED is suspended for the period of the bankruptcy—62 days—plus six months. Accordingly, the new CSED is 12/16/2025. Still fairly straightforward.
The intersection of more than one suspension period at the same time creates the potential for confusion—and ultimately, for miscalculation of the CSED. In a yet more complicated example, let’s take that same bankrupt taxpayer. In the period after his bankruptcy is discharged, he files an Offer in Compromise, which was accepted for processing by the Service on 8/15/2015, to resolve his non-dischargeable $10,000 tax debt from tax year 2014. The CSED “clock” does not run during the 6 months after discharge of the bankruptcy; that is, until 1/16/2016. The OIC filing similarly suspends the clock during pendency of the OIC, and for 30 days after its rejection (for sake of the example, the taxpayer must, unfortunately, have his OIC rejected). Let’s say the rejection occurred on 12/15/2015 (this is about the average time I’m currently seeing for COIC to process Offers in Compromise from acceptance to disposition). Let’s further assume that the taxpayer did not exercise any appeal rights.
Accordingly, the CSED would start running again for purposes of the OIC suspension on 1/15/2016. His new CSED is still 12/16/2025, because the OIC suspension fell entirely during the bankruptcy suspension. The OIC filing does not doubly penalize the taxpayer on the CSED issue. It’s fairly easy to see how a Service employee could confuse the concurrent suspension of the CSED due to bankruptcy and due to the OIC with a rule that would tack on the period of the OIC, plus 30 days, as an extension to the CSED. If that were the case, the CSED would not run until 5/16/2026.
Continue with this taxpayer. He has now successfully flown under the radar of the IRS until December 2025, when he decides to take a job and files a Form W-4 with his employer. The IRS notices the W-4 filing and the wages, and on January 16, 2026, the IRS sends the taxpayer a Notice of Intent to Levy on the wages. The taxpayer timely files for a CDP hearing on February 15, 2026, offering a collection alternative that is, like his old OIC, rejected. But he fails to mention the CSED issue—in fact, he was entirely unaware of its existence. In the verification process, the Appeals officer noticed that the CSED read “5/16/2026,” and after rejecting the collection alternative, decided to sustain the levy. The taxpayer then files a petition in Tax Court, challenging the decision of Appeals. How will the Tax Court rule on the IRS’s clear misapplication of the CSED in this matter (assuming that the taxpayer gets connected with a practitioner who spots the issue)?
Even with clear evidence to the contrary, it may uphold the decision. The Annual Report explains the Tax Court’s standard of review at length: in the opinion of IRS Chief Counsel and some of the Court’s decisions, the Court may only review CSED determinations in a CDP hearing subject to an abuse of discretion standard. What is more, an abuse of discretion review in Tax Court is limited to the administrative record. Therefore, where a taxpayer does not raise the CSED issue in the CDP hearing, the issue is essentially forfeited in Tax Court.
This is clearly a problem for all taxpayers. While many are familiar with the “3 year rule” for amending tax returns or as a bar against examinations, I doubt if 1% of taxpayers are familiar with the CSED as a concept. Even for taxpayers who owe liabilities, the CSED is never publicized in any materials; the IRS will only give you their CSED calculation if you ask for it—if you can get through on the phone. Low-income taxpayers, who often have lower educational attainment, lack access to the Internet, and speak English as a second language, have it even worse. Even if such taxpayers get to the CDP stage (and that’s a big “if”, without the assistance of a Low Income Taxpayer Clinic), how are they supposed to know about—let alone challenge—the CSED?
Without the background knowledge to raise a CSED issue in a CDP hearing, taxpayers—and especially low-income and ESL taxpayers—may unwittingly forfeit a clear bar to collection. Lack of meaningful Tax Court review inappropriately harms these taxpayers. Given the harm and its relative likelihood that the complexity of the CSED rules engenders, the legislative change that the National Taxpayer Advocate recommends is an easy, relatively uncontroversial fix that should be implemented as soon as possible.