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Calculating the Collection Statute of Limitations

Posted on Jan. 29, 2021

I want to mention a problem with the collection statute of limitations (CSED) that my tax clinic recently encountered.  The response of the IRS to an inquiry about the CSED surprised me. I have heard from some people at the IRS that there is a problem with CSED calculation within the IRS; however, I lack any certainty regarding that problem.

The calculation of the CSED has been quite difficult for some time. Patrick Thomas wrote an excellent post on the issue almost six years ago. We have given the issue insufficient attention. The recent sending of notices with the wrong dates raises the issue of the CSED since some of the notices sent can impact the CSED and the IRS records now contain dates known to be wrong.  

This post is the story of one case but I fear it reflect broader problems.

The tax clinic has a client who owes taxes for the years 2006-2009. In looking at her transcripts, we calculated that the statute of limitations on collection (CSED) had run for three of the years but the transcripts still showed the periods as open. I asked the student handling the case to call the practitioner line to obtain from the IRS the dates it calculated for the CSED. I did not necessarily intend to rely on the date calculated by the IRS but did want to know and understand its calculation.

The person answering the phone told the student that the student should calculate the CSED based on the transcripts.  The person did not offer a CSED nor offer to assist in calculating the CSED.  I did not find that to be a helpful answer.  In fact, I found it shocking.  Perhaps it simply reflects the response of one employee who lacked training or who had other issues, but I expected the employee to easily retrieve and transmit this information. The IRS should have a calculation of the CSED on its system and should provide it upon request.  In my opinion it should provide it on the account transcript so that ascertaining the date calculated by the IRS would not necessitate a call.  I might or might not agree with the date provided by the IRS, but it should not hide the ball on this.

Because I still wanted to know why the IRS considered the CSED open for periods I thought had expired, we asked again a different way.  The clinic contacted the Local Taxpayer Advocate (LTA) and asked it to ask the IRS to provide us with the CSED for these years.  I try hard never to contact the Local Taxpayer Advocate.  Not because the LTA is unhelpful but because I think the LTA is overworked and that the clinic can resolve most problems without adding to the LTA’s burden.  The clinic receives a grant under IRC 7526 to assist low income taxpayers and calling the LTA to assist those taxpayers in anything but extraordinary cases seems like copping out on the purpose of the grant.  In the case of a disagreement regarding the CSED there is no easy way to contest a conflict in the calculation.

It took a couple months to receive a response from the LTA. The response confirmed the CSED had run for three of the years. This matched our calculation. More surprising and more disturbing, the advocate indicated that there was a “glitch” in the CSED system.  In addition to confirming for us the CSED, the LTA office also set out to have the taxes abated for the three periods for which the CSED had run but which still appeared open on the transcript. My relieved client set out to pay the liability on the remaining period.

I did not receive a further description of the glitch other than that it existed. I would be interested in any insight readers might provide on this and caution anyone with a CSED issue to carefully review the transcripts to make sure that the statute is still open.

If a glitch exists in the CSED calculation system at the IRS, that could cause it to continue to collect when it should not. That would be a serious breach of taxpayer rights. Few taxpayers are represented. Almost no taxpayers and probably relative few practitioners can correctly calculate the CSED if actions such as installment agreements, collection due process, bankruptcy or other statute suspending actions occur. We rely on the IRS to correctly calculate the statute and to abate the liability if the statute has run.

The pandemic has made it very difficult for the IRS to administer the many tasks under its writ. It has performed many tasks well under adverse circumstances. I know that the IRS does not intentionally want to make a mistake regarding the CSED. The refusal of the IRS employee to answer the question about the CSED and the response from another IRS employee that there is a glitch in the calculation of the CSED raises significant concerns.

In the most recent post regarding the sending of notices with wrong dates I initially included a couple paragraphs about the CSED issue discussed here, but those paragraphs were carved out for a later post, this one.  As occasionally happens with our hastily prepared posts, a sentence alluding to the CSED issue remained in the post which caused a reader, Ken Weil, to write me, as he and other readers occasionally do when I say something that doesn’t make sense or doesn’t fit in the context.  I wrote him back explaining the mistake and he responded with the following concerns about the CSED, and its close cousin the assessment statute of limitations (ASED), stemming from his bankruptcy and collection based practice:

The lack of CSED transparency has been an issue for years.  Fran Sheehy and I both asked Nina [Olson] in person at an ABA Tax section meeting to make this an issue.  I’m pretty sure we did this more than once.

Within the past year, the IRS has started posting ASEDs and CSEDs in at least one account entry, so that is a step in the right direction.

I find that I almost never agree with the IRS CSED calculation.  Most of the time the differences are not large, and I often attribute the difference to the uncertainty over installment-agreement-request tolling. …

So, yes, it is a problem.  And, no. I do not know how to deal with it.

I don’t know how to deal with it either. I certainly don’t want to contact the LTA every time I have a concern. The calculation can be difficult. The IRS needs to get it right.

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