Today, we're going to talk about what's known as a collection statute expiration date (CSED), and the IRS will sometimes call it the COSED. I'm not really sure -- it's not really an accurate acronym, but that's what they call it.
It stands for the proposition that a tax liability only has a 10 year lifespan. The IRS only has 10 years from the date of the assessment of a tax to collect it. This holds true for income tax and payroll tax, and so it can actually be a very helpful tool in the resolution of IRS problems.
I just said it was 10 years from the date of the assessment. What does that really mean in English? Here's what it means.
When the IRS goes ahead and puts a liability in the books, and it becomes formally due and payable by you, the taxpayer, that's essentially an assessment. Assessments can happen up to three years in normal cases after the filing of a tax return.
So you never know when an assessment was actually posted. Typically, the filing of your return is what triggers an assessment if you owe tax, and the 10 year time clock will start to run.
When can that assessment actually be later than when you file a tax return? When you get the little love letter that says hey, you made a mistake on your return, and you actually owe us more money. So you can actually have an assessment after the initial assessment. There is also an instance where if you fail to file a return, the IRS can prepare what's known as a substitute for return for you (which I referenced in an earlier blog post), and then you can have the statute of limitations beginning to run from the date of that assessment.
There are several things that can actually toll or stop the running of that 10 years. Some of them can add time onto that 10 years. So it's not so simple; it's just counting when did I file the return, or when was the assessment? So count 10 years forward, now I'm off the hook.
Some of the things that can actually stop the collection statute from running are:
- a bankruptcy, which actually tolls the statute for the time that the bankruptcy was pending plus one year,
- an offer and compromise which currently under current law, tolls the statute for the time the offer was pending, plus 60 days. That law has actually changed three times in the last five or six years, so that can be very tricky. It's very date specific.
- One of the other things that can toll a collection statute is an innocent spouse request. It will toll the collection statute while the innocent spouse petition is pending.
- Certain types of IRS appeals can actually toll the collection statute from running, as well as the filing of a 911 with a taxpayer advocate.
So you see, it's not really so simple; it's just counting up days and saying my 10 years are up, so now I'm off the hook. There is a lot of things that can actually extend that time and keep it running. There is also things that you don't want to do if the collection statutes are very short.
So go ahead and have a professional, like myself, take a look at your case and make sure that you don't make a mistake that ruins your case.
That's all for now. Thanks for watching.
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