When reviewing your tax resolution case, there are several time components that you should be aware of. After all, just about everything the IRS can do to you has a time limit. These time limits (statutes of limitations) are important to know. Most penalties, deadlines, and everything in between will be based on time.
Is time on your side? Or the IRS?
Statutes of Limitations
What are tax statutes of limitations? It is a time period established by law to review, analyze, and resolve taxpayer and/or IRS tax related issues.
The Internal Revenue Code (IRC) requires that the IRS assess, refund, credit, and collect taxes within specific time limits. These limits are known as the statutes of limitations.
In other words, these are deadlines, and when they expire, they expire. The IRS can no longer assess additional tax, allow a claim for refund by the taxpayer, or take collection action.
Specifically, let us review two components: The Assessment Statute Expiration Date (ASED) and the Collection Statute Expiration Date (CSED).
The ASED defines how long the IRS can assess tax for specific periods. In most cases, the ASED is calculated as 3 years after the due date of the return, or 3 years after the date the return was filed, whichever is later.
There are specific events called “Tolling Events” that stop the ASED time clock. All in all, there are over 34 different events that extend the ASED. Here are some of the most common:
- Filing an amended return within 60 days of the ASED
- Voluntary extension of ASED – Form 872 – aka the “bargaining chip”
- Fraudulent returns – fraud is forever, by the way
- Under reporting of tax – the general rule is 25%
- Statutory Notice of Deficiency (90-day letter) – extends for 150 days
The Collection Statute Expiration Date (CSED) defines how long the IRS can collect tax for a specific assessment. The CSED for tax liabilities is calculated as 10 years after the assessment date. This clock ends the government’s right to pursue collection of a liability.
The CSED is assigned to each individual assessment. For example, each quarterly Form 941 that gets assessed, will have its own CSED.
Just like the ASED, the CSED can be extended or suspended based on certain “Tolling Events”. There are many, but here are some of the more common ones (all of these are TC notices):
- 480 – Offer in compromise pending (suspends)
- 488 – Installment and/or manual billing (extends)
- 520 – IRS litigation instituted (suspends)
- 520 – Bankruptcy (suspends)
- 550 – Waiver of CSED (extends to new agreed date)
- 971 – Pending installment agreement (extends)
- 971 – Terminated installment agreement (extends)
Time components are an important thing.
Based on the ASED and CSED rules, time is either on your side or the IRS. When it is on your side, you may not want to do much. Sometimes a healthy strategy is to do nothing.
But if it is on the side of the IRS, they can do a lot of nasty things to you and your business.
Determining if time is on your side or the IRS is the first step in understanding your options with tax resolution.