The Importance of CSEDs & How Taxpayers Can Use Them to Tackle Tax Debt
So, you have been contacted by the IRS because they say you owe a hefty amount in unpaid taxes. Maybe you’re thinking – “I’m sure I always paid my taxes”, or – “that amount cannot be correct”, even – “but that was so long ago”. You may be surprised to learn that the latter is actually quite important when it comes to the IRS’ ability to collect on unpaid taxes.
It’s called the Collection Statute Expiration Date (CSED), or commonly referred to as the statute of limitations. According to IRS code 26 U.S.C. § 6502, this is the maximum time period in which the IRS is allowed to collect tax debt, which is usually about 10 years after your tax debt was originally assessed.
However, the IRS clock is a fickle one, that is, 10 years may turn into 20 years. A taxpayer can unknowingly suspend this clock (also referred to as a tolling event), which effectively extends the collection period. There are a few different actions that will cause a CSED to suspend its 10-year clock, such as:
- Filing for an Offer In Compromise
- Filing an installment agreement request
- Residing 6 months or more out of the United States
- Filing for Bankruptcy
- Military deferment
- Filing for a Collection Due Process Hearing
- Fraudulent Action
- Filing for an innocent spouse claim
Our firm has worked with many clients that the IRS is still pursuing tax collection, even though the statute of limitations is way past the 10 year expiration date. The IRS’ reason? Because the client suspended their statute of limitations. It’s not uncommon for our clients to be battling with the IRS over tax debt that is 15 to 20 years old due to multiple instances of suspension.
So what’s the good news? The IRS has not had an easy time calculating these CSEDs.
IRS’ Difficultly Calculating CSED
CSEDs are extremely complicated to calculate. So hard in fact that the IRS messes up these calculations nearly 40% of the time, according to a National Taxpayer Advocate’s audit of recalculated CSED’s between July 1, 2011, and June 30, 2012. This is extremely important to know – if the IRS is miscalculating so many CSEDs, it means that they may be wrongfully extending CSEDs and violating taxpayers rights by unlawfully collecting on debt that should have expired.
This happens because IRS employees use a computer system called the Integrated Collection System to obtain approval from IRS managers on manually recalculated CSEDs. The audit cited ineffective internal controls in checking the accuracy of such calculations.
How a Second Opinion May Help your Tax Case
If you have tax debt that has gone past or near its 10-year deadline and the IRS is still attempting collection, it’s in your best interest to recalculate your CSED, especially with such strong evidence that the IRS doesn’t always calculate them correctly.
CSEDs are important in every tax case and can mean the difference between paying hundreds of thousands of dollars to little or nothing. A qualified tax attorney can give you a second opinion on your tax case by double checking the IRS’ CSED calculation. A good tax attorney is trained to utilize all IRS tools, such as the IRM (Internal Revue Manual) and FOIA (Freedom of Information Act) to check if the statute of limitations has been correctly calculated. Even for taxpayers whose statute of limitations hasn’t passed, an accurate CSED calculation can be extremely useful when negotiating settlements with the IRS.
If you believe your CSEDs are inaccurate or would like to know more about calculations, please schedule a free consultation with one of our tax attorneys.