Statute of Limitations
Laws set forth the amount of time the IRS has to assess and collect taxes. These time limits are subject to change by defined circumstances, such as being out of the country, filing bankruptcy, filing an offer in compromise, certain appeals and other actions. The IRS is famous for extending the statute of limitations on collection by tricking the taxpayer into signing an extension of time to collect. Some waiver, the IRS employee would just make up a date then tell the taxpayer if he signs the form, he will be left alone. Nothing could have been further from the truth. That abuse has pretty much stopped since 2000 thanks to Congress.
The IRS has 3 years from the date of filing to assess taxes.
The IRS has 10 years from the date of assessment to collect the taxes.
Just for your interest here is the text of what the IRS had to say about Congress ending their infinite collection time:
IRS Restructuring and Reform Act of 1998 - Section 3461 - Procedures for Extension of Statute of Limitations by Agreement
A. Provision(s) covered: R.R.A. § 3461.
Procedures Relating to Extensions of Statute of Limitations By
Agreement. I.R.C. § § 6501(c) and 6502(a).
B. Background: Section 6501 of the Internal
Revenue Code generally provides that the Service has three years
from the date a return is filed to assess additional taxes.
Section 6502 generally provides that the Service has ten years
from the date of assessment to collect the tax.
to the expiration of the limitations period provided by these
provisions, the law provided that the taxpayer and the Service
could agree in writing to extend the statute of limitations.
Congress believed that many taxpayers were not being informed of
their rights to refuse to extend the statute of limitations on
assessment or to limit the scope of any such extension. In
addition, Congress believed that all taxes should be collected
within the 10 year statute and that the statute should not be
C. Change(s): The authority to extend the
collection statute of limitations by agreement ends on December
31, 1999. Any extension of the collection statute already in
effect on December 31, 1999, will expire on December 31, 2002. An
exception to this section is provided for extensions related to
installment agreements. An extension of the collection statute
entered into in conjunction with the acceptance of an installment
agreement should be for the period necessary to satisfy the tax
liability via the agreement. The legislation provides that the
period of limitations for extensions related to installment
agreements will expire 90 days after the end of the extension
The legislation also requires that taxpayers be
advised/notified of their right to refuse to extend the statute of
limitations on assessment or in the alternative to limit an
extension on the assessment statute to particular issues or for
specific periods of time, each time that the Service requests that
the taxpayer extend the limitations period.
D. Impact :
:Because the Service will have to complete collection actions within the 10 year statute in most cases, collection contacts and actions will have to be initiated sooner. Although this is true in general, it is especially true for cases where the collection statute will expire within the next 2 years and for cases where the original collection statute has been extended beyond December 31, 2002.
These cases will have to be identified and managed
appropriately. Since all current extensions other than those
related to installment agreements will expire on December 31,
2002, the Service will have to take steps to release liens
associated with these liabilities, as the liens become
unenforceable. Although the statute of limitations for collection
can be extended for installment agreements, the statutory waiver
must be entered into at the time the installment agreement is
accepted and must be for a determined period, i.e., for the period
necessary to satisfy the tax liability via the agreement. The
period of limitations will end on the 90th day after the end of
the waiver period.
Examination personnel will have to provide notice to a taxpayer
of his/her right to refuse to extend the statute of limitations on
assessment or to limit the scope and time of the extension each
time such an extension is requested. Whether the taxpayer is
advised orally or in written form, the giving of the notice must
be documented in the taxpayer's file, each time a request for
extension is sought.