IRS Collection Procedures Webinar Draws Interesting Q&As

Attendees at our June 16 webinar on IRS Collection Procedures submitted a number of questions. Here is a sample of questions and answers from that event that were answered by EisnerAmper professionals:

Q:  In terms of the 10-year statute, if the IRS has not collected on a return that is older than 10 years, does that mean the IRS cannot collect it?

A:Once the collection statute expiration date has expired, the IRS can no longer collect the taxes. Ten years is the starting point, but it can be lengthened by various events.

Q:  Is the IRS behind on processing returns?

A:Yes, that is our experience, especially for amended returns.

Q:  Can appeals extend the 10-year collection period?

A:A collection due process hearing, which can be considered a type of appeal, does extend the 10 years. If someone is appealing the results of an audit, then the 10 years has not even started yet, because the taxes are not assessed until after any appeal.

Q:  Does the clock start over again if an offer in compromise (“OIC”) is submitted in terms of the 10 years?

A:The 10-year collection statute is tolled (paused) while an OIC is pending, including any appeals. It does not start over from the beginning.

Q:  If a taxpayer is on installment agreement for year one and then files years two and three, two years late, does that invalidate the year-one installment agreement?

A:Any noncompliance is grounds for termination of an installment agreement. That includes failure to file tax returns as they become due or failure to pay taxes as they become due for subsequent years.

Q:  if a taxpayer is considered severely delinquent and has more than $80K in tax liabilities, including penalties and interest, and has involved the Department of State and Department of Justice (“DOJ”), does the 10-year collection period still apply?

A:When you say it involves the Department of State, I assume you're talking about the passport certifications. This has no effect on the 10 years. In rare cases, the IRS sends collections cases to the DOJ to obtain a judgment. That does affect the 10 years.  A judgment lien is good for 20 years, and it can even be renewed beyond that with court approval.

Q:  I thought that there was no statute of limitations if fraud is suspected.

A:If there is fraud, there’s no statute of limitations for the IRS auditing a return and making changes. Fraud would not necessarily affect the 10-year collections statute, but it could be grounds for the IRS to refer the case to the DOJ to get a judgment, which is good for 20 years. Or, the case could be referred to IRS Criminal Investigations.

Q:  Will the trust fund taxes be discharged in bankruptcy? 

A:Trust fund taxes cannot be discharged in bankruptcy.

Q:  What if the IRS filed a lien and then the taxpayer filed a past due tax return? How long before the IRS adjusts the amount of taxes due?

A:Was the lien filed based on a substitute for return and then the taxpayer later went back and filed actual returns? If that's the case, then the IRS can process the filed returns and reduce the balances owed. With current delays, I think it would take at least six months minimum, and the IRS might decide to audit the return in a situation like that.

Q:  For a taxpayer who has not filed Form 1040 in 10 years, should they file all 10 years or only the past six?

A:My advice is always for the client to file the last six years. The IRS typically does not go back further than that, although it can technically go back as far as it wants for years where no return has been filed.