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IRS collection actions: 10 year statute of limitations

On Behalf of | Sep 2, 2016 | Tax Controversies

The amount of the time that the IRS has to collect back taxes is generally 10 years. Certain actions can stop the clock. An offer in compromise is one of them.

In this post, we will look at a story where a taxpayer was not successful in arguing the state of limitation barred collection efforts. The saga starts in 1997 and illustrates that time alone is not always sufficient.

Estate tax valuation

The tax liability related to valuation of assets after the death of the taxpayer’s mother in 1997. The taxpayer filed Form 706 and paid a little over $700,000. An audit challenged the valuation and came up with a liability of $1.2 million.

A stipulated court decision was reached in 2004. The deficiency balance was around $223,000 with approximately $108,000 of interest. But apparently a bill was never issued and the case was handed into a collection queue. It didn’t make it to the top of the line for eight years.

Now many people work on queue-based projects. But at least in private employment there would be some additional hiring is a queue grew to the extent it was taking eight years to clear a back log.

Levy Notice

A Notice of Intent to Levy was sent for more than $550,000. The bill had kept increasing with penalties and interest. The taxpayer filed a Request for a Collection Due Process hearing. This request was lost during a government shutdown, but in 2014 the IRS admitted the form had been filed in a timely manner.

The form had stopped the 10 year clock. The taxpayer argued that since the IRS hadn’t received the form, the clock hadn’t stopped. The argument failed.

Involvement of an experienced tax attorney can avoid these sort of lengthy delays. You may think that something is resolved when you never hear back, but remember the agency may not act until coming up against that statute of limitation.


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