Calculating the Collection Statute of Limitations

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I want to mention a problem with the collection statute of limitations (CSED) that my tax clinic recently encountered.  The response of the IRS to an inquiry about the CSED surprised me.  I have heard from some people at the IRS that there is a problem with CSED calculation within the IRS; however, I lack any certainty regarding that problem.

The calculation of the CSED has been quite difficult for some time.  Patrick Thomas wrote an excellent post on the issue almost six years ago.  We have given the issue insufficient attention.  The recent sending of notices with the wrong dates raises the issue of the CSED since some of the notices sent can impact the CSED and the IRS records now contain dates known to be wrong.  

This post is the story of one case but I fear it reflect broader problems.

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The tax clinic has a client who owes taxes for the years 2006-2009.  In looking at her transcripts, we calculated that the statute of limitations on collection (CSED) had run for three of the years but the transcripts still showed the periods as open.  I asked the student handling the case to call the practitioner line to obtain from the IRS the dates it calculated for the CSED.  I did not necessarily intend to rely on the date calculated by the IRS but did want to know and understand its calculation.

The person answering the phone told the student that the student should calculate the CSED based on the transcripts.  The person did not offer a CSED nor offer to assist in calculating the CSED.  I did not find that to be a helpful answer.  In fact, I found it shocking.  Perhaps it simply reflects the response of one employee who lacked training or who had other issues, but I expected the employee to easily retrieve and transmit this information. The IRS should have a calculation of the CSED on its system and should provide it upon request.  In my opinion it should provide it on the account transcript so that ascertaining the date calculated by the IRS would not necessitate a call.  I might or might not agree with the date provided by the IRS, but it should not hide the ball on this.

Because I still wanted to know why the IRS considered the CSED open for periods I thought had expired, we asked again a different way.  The clinic contacted the Local Taxpayer Advocate (LTA) and asked it to ask the IRS to provide us with the CSED for these years.  I try hard never to contact the Local Taxpayer Advocate.  Not because the LTA is unhelpful but because I think the LTA is overworked and that the clinic can resolve most problems without adding to the LTA’s burden.  The clinic receives a grant under IRC 7526 to assist low income taxpayers and calling the LTA to assist those taxpayers in anything but extraordinary cases seems like copping out on the purpose of the grant.  In the case of a disagreement regarding the CSED there is no easy way to contest a conflict in the calculation. 

It took a couple months to receive a response from the LTA.  The response confirmed the CSED had run for three of the years.  This matched our calculation.  More surprising and more disturbing, the advocate indicated that there was a “glitch” in the CSED system.  In addition to confirming for us the CSED, the LTA office also set out to have the taxes abated for the three periods for which the CSED had run but which still appeared open on the transcript.  My relieved client set out to pay the liability on the remaining period.

I did not receive a further description of the glitch other than that it existed.  I would be interested in any insight readers might provide on this and caution anyone with a CSED issue to carefully review the transcripts to make sure that the statute is still open.

If a glitch exists in the CSED calculation system at the IRS, that could cause it to continue to collect when it should not.  That would be a serious breach of taxpayer rights.  Few taxpayers are represented.  Almost no taxpayers and probably relative few practitioners can correctly calculate the CSED if actions such as installment agreements, collection due process, bankruptcy or other statute suspending actions occur.  We rely on the IRS to correctly calculate the statute and to abate the liability if the statute has run.

The pandemic has made it very difficult for the IRS to administer the many tasks under its writ.  It has performed many tasks well under adverse circumstances.  I know that the IRS does not intentionally want to make a mistake regarding the CSED.  The refusal of the IRS employee to answer the question about the CSED and the response from another IRS employee that there is a glitch in the calculation of the CSED raises significant concerns. 

In the most recent post regarding the sending of notices with wrong dates I initially included a couple paragraphs about the CSED issue discussed here, but those paragraphs were carved out for a later post, this one.  As occasionally happens with our hastily prepared posts, a sentence alluding to the CSED issue remained in the post which caused a reader, Ken Weil, to write me, as he and other readers occasionally do when I say something that doesn’t make sense or doesn’t fit in the context.  I wrote him back explaining the mistake and he responded with the following concerns about the CSED, and its close cousin the assessment statute of limitations (ASED), stemming from his bankruptcy and collection based practice:

The lack of CSED transparency has been an issue for years.  Fran Sheehy and I both asked Nina [Olson] in person at an ABA Tax section meeting to make this an issue.  I’m pretty sure we did this more than once.

Within the past year, the IRS has started posting ASEDs and CSEDs in at least one account entry, so that is a step in the right direction.

I find that I almost never agree with the IRS CSED calculation.  Most of the time the differences are not large, and I often attribute the difference to the uncertainty over installment-agreement-request tolling. …

So, yes, it is a problem.  And, no. I do not know how to deal with it.

I don’t know how to deal with it either.  I certainly don’t want to contact the LTA every time I have a concern.  The calculation can be difficult.  The IRS needs to get it right.

Comments

  1. This is not an uncommon problem in my practice. Often the disputes will arise from the transcript inputs by Service Center employees, who believe that an Installment Agreement was requested, or pending, when that was not the case. The biggest problem, however, is there is no clear avenue to dispute the IRS calculation. In a recent case involving several hundred thousand dollars of tax, I disputed the CSED without whoever I could talk to. I submitted the problem to the Taxpayer Advocate, and when they finally got back to me with an answer over 1 1/2 years later (!) they agreed that by then the statute had expired. Their incompetence astounded me, but made the client very happy.

  2. Norman Diamond says

    “I know that the IRS does not intentionally want to make a mistake regarding the CSED.”

    If IRS employees get evaluated and promoted according to their success in collecting, they sure would intentionally want to make this kind of mistake. If IRS employees could get in trouble for coercing taxpayers to pay more than the correct amount of tax, they sure would intentionally want to cover up this kind of mistake.

    Besides, the IRS could just allege fraud or allege failure to file an FBAR and there would be no statute of limitations. Also for a US non-resident citizen there’s no statute of limitations on collection though I’m not sure if there is one on assessment.

  3. Chris Nebel says

    Excellent article! Having previously spent many years with IRS, in both field collection management and later as an LTA, CSED computation issues are not unusual. While IRS correctly calculates the CSED in most cases, I have personally been involved in many cases in which the CSED was not correct. Any number of things can extend the CSED, certain litigation, bankruptcy, offers in compromise but, in my experience the most common errors surrounded pending installment agreements. When a taxpayer (or rep) proposes an IA, IRS is to input a “pending IA” indicator to the account. This pending IA indicator shows up in the form of a Transaction Code 971 Action 43 and effectively renders the account safe from collection actions. However, it also serves to freeze the running of the CSED. The CSED remains frozen. The IRS is prohibited from taking collection action (and the CSED is frozen) as long as the pending IA indicator is present. The pending IA indicator remains in place until IRS makes a determination as to the IA. After a determination is made, the CSED is extended an additional 30 days (if rejected) to allow the taxpayer an opportunity to appeal and, if an appeal is requested within 30 days, the CSED is extended for as long as the case in appeals status. The problems arise where IRS does not make a timely determination. The pending IA indicator is to be input within 24 hours of a valid request. However, there is no specific timeframe in which IRS is to make a determination. I have been involved in cases in which ACS input pending IA indicators to an account (freezing the CSED) and transferred the case to a field collection group. It is not unusual for a case to remain in a collection managers hold file and later an RO inventory for an extended period of time. If the pending IA indicator is not reversed, the CSED continues to be frozen. In one situation, a case had been transferred several times between a managers hold file and a number of different RO’s, all while a pending IA remained in place. An RO eventually made a determination to reject the IA, reversing the hold on the CSED and subjecting the taxpayer to levy action. The taxpayer retained a representative who in turn contacted TAS. The representative had noted that the pending IA indicator had been in place for over 3 years with no action and, absent the pending IA, the CSED would have expired. TAS researched and determined that ACS had input the pending IA but, no action had been taken to address the viability of the pending IA for over 3 years. Without the 3 year freeze, the CSED would have expired some 11 months prior. TAS requested that the RO review the CSED issue and take steps to correct the CSED to reflect the inactivity. The RO initially declined this request arguing the CSED was correct. This resulted in the issuance of a Taxpayer Assistance Order to collection management. In this case, through the TAO, TAS was able to convince IRS that had a timely determination been made, the taxpayer would have been granted either an IA, found CNC or receive rights to appeal, any one of which would have addressed the CSED. TAS argued it would be inequitable to extend the CSED simply because IRS did not take timely action. IRS Collection reviewed the case and agreed. IRS abated the tax liability in full. Sorry for the long post, the bottom line is that while IRS does usually compute the CSED correctly, it is not at all unusual to catch a mistake and is certainly worthy of a closer look!

  4. Joseph B Schimmel says

    Unfortunately, by the time the CSED is an issue, the opportunity for judicial review of the CSED is almost nonexistent. Judicial review usually comes with a CDP notice, but the IRS has almost certainly sent a “first” CDP notice within the first few years after assessment.
    I haven’t had a recent appeal of a collections case where the CSED was an issue, and I wonder whether the settlement officer would hide behind “The CSED is a liability issue, and you have previously had the opportunity to contest the liability.”

  5. Joyce Cheng says

    I was validated by this post. I have a client with this same scenario. Per the IRS transcripts, I computed the CSED for the years at issue and determined it should have expired already (varying lengths of time from 1-2 years). I called the TPPL to get the IRS CSEDs and was given dates another 1-2 years in the future for those years. I questioned the discrepancy and discussed the transcript entries only to hear the IRS did not have the same TC codes or status as the transcripts provided to me via TDS. This is perhaps more alarming than hearing the IRS CSED is pushed out years beyond what it should be. I can only speculate that this problem may be due to a manually monitored installment agreement with irregularly scheduled payments. However, since I have other clients with CSED issues who are on “normal” installment agreements, it would seem there is something more specific to the CSED computation issue itself.

  6. Nancy O. Kuhn says

    I have a case in which the IRS is reducing to judgment tax liabilities for collection in US District Court. DOJ has introduced into evidence both the Certified Transcript and the account transcript that a taxpayer can download online. For several of my arguments on behalf of the taxpayers, DOJ is now relying on the uncertified account transcripts —the certified transcript is either silent on the issue or has different information. Has anyone encountered this?

  7. Frank Donahue says

    Excellent post! Here is another item to look for on transcripts that may (incorrectly) extend the CSED on the IRS’ system, IDRS. Normally, items like interest and failure to pay penalty accruals are under TC 196 (interest) or TC 276 (FTP), (third digit ending in “6”), and these are systemically calculated and generated. If accruals are manually calculated they will have a corresponding 0 (zero) in the third digit of the TC, such as TC 270 for the FTP accrual. I recently discovered that IDRS was (incorrectly) extending the CSED on two separate TC 270 transaction codes input for one of my clients where I had calculated the CSED expiring on 9-26-2020.
    After this liability did not drop off, and the Practitioner Hotline gave me CSED dates into 2023, I filed a 9-1-1 and the Taxpayer advocate assigned the case, after review, told me that my calculations of the CSED were correct, and that the IRS would be abating the remaining taxes. He told me that I was the second case with this issue that he had recently worked- so this is not an uncommon issue! (I asked that this be forwarded as a systemic issue for further review by national office.)
    Looking forward to the steak dinner that my client promised once these were zeroed out!

  8. Bob Kamman says

    Now you’ve done it.
    IRS will issue a new form to request a CSED computation, along with a $49 user fee.
    Per year or other taxable period.

  9. Chris Bourell says

    We have had 2 matters where the IRS assigned new 10-year CSEDs on the routine assessment of interest and penalties, extending the CSED for the underlying liability. Attempts to resolve it with ACS went as poorly as expected, and we resolved both with TAS involvement.

  10. Read the posts on 6511(h) such as this one: https://procedurallytaxing.com/an-irc-6511h-financial-disability-claim-survives-motion-to-dismiss/ After you get a sense of the requirements and how your circumstances fit those requirements, you may want to talk to a tax clinic or tax professional in your state to ascertain if you qualify.

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