As a general rule, there is a ten year statute of limitations on IRS collections. So, the IRS can attempt to collect your unpaid taxes for up to ten years from the date they were assessed.
Subject to some important exceptions, once the ten years are up, the IRS has to stop its collection efforts. Every year, the statute of limitations expires for thousands of taxpayers who owe the IRS money.
If your Collection Statute Expiration Date (CSED) is near, the IRS may act aggressively to get you to pay as much as possible before the deadline or agree to extend it.
The ten-year limitations period begins to run on the date of the tax assessment. This is the date an IRS official signs the applicable form at an IRS Service Center.
For example, if you don't pay in full when you file your tax return, you'll receive written notice of the amount you owe, a bill. The date on this bill starts the ten year limitations period.
If you didn't file a tax return, the IRS can create a substitute return for you and make a deficiency assessment, which starts the ten-year period. So, not filing a return and hiding for ten years accomplishes nothing.
The ten-year collection period can end up lasting more than ten years because it can be suspended for one or more time periods. The time during which the statute of limitations is suspended isn't counted toward the ten-year deadline.
For example, the collections period will be suspended during time periods the IRS is legally barred from taking collection action against you. This means that the limitations period is suspended if you file for bankruptcy and the bankruptcy court issues an automatic stay preventing the IRS from taking collection action against you. The suspension lasts for the period of the bankruptcy case plus six months.
The period is also suspended while the IRS is considering your request for an installment agreement, offer in compromise, or request for innocent spouse relief, or while you live outside the U.S. continuously for at least six months. The IRS can also extend the ten-year period by suing you in federal court. However, it rarely does this.
The ten-year limitations period isn't absolute. It can be extended if you voluntarily agree to do so. Back in the bad old days (before 1998), the IRS used to put enormous pressure on taxpayers to agree to extend the limitations period beyond ten years. These extensions often lasted for ten or even twenty years. If the taxpayer refused to "voluntarily" agree to the extension, the IRS would make threats. Fortunately, this is no longer allowed.
However, if you enter into an installment agreement with the IRS allowing for partial payment of the amount due, you'll likely have to sign a form waiving the ten-year limitations period. But this extension can be no more than six years.
So, if your limitations period is nearing its end and you still owe the IRS substantial money, IRS personnel might offer you an installment agreement with attractive terms to get you to agree to extend the collection deadline. Consider carefully before agreeing to any such extension. You might be better off refusing to extend the deadline and letting the IRS collect whatever it can before time runs out.
If you need tax help, talk to a tax professional, such as a certified public accountant or a tax attorney. A tax professional can prepare tax returns, give tax information and guidance, as well as provide representation before the IRS.
To help prevent money laundering by criminals and terrorists, and tax evasion, banks and other financial institutions are required to report large cash transactions to the IRS. They must file FINCEN Form 104, Currency Transactions Report, whenever a person engages in cash transactions involving more than $10,000 in a single day. The report must contain the person’s name, address, Social Security number, and other identifying information. Moreover, the bank must verify the person’s identity by demanding to see a driver’s license, passport, or other valid ID.
People often try to avoid being reported to the government by breaking up their transactions into multiple amounts that are all less than $10,000. This is called “structuring” and is illegal if done to avoid the reporting requirement. It also usually doesn’t work. Multiple currency transactions must be treated as a single transaction if the bank knows that: (1) they are made by or on behalf of the same person, and (2) they result in either cash deposits or cash withdrawals totaling more than $10,000 during any one normal business day. In addition, banks and other financial institutions must file a “Suspicious Activity Report” with the IRS if they suspect someone is trying to evade the reporting rules—for example, regularly engaging in currency transactions that are just below $10,000.
A fine of up to $250,000, or imprisonment up to five years, or both, may be imposed on a person who willfully violates the anti-structuring law. (31 USC Sec. 5322(a).) However, a person must be criminally prosecuted by the government to get fined or imprisoned. As a cheaper and easier alternative, in such cases the government often files a lawsuit and gets a court order allowing it to seize the money--a process called civil forfeiture. Civil forfeiture was designed to enable the government to take money or property suspected of being involved in a crime. However, with civil forfeitures, a person can have his or her money or property permanently taken without ever being convicted of or even charged with a crime. To get the money or property back, it is necessary to intervene in the lawsuit filed by the government against their property—a costly and difficult process.
IRS investigators apparently believed that Carole Hinder was engaging in illegal structuring when they saw that she had a pattern of making frequent cash deposits of less than $10,000, so they had her money seized. However, Hinder says she knew nothing about the anti-structuring law and had no intent to evade it. Making multiple cash deposits of less than $10,000 is not illegal if there is no intent to avoid the reporting requirement.
Fortunately, Carole Hinder’s story had a happy ending. Her case made The New York Times ("Law Lets I.R.S. Seize Accounts on Suspicion, No Crime Required" (Oct. 25, 2014)), which pointed out that Hinder was far from the only seemingly innocent businessperson who has had money seized by the IRS. Hinder eventually got her money back, and the IRS helped several hundred other property owners with cases like hers get their money back as well.
Even more important, the resulting uproar led the IRS to change its civil forfeiture policies for funds that come from legal sources—that is, from legitimate businesses like Carole Hinder’s. Under the revised policy, which took effect in 2015, the IRS will seize legally sourced funds due to structuring only if (1) there are exceptional circumstances justifying the seizure and forfeiture and (2) the case is approved by the Director of Field Operations. The IRS’s revised seizure and forfeiture policies do not apply to money from illegal sources such as money laundering or criminal activity other than structuring. Indeed, the IRS and Department of Justice promised to focus on people that structure financial transactions to hide significant criminal activity. The result of these policy changes is that the number of civil seizures and forfeitures have declined dramatically.
Meanwhile, proposed legislation has been pending in Congress that would curtail the IRS's civil seizure and forfeiture powers. One proposed bill would limit forfeiture to cases where the funds are from an illegal source or used to conceal illegal activity. This would effectively codify into law the IRS's 2015 policy change and prevent the IRS from ever changing the policy.
]]>If you disagree with the amount of tax the IRS claims you owe and you act timely, you can file a Collection Due Process (CDP) hearing request and stop collection activities pending the CDP hearing – but time is of the essence.
Under Internal Revenue Code Section 6320, you have a right to a hearing request before an impartial officer when the IRS has either filed a federal tax lien against you or put you on notice of the IRS’s intent to file levy against you. The two main types of IRS letters are:
Once you receive the notice from the IRS regarding a lien or notice of levy, you generally have 30 days from the date of the letter to file a CDP hearing request.
A federal tax lien can have serious consequences. This is because if the lien is attached to your home, it may make it very difficult for you to refinance a home. Moreover, it may scare potential buyers away from purchasing your home since anything associated with the IRS has a way of instilling fear into everyone in its path. If the purchaser learns of the lien during a title search of your home, don’t be surprised if he or she turns tail and runs!
The one silver lining is that the IRS usually cannot “force the sale” of the property; rather, once the property is sold (or foreclosed on), the IRS can then try to obtain money from it.
A Notice of Levy is a more serious issue, since it may have an immediate financial impact on your life. If you receive a Notice of Intent to Levy your bank account then the IRS is trying to immediately seize the funds out of your bank account. If you disagree with any portion of the debt the IRS alleges you owe, it is very important that you file a CDP request within 30 days of receiving the notice. This is because once a levy is issued against your bank account, the IRS can take as much money as you have in the account to satisfy the tax debt (though once the actual levy is filed, you still have 21 days to try and get the levy removed).
Note that if for any reason the IRS levies too much money, then it will be your responsibility to seek a refund against the IRS. If you think the IRS is generally nonresponsive - try getting a response from them when you are seeking a refund.
You can prepare and submit a Collection Due Process Request on IRS Form 12153, Request for a Collection Due Process or Equivalent Hearing. This form requires you to provide background information about you, as well as the reason(s) why you think the IRS should not pursue the lien or notice of intent to levy against you. You can obtain a copy of the form with instructions on the IRS website.
If the form is not completed properly, it will be rejected, and keep in mind that the IRS is always looking for a way to reject your form.
Thirty days from the date of the letter. This is a very strict requirement and if you do not file within the requisite 30 days, you lose the right to a CDP Hearing Request. If the CDP is filed timely, then the IRS must stop collections on the debt amount pending the outcome of the hearing.
If you miss the 30-day deadline, you can still file for an “Equivalency Hearing” but the IRS is authorized to pursue the debt against you pending the hearing.
There is not one specific department where you file the 12153 CDP request form. Rather, the form is usually sent to the address identified on the Notice of Federal Tax Lien or Notice of Intent to Levy that you received in the mail.
While it may seem like a David and Goliath moment when you are fighting the IRS, the Collection Due Process hearing request is a great way to even the playing field that provides taxpayers with an opportunity to cease collections on a debt pending a CDP Request Hearing.
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