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The Collection Statute Expiration Date (CSED) is a critical concept in tax law, marking the end of the period during which the IRS can legally collect taxes, penalties and interest from a taxpayer.

The CSED greatly influences how the IRS seeks to collect tax balances from taxpayers, and it also impacts the applicability of collection alternatives such as an installment agreement or an offer in compromise. This post provides an overview of the CSED, including its definition, how it is calculated, and how it can be impacted by events, facts and circumstances.

What is the CSED?

The CSED is the date when the IRS' legal authority to collect a tax debt expires. According to the Internal Revenue Code (IRC) § 6502, the IRS generally has 10 years to collect a tax balance starting from the date of the assessment. After this period, the IRS can no longer pursue collection actions and the taxpayer is no longer liable for the debt.

The IRS defines the assessment of a tax balance as the formal recording of a taxpayer's liability in the office of the Secretary of the U.S. Department of Treasury. Practically speaking, this means that the IRS has three years to assess a balance from the date a tax return is filed or the due date of the return (whichever is later).

When the IRS assesses a tax balance, it is merely stating that a taxpayer has a balance due for a given tax year. This often takes the form of a notice of assessment that is sent to a taxpayer indicating the tax year or years in question along with a detailed breakdown of the taxes due. Once the notice is issued, the 10-year CSED period begins to run.

Critically, when the 10-year collection period expires , the IRS can no longer collect on the tax balance without permission to extend the statute from the taxpayer or some other extending event. Because this is a hard deadline, the IRS is motivated to collect as much of the tax balance before the deadline as possible.

How is the CSED Calculated?

As noted above, the 10-year collection period begins on the date the tax is assessed. Each tax assessment has its own CSED, meaning tax balances for different tax years will generally have different expiration dates. It is common for older tax years to have CSED dates that occur sooner than more recent tax years.

The following are the three steps used to calculate a CSED:

1. Determine the Assessment Date: This can be found on the Notice of Federal Tax Lien or by obtaining a tax account transcript from the IRS.
2. Add 10 Years to the Assessment Date: This gives you the initial estimated CSED.
3. Adjust for Any Tolling Events: A tolling event is any action that suspends or extends the CSED, which must be factored into the calculation. These tolling events are explained below.

Events That can Impact the CSED

Several events can suspend (toll) or extend the CSED, effectively lengthening the period during which the IRS can collect the debt. Each tolling event will separately add time to the CSED for a specific tax year.

The following is a list of the most common CSED tolling events:

• Installment Agreements: The CSED is suspended while an installment agreement request is pending and for 30 days after a rejection or termination. The CSED will continue to run while an installment agreement is active.
• Offer in Compromise (OIC): The CSED is suspended from the date the OIC is submitted until it is accepted, rejected, withdrawn or returned, plus an additional 30 days if rejected. Since an OIC can take as long as a year or more to be evaluated and for the IRS to issue a decision, an OIC can add a significant amount of time to the CSED. This must be factored into any decision to submit an OIC that has a low chance of acceptance.
• Bankruptcy: The CSED is suspended during the period of bankruptcy proceedings and for six months after the case is resolved.
• Collection Due Process (CDP) Hearings: The CSED is suspended from the date the CDP request is received until the hearing and any subsequent appeals are concluded, plus an additional 90 days if less than 90 days remain on the CSED.
• Innocent Spouse Relief: The CSED is suspended while an innocent spouse claim is pending and for 60-days after a final determination. As with an OIC, innocent spouse relief can take a year or more to be evaluated by the IRS.
• Living Abroad: If a taxpayer is outside the U.S. for more than six months, the CSED is suspended during this period.
• Litigation: If the taxpayer sues the IRS, the CSED is suspended during the litigation period.

How to Verify Your CSED

Taxpayers can verify their CSED by:

• Asking the IRS directly. A taxpayer can get the precise CSED date for a given tax year by contacting the IRS by phone.
• Requesting a Tax Account Transcript: A tax account transcript provides the balances due along with the assessment date and any subsequent adjustments to the CSED.
• Consulting with a Tax Professional: Due to the complexity of tolling events and calculations, seeking professional advice can ensure accuracy.

Conclusion

Understanding the CSED is crucial for effectively managing tax liabilities. The CSED provides a definitive end to the IRS' ability to collect a tax debt, but various events can extend this period.

Taxpayers should be aware of these events and regularly verify their CSED to avoid unexpected collection actions. If you have questions or need assistance with your CSED, consider consulting a tax professional.