It’s Expired - IRS Collection Statutes

Cottage cheese has it. Coke products have it. Lunch meats in your local grocery store have it. And your IRS tax debt has it! Can you guess what I’m talking about? I’m talking about expiration dates! Now the expiration dates on an IRS tax debt are not quite as short as the expiration dates on perishables items you will find in a grocery store. They last a little bit longer. Try 10 years for example! Yes, 10 years!

When the IRS records in their computer system a tax debt that a taxpayer owes the IRS generally has 10 years to collect the liability provided nothing has occurred to extend the collection statute. This is very important information to know! I will provide one example of how information like this can be very helpful to a taxpayer. Our firm had a client who owed a large sum of money to the IRS from where the IRS filed a return for the taxpayer. This is known as an SFR, the industry terminology for “substitute for return.” This is when the IRS takes the income that has been reported to them that a taxpayer has earned and they file a return as a substitute for the taxpayer’s original return.

Often times and SFR does not take into account all of the deductions a taxpayer may have. If the taxpayer had substantial write-offs or deductions then it may be wise to file a tax return “over” the SFR the IRS filed for the taxpayer in order to lower the liability. Taxpayers need to exercise caution when considering such an action and should consider the expiration date of the SFR. If the SFR will be expiring soon then the taxpayer may not want to file over the SFR because by so doing the newly filed return will “reset” the clock and give the IRS a full 10 years to collect on the liability established by the newly filed return.

I heard of the client who took independent action and filed over the old return and lowered their liability but could have waited just a few short months to when the liability would have been no longer collectible. The moral of this story is KNOW YOUR COLLECTION EXPIRATION DATES! Our firm offers a service to taxpayers to help them find out what their collection expiration dates are. When in doubt, check it out!