IRS Statute of Limitations Information

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1. Time Limitatations to Prevent the IRS from Collecting Tax and Levy

Statute of Limitations for IRS Collection and Levy

For assessments of tax or levy made after November 5, 1990, the IRS cannot either collect or levy any tax 10 (ten) years after the date of assessment of tax or levy. See Section 6502(a)(1) of the Internal Revenue Code and section 301.6502-1 of the income tax regulations. Court proceedings must also begin within the 10 year period of limitations. Section 301.6502-1(a)(1) of the regulations.

For assessments of tax or levy made on or before November 5, 1990, the IRS cannot either collect or levy any tax 6 (six) years after the date of assessment of tax or levy. See section 6501(e) of the Code. However, if the 6 year period ends after November 5, 1990, the stuatute of limitations is 10 years. In order to come under the 6 year statute of limitations, the 6 year period must end prior to November 5, 1990.

Time Limitations to Prevent the IRS From Assessing Tax

Statute of Limitations for IRS Assessments

General Rule - The IRS is required to assess tax within 3 (three) years after the return was filed. See section 6501(a) of the Code and section 301.6501(a)-1(a) of the regulations. Similarly, no proceeding in court without assessment for the collection of any tax can begin after the expiration of 3 years. See section 301.6501(a)-1(b) of the regulations.

The statute of limitations is 6 (six) years if the taxpayer omits additional gross income in excess of 25% of the amount of gross income stated in the tax return. See section 6501(e) of the Code and section 301.6501(e)-1 of the regulations.

The statue of limitations does not apply to tax returns prepared by the IRS under the authority of section 6020(b) of the Code. See section 6501(b)(3) of the Code and section 301.6501(b)-1(c) of the regulations.

The statute of limitations does not apply in the case of a false or fraudulent return with intent to evade any tax. See section 6501(c)(1) of the Code and section 301.6501(c)-1 of the regulations.

The 10 year IRS limitation can be extended by agreement provided the agreement is made prior to the expiration of the ten year period. See section 6501(c)(4) of the Code and section 301.6501(c)-1(d) of the regulations.

Limitations on Taxpayer to Claim a Refund

A taxpayer may file a claim for a refund of an overpayment of any tax within 3 (three) years from the time the return was filed or 2 (two) years from the time the tax was paid, whichever period is the last to expire. If no return was filed, the claim may be made within 2 years from the date that the tax was paid. See section 6511(a) of the Code.

A taxpayer may file a claim within 7 (seven) years if the refund pertains to a bad debt under section 166 or 832(c) or in connection with a loss from a worthless security under section 165(g). See section 6511(d)(1) of the Code.

The above rules on limitations contain highlights of the law on limitations but they are not a comprehensive statement of all the rules. The law on IRS limitations and taxpayer limitiations is very complex. Unfortunatley, the IRS does not generally notify a taxpayer that a tax liability can no longer be collected by the IRS. If you have any questions about the law on statutory limitations and how to get an expired tax liability removed, send your email request for information to tax.atty@erols.com or call (888) 712-7690.

2. Tax Regs in Plain English IRS Restructuring and Reform Act of 1998

IRS Restructuring and Reform Act of 1998
3461 - Procedures for Extension of Statute
of Limitations by Agreement

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Section 3461
A. Provision(s) covered: R.R.A. § 3461. Procedures Relating to Extensions of Statute of Limitations By Agreement. I.R.C. §§ 6501(c) and 6502(a).
B. Background: Section 6501 of the Internal Revenue Code generally provides that the Service has three years from the date a return is filed to assess additional taxes. Section 6502 generally provides that the Service has ten years from the date of assessment to collect the tax. Prior to the expiration of the limitations period provided by these provisions, the law provided that the taxpayer and the Service could agree in writing to extend the statute of limitations. Congress believed that many taxpayers were not being informed of their rights to refuse to extend the statute of limitations on assessment or to limit the scope of any such extension. In addition, Congress believed that all taxes should be collected within the 10 year statute and that the statute should not be extended.

C. Change(s): The authority to extend the collection statute of limitations by agreement ends on December 31, 1999. Any extension of the collection statute already in effect on December 31, 1999, will expire on December 31, 2002. An exception to this section is provided for extensions related to installment agreements. An extension of the collection statute entered into in conjunction with the acceptance of an installment agreement should be for the period necessary to satisfy the tax liability via the agreement. The legislation provides that the period of limitations for extensions related to installment agreements will expire 90 days after the end of the extension period.

The legislation also requires that taxpayers be advised/notified of their right to refuse to extend the statute of limitations on assessment or in the alternative to limit an extension on the assessment statute to particular issues or for specific periods of time, each time that the Service requests that the taxpayer extend the limitations period.

D. Impact

Because the Service will have to complete collection actions within the 10 year statute in most cases, collection contacts and actions will have to be initiated sooner. Although this is true in general, it is especially true for cases where the collection statute will expire within the next 2 years and for cases where the original collection statute has been extended beyond December 31, 2002.

These cases will have to be identified and managed appropriately. Since all current extensions other than those related to installment agreements will expire on December 31, 2002, the Service will have to take steps to release liens associated with these liabilities, as the liens become unenforceable. Although the statute of limitations for collection can be extended for installment agreements, the statutory waiver must be entered into at the time the installment agreement is accepted and must be for a determined period, i.e., for the period necessary to satisfy the tax liability via the agreement. The period of limitations will end on the 90th day after the end of the waiver period.

Examination personnel will have to provide notice to a taxpayer of his/her right to refuse to extend the statute of limitations on assessment or to limit the scope and time of the extension each time such an extension is requested. Whether the taxpayer is advised orally or in written form, the giving of the notice must be documented in the taxpayer’s file, each time a request for extension is sought.

E. Necessary Actions

Actions/Procedures
Revise IRM and other materials regarding the use of the Collection 900 waiver. Develop/expand current instructions/format for requesting extensions of statute of limitations on assessment.

Things we CAN do
Collection 900 waivers can be used until 12/31/99, but all such waivers will expire on December 31, 2002. Collection 900 waivers can continue to be used, if appropriate, in setting up an installment agreement. The period of the waiver, however, must reflect only the time necessary to complete the agreement. The period of limitations will end 90 days after the end of the term of the waiver. Collection 900 waivers related to current installment agreements remain viable for the period necessary to complete the terms of the agreement. The statutory period of limitations will end 90 days after the end of the waiver.

Things we CAN’T do
Except in the case of installment agreements, Collection 900 waivers cannot be solicited from any taxpayer after 12/31/99. In cases other than those involving installment agreements, the Service cannot collect on any case where the statute of limitations has been extended beyond December 31, 2002.

F. Other Special Comments: None.

3. Suspension of Statute of Limitation for Disability

IRS Restructuring and Reform Act of 1998
3417 - Prohibition on IRS Contact of 3rd Parties
Without Prior Notice

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Section 3417
A. Provision covered: RRA § 3417 "Notice of Contact with Third Parties.”
B. Background: Under prior law, Service employees could contact persons other than the taxpayer under investigation to obtain information relating to either the determination or collection of tax. The taxpayer would not necessarily be informed about who the Service had contacted. Congress intended that taxpayers know who the Service has been in contact with regarding their tax liabilities.

C. Changes: The new law imposes three obligations upon the Service. First, the Service must give taxpayers a general warning at the beginning of the examination and collection process that the Service might contact third parties about the taxpayer's tax liabilities. Second, the Service must keep track of the third parties who are contacted. Third, the Service must provide that information periodically to the taxpayer as well as be prepared to release it whenever the taxpayer may ask. The Service does not have to release the information taxpayers if the contacts are made in the course of a criminal investigation or if the Service either determines that releasing the information would jeapordize the collection or assessment of the liability or determines that such release would subject the third parties to reprisals.

D. Impact: The Service will have to develop procedures and policies to implement this provision. First, the Service will have to define what constitutes a "contact." Second, the Service needs to figure out how to keep contact lists throughout the examination process and collection process as taxpayers' accounts may be handled by and transferred between various functions. Third, the Service must give taxpayers guidance on how to request the list of contacts and on how often taxpayers may make such requests. Fourth, the Service must decide at what points in time does the "periodically provide" provision require taxpayers to be provided with a list of contacts. Fifth, the Service must decide how to delegate the authority to make the jeapordy/reprisal determinations.

E. Necessary Actions

Institutional Actions.
Provide guidance to employees and the public of new requirements and procedures. Guidance might be provided through training, regulations, IRM provisions, Revenue Procedures, or publications.
Delegate authority to make the jeapordy/reprisal determinations.

What Actions Are Now Mandatory.
Service employees must begin keeping records of third parties contacted during either the examination or collection process. Such records must be provided to taxpayers periodically and upon taxpayer request. This section does not otherwise impose any additional responsibilities or duties or prohibitions on Service employees.

What Actions Are Now Allowed.
This section does not allow Service employees to take any new or different actions in regards to the examination or collections of accounts.

F. Other Special Comments: None

4. Section 6502 of the Internal Revenue Code

5. Section 6511 of the Internal Revenue Code

IF YOU HAVE ANY QUESTIONS ON ANY LIEN ISSUE (e.g., preventing a lien or getting a lien released or discharged where it may injure your credit, your business, or otherwise cause a financial hardship), send your questions to:info@irstaxattorney.com.

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