Does Filing for Bankruptcy Extend the IRS Collection Statute of Limitations?

A variety of laws affect the collection statute expiration deadline. A brief summary of some of the various case actions that can suspend and/or extend a CSED follows. The general rule is that the IRS can only collection on a tax liability for ten years from the date of assessment of that tax liability. That is the starting point for determining the statute of limitations or CSED. Bankruptcy can affect the IRS collection statute of limitations.

More than one action can suspend the running of the collection statute at the same time. Overlapping suspensions run concurrently; they are not cumulative. A good example of this is the following scenario: Taxpayer Smith owes 1040 taxes for the period ending 12/31/1998. The tax assessment date is 06/01/1999 which established the original CSED as 06/01/2009. Smith is in the Army Reserves, he gets called up for combat duty and enters the combat zone on 05/10/2004. He subsequently leaves the combat zone on 03/01/2005. He submits an IRS offer in compromise on 04/20/2005, it is rejected on 10/17/2005 and the rejection is not appealed. Both of the taxpayer’s actions, entering the combat zone and submitting the offer in compromise, suspend and extend the CSED. The combat zone duty suspends the CSED from 05/10/2004 through 03/01/2005 plus 180 days (through 08/28/2005).

In addition, consideration of the offer in compromise suspends the CSED from 04/20/2005 through 10/17/2005 plus an additional 30 days for the rejection appeal period to 11/16/2005. However, because these case actions overlap, the CSED will be suspended only from the date Smith enters the combat zone (TC 500 cc 56 on 05/10/2004) through the date the offer in compromise is rejected and the rejection appeal period ends (TC 481 on 11/16/2005). In this case the overlapping of the two case actions, from 04/20/2005 to 08/28/2005, is considered in the CSED extension only once. The CSED will be extended 555 days from the original CSED of 06/01/2009. The new CSED will be 12/08/2010.

Does Bankruptcy Affect the Collection Statute of Limitations?

The collections period will be suspended during time periods in which the IRS is legally barred from taking collection action against you. An example of a collection action is when the IRS requests an installment agreement. Consequently, 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. Furthermore, the suspension lasts for the period of the bankruptcy case plus six months.

The IRS period of collection 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. There are a variety of actions that suspend the statute of limitations on collections.

If you have received an IRS audit assessment or have a tax liability, contact a tax attorney to determine whether the IRS can still conduct collection actions.