Understanding CSED and Using It to Your Advantage

Your filing status, income, choice of deduction, and any eligible exemptions, tax credits, and applicable refunds usually determine your tax liability. But with so many variables, there’s always the possibility that mistakes are made and additional taxes are owed. That, amongst other reasons, necessitated the calculated collection state expiration date (CSED).

Whether it was a math error on your part, a change in the law you might not have taken notice of, or a deadline that was missed, tax debts are an everyday fact of life, given that the American citizenry owed an estimated $114 billion in back taxes in 2020 alone. Millions and millions of law-abiding taxpayers fall behind on payments, make mistakes, and owe taxes.

But what happens to those debts over time? Does tax debt expire? It does – tax debt has a statute of limitations based on a calculated collection statute expiration date (CSED), although the IRS always aims to coerce payment before the CSED.

What is the Collection Statute Expiration Date (CSED)?

You may or may not owe taxes at any given time, but your tax liability becomes official once the IRS assesses your tax account and sends you a notice via mail. Any notice of tax debt will come with a tax assessment date. This is the date the IRS effectively realized that you owe money, and it’s also the date the clock starts ticking.

Tax liability may be assessed at several different points in time, including:

  • When a tax return is sent in for filing.
  • When an amended return is sent in to fix a mistake.
  • When the IRS is forced to make a substitute return because of a late or absent tax return.
  • When the IRS assesses a tax account as part of an ongoing investigation (audit).
  • When penalizing certain tax accounts.

The CSED for any tax debt is usually ten years from the tax assessment date.

But that timer can be stopped for several reasons, pushing the CSED further out in time. Your debt expires after ten years – but these are ten eligible years, accounting for various “tolling periods.”

Understanding Tolling Periods for CSED

Your CSED should be ten years from the assessment date on your notice of tax debt. But that date can be pushed forward by a tolling period. Many circumstances force the IRS to “stop the clock,” sometimes for months. While we will go over most of the specifics, there are two reasons the IRS will stop the clock:

  1. To suspend the clock because they cannot collect on a tax account.
  2. Extend the clock because they are legally authorized to do so as part of an agreement (such as a payment plan).

6 Common CSED Tolling Period Examples

A tolling period is a temporary suspension of the statute of limitations for a particular legal action, such as collecting taxes. This means that the time allowed for the government to take action regarding the taxes is paused or extended for a certain period.

1. Requesting a Payment Plan

Requesting an installment agreement will suspend the timer on your CSED until a payment plan has been implemented. If the agreement is rejected for whatever reason, your timer will be suspended for 30 days. If you default on an existing agreement, the timer will be suspended for 30 days. Appealing an agreement rejection or the termination of a payment plan (due to defaulting) suspends the timer for the duration of the appeals process.

2. Filing for Bankruptcy

The IRS will suspend the timer on the CSED for the entirety of the bankruptcy process and extend the CSED by an additional six months after your bankruptcy proceedings have concluded.

3. Requesting an Offer in Compromise

Once you request an offer in compromise, the IRS will suspend your timer. If your offer is rejected, the timer will be suspected for 30 days. If you appeal the rejection, it will be suspended throughout the appeal.

4. Requesting a Collection Due Process Hearing

The timer on the CSED is suspended until the taxpayer withdraws their request or a final determination is made on the CDP, including court appeals.

5. Filing as An Innocent Spouse.

Your clock will be stopped until the IRS processes your request to file for innocent spouse relief. If the tax court was petitioned throughout the process, the IRS might extend the timer by 60 days.

6. Being Abroad for Long periods

If you are inaccessible to the IRS, the IRS may put your timer on hold.

It can be difficult to keep track of all the times the IRS has had an opportunity to suspend or extend your CSED. As such, it is often a good idea to check with the IRS to find out how much is left on your timer.

The IRS maintains a current calculation of your CSED based on the information it has on your tax account as part of your account transcripts. Account transcripts are available through the official online portal (on the IRS.gov website) or a paper form, Form 4506-T, Request for Transcript of Tax Return. You can also call or work through a tax professional to contact the IRS and find out how much time you have left on your tax debt.

What Happens if I Can’t Pay My Debt?

The CSED represents when the IRS can hound you for your tax debt. Technically, intentionally avoiding your obligation to pay your tax debt is criminal. But the IRS will usually coerce payment through tax liens and direct levies rather than an arrest.

To that end, the IRS may go so far as to collect your investments, clean out your bank accounts, or start garnishing your wages.

If, somehow, you accidentally evade the IRS’ collection actions until your CSED, they technically cannot force you to pay your back taxes any longer. However, this is exceedingly unlikely – especially now that the IRS is ramping up its efforts to combat back taxes. If it cannot do so for any reason – such as a bankruptcy proceeding or living abroad – it will halt your CSED timer.

Take note, however, that you are never out of options. Whether it may be filing for a partial payment plan, an OIC, an installment agreement that suits your circumstances, or for a currently-not-collectible status on account of indigency and financial hardship – your options may be numerous, especially with the talents of an experienced Rush Tax Resolutions attorney at your side.