Statute of Limitations on IRS Collection Activity
When can the IRS Commence Collection Activity
The IRS is allowed to begin collecting tax by way of levy or court proceedings immediately after an assessment is made. See IRC §§ 6301 & 6502(a). Since issuing a levy is simpler, cheaper, and easier than court proceedings, the IRS usually commences collection by way of levy.
What is an IRS Levy
An IRS levy is where taxpayer property is brought into the legal custody of the IRS through seizure, a levy being an absolute legal appropriation of the property being levied upon. See Freeman v. Mayer, 152 F.Supp. 383, 385 (1957).
The Federal Tax Lien
An IRS tax lien is perfected as soon as it is assessed in accordance with the law. See U.S. v. First Nat. Bank & Trust Co. of Fargo, (N.D.), 386 F.2d 646, 647 (1967).
A federal tax lien is a security interest or claim on a taxpayer’s property that is established by statute and by itself does not transfer title or possession of the debtor’s property, but allows the IRS to avail itself of the lien in the event of a default of payment under state law. See Welsh v. U.S., 220 F.2d 200 (1955); U.S. v. Phillips, 267 F.2d 374 (1959); In re Raihl, 152 B.R. 615 (1993); U.S. v. Diemer, 859 F.Supp. 126 (1994).
How long does the IRS have to collect the tax?
The IRS has ten years from the date of assessment to collect the assessed tax or begin a court proceeding for collections. See IRC §6502(a)(1). If the ten year limitation has passed and the IRS has not collected the tax, or initiated a court proceeding, it is prohibited from doing so and shall issue a certificate of release of lien. See IRC §6325(a)(1).
Some Notable Exceptions to the Ten Year Statute of Limitations
- Taxpayer Outside the United States – If a taxpayer is outside the United States for a continuous period of six months or more, then the ten year statute of limitations is suspended during the time that the taxpayer was outside the United States. See IRC §6503(c).
- Wrongful Seizure – In the case of a wrongful seizure the ten year statute of limitations is suspended from the date the property is wrongfully seized until the date it is released back to the taxpayer or third party. See IRC §6503(f).
- Bankruptcy – The period of limitations is suspended while the IRS is prohibited from collecting tax due to a bankruptcy proceeding, plus six months thereafter. See IRC §6503(h).
Tax Penalties
When the IRS assess tax penalties, either by way of deficiency procedures, or for exempted penalties, the ten year statute of limitations applies and the IRS cannot collect the penalties ten years after the date of assessment has passed. See IRC §6665(a)(1).
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Page last revised : July 11, 2011