Collection Statute Expiration Dates and What They Mean to Taxpayers

Some of you may be familiar with Collection Statute Expiration Date or “CSED” for short. This is the date in which your tax liability expires and the Internal Revenue Service writes off whatever is left of that period of liability. However, these dates are not always as cut and dry as the Service may lead one to believe.

Generally speaking, the Collection Statute Expiration Date expires 10 years from the date in which the tax liability was assessed for that period (not the date the return was filed). However, this not a hard and fast rule and can cause taxpayers a lot of headaches when trying to figure out when their liability should be written off by the Service.

You can contact the Internal Revenue Service today to ask what the Collection Statute Expiration Dates are for all periods with balances due. Sometimes the dates may be spot on and sometimes they’re incorrect. It is important to know that occasionally the Internal Revenue Service’s computer system doesn’t automatically update the Collection Statute Expiration Dates to include the various codes that can toll the statute.

For instance, let’s say you filed for bankruptcy- for as long as your liability is coded as being in bankruptcy, that amount of time gets added onto the back end of your Collection Statute Expiration Date. Same thing is true with a Request for a Collection Due Process or Equivalent Hearing, filing for an Offer in Compromise, or filing a Request for Taxpayer Advocate Service Assistance- all of these actions toll the collections statute and add time onto the end of the statute. Even having a “Pending Installment Agreement” code on your account adds time onto the back end of your Collection Statute Expiration Date.

Next time you hear the Internal Revenue Service give you a date in which your liability is set to expire, take a look at your account transcripts and do a little bit of research on your end to confirm if the dates are accurate or not.

IRS Now Able to Confiscate U.S. Taxpayer’s Passports

The far-reaching Internal Revenue Service (IRS) has long been a source of fear among many American citizens. Now, due to the signing of the 5-year infrastructure spending bill by President Obama, the IRS arguably has greater power to affect the lives of American taxpayers than it ever has. The 5-year infrastucture bill added a new section to the Internal Revenue Code, part of the “Fixing America’s Surface Transportation Act” (the FAST Act). The FAST Act authorizes the denial of a passport application or the revocation of a current passport where the individual has a “seriously delinquent” debt of more than $50,000 of unpaid federal taxes, including penalties and interest. This groundbreaking harmonization between the IRS and Customs allows the IRS to instruct Customs to confiscate passports from American taxpayers as a result of an alleged tax obligation.

While the FAST Act requires that taxpayers be notified of their tax filing deficiencies by mail to their last known address of record or in person, many taxpayers do not regularly update their addresses with the IRS and may therefore be caught by surprise when Customs snatches away their passports. Additionally, American taxpayers living abroad and traveling back to the United States may find themselves stranded in the United States without a quick way to get back to get back abroad. Once the passport is seized, the taxpayer must either (1) wire enough money to the IRS to pay the liability to an amount below $50,000, (2) arrange an installment agreement to pay off the liability, or (3) stay in the United States and file a lawsuit so that a court of law may determine whether the IRS assessment is correct. In the first two scenarios, the Secretary of State is not required to reissue a passport for up to 30 days after payment of the tax due or up to 30 days after entering into an installment agreement. In the third scenario, it is anyone’s guess as to how long litigation would persist, although it would almost certainly be considerably longer than 30 days.

Additionally, those who find themselves stranded in the United States must pay for their own room and board and any legal fees they might incur along the way. Even if confiscation and revocation of the passport is later deemed invalid under the FAST Act, the marooned taxpayer will be left high and dry without a way to recover any of the expenses she was forced to undertake.

An even more disconcerting aspect of this new policy is that it will also potentially affect American taxpayers from several states travelling within the United States.  Taxpayers in states such as Louisiana, Minnesota, and New Hampshire who have “seriously delinquent” tax debts over $50,000 may soon be unable to fly domestically without a passport due to their states’ refusal to comply with the REAL ID Act. Although REAL ID compliance should not affect domestic travel until January 22, 2018, it is alarming that those traveling cross-country with a non-REAL ID compliant identification card may soon have their passports confiscated at the airport and be turned away, forced to miss business trips, important occasions and celebrations, and much deserved vacations.

Accordingly American taxpayers, especially those living abroad, should be alert to any changes in their U.S tax and filing obligations and should take steps to ensure that they are in compliance. If they do not, they may find themselves without a passport, undertaking a slew of unforeseen expenses just to travel or, for those taxpayers living abroad, to return home to their jobs and families.

Common Mistakes Made by Taxpayers

I have found that one of the biggest mistakes made by taxpayers who are behind with the IRS is not addressing the issue.  It is easy to get paralysis when faced with a tax debt. There are a few simple steps to follow that will make your life easier when dealing with the IRS.

  1. Always file your tax returns on time, even if you can’t pay. The IRS will penalize you for failing to file your return timely.
  2. Try to make some payment to the IRS with your return. The IRS will penalize you for failing to make a timely deposit. It is better to send a portion of the tax due instead of nothing!
  3. Contact the IRS and try to set up a re-payment plan that is reasonable for you. Don’t over commit!  It is easy to commit to an amount when you feel pressure by the IRS, so make sure you only commit to what you can afford.
  4. If you are unable to set up a reasonable plan, contact a professional to help navigate the IRS collections department.

I quite often get asked, “How much are you going to save me?” This might seem like a logical question to ask, however, every situation is different and I can’t tell you how much we can save you right off the bat.  Anyone who is claiming to save you a percentage of the tax is just guessing and not being completely honest with you.

Hiring a tax professional can save you a lot of time, energy, and stress when dealing with the IRS.  Does it cost money?  Yes, but learning this skill set on your own does not come easy and certainly not cheaply. Not to mention the time it takes away from where you should be spending your time….on your business, family, and yourself.

So if you find yourself faced with a back tax debt follow these simple steps and your life will be less stressful.

 

Jack Larson, EA

Larson Financial, Inc

IRS Fraud Scams – Larson Financial Scam Prevention Tips

WATCH OUT FOR PHONE CALLS FROM SCAM ARTISTS.

Individuals all over the country are being called by scam artists posing as IRS agents demanding payments for supposed back taxes owed to the government.

DON’T FALL FOR IT!

  • The IRS will never call you about back taxes owed without first sending you repeated notices of money owed via the mail first.
  • The IRS will never demand payment over the phone by asking for your credit or debit card numbers over the phone.
  • The IRS will never threaten to have you arrested if immediate payment is not made over the phone.

Whether you owe taxes or not, do not give out any personal information to anyone over the phone.

Should you get a call like this HANG UP IMMEDIATELY and report the incident to the U S Treasury Inspector General For Tax Administration, (TIGTA).

The TIGTA has received reports of about 736000 scam contacts since October of 2013.  Nearly 4550 victims have collectively paid over $23 million as a result of this scam!

DON’T BECOME ONE OF THEM!

You can read more here on Larson Financial scam prevention tips.

Divorce and Federal Tax Liability Jurisdiction

It is common for divorcing spouses, their attorneys, and the presiding State Court Judge  to delegate responsibility for outstanding Federal tax liabilities as a part of the divorce decree and final divorce settlement. However, this can cause problems because the divorce court does not always consider that the Internal Revenue Service and Federal Tax Courts have exclusive jurisdiction over federal tax matters. The result is often that the party who was delegated responsibility for the back taxes is stuck between the terms of a State Court Order and the Internal Revenue Service’s insistence that they do not have to honor the terms of that court order. This can result in the other spouse experiencing enforced collection action such as wage garnishments because the Internal Revenue Service does not stop its collection action against that spouse even though the State has ordered the Internal Revenue Service to do so. In turn, the spouse who was ordered to address the tax issues can be found in contempt of court simply because the State Court unsuccessfully tried to assert its authority on a Federal Tax Matter for which it has no jurisdiction. Therefore, when preparing for a divorce where there is joint Federal tax liability, it is very important for the parties to consider this problem and consider this jurisdiction limitation of the State when negotiating the terms of a divorce decree.