Dec 1, 2007

Tax Debt - Does an SFR start the Collection Statute?

An SFR or Substitute for Return DOES start the 10-year collection statute of limitations (”CSED”). The rationale is that the IRS can start collecting on the balance due if they have followed collection due process (see the notice requirements in previous blog entries). The IRS, in IRM, explicitly state that they cannot collect past this date.

What does this mean?? Those debts in the “closet” may be closed by statute. A practical example is as follows:

The IRS files an SFR for 1993 and assesses the tax on 1/15/2006 (the IRS sometimes takes up to 6 years to do SFRs but most likely about 2.5 years later if in the Automated SFR Unit or “ASFR”). Unless you file a return that adds tax to the SFR amount and/or extend the CSED by some other action (see my prior blog entry on extending the CSED), the IRS cannot collect on the amount due after 1/15/2006.

Sometimes taxes do die….if you need help on computing your CSED or if you owe that tax debt that is in the “closet,” contact an expert in IRS collections.

2 responses:

Anonymous,  March 17, 2008 at 9:06 AM  

I have a question/comment on this answer. I received a call on a Sunday afternoon from an IRS employee requesting me to file two returns 94/95 and to send them to the ASFR Unit. I asked her for documentation for those years and she said there wasn't anything she could send me but gave me figures to write down. I'm real sure the collection statute has expired and I have not done anything to start it ticking again. Is there any way I can find out for sure?

About IRS Mind March 18, 2008 at 11:07 AM  

Chances are that the IRS collection statute is close to expiring unless you have had some other situations occur since 1994. The IRS normally files an SFR within 3 years of the due date of the return but they have been known to take up to 6 years. The latest due date (1995 return) was 4/15/1996- the SFR was most likely done in 1998 or 1999- hence, the CSED could still be "open." Filing on top of the SFR probably could only assist you in lowering the tax as SFRs (unless your self employed) usually results in lowering the tax due to the fact that the IRS gives you the worst possible filing scenario (i.e. single or married filing separate with one deduction and a standard deduction).

You can find out for sure by going to an IRS office (if you feel comfortable in doing this) and requesting an IRS transcript and the CSED date. However, you will not be able to determine the CSED date as there are many "extensions" of this date that may occur based on what you have done in the years since 1994 and 1995. A tax professional that has an IRS e-services account and has collection experience can assist you in the CSED determination as well as collection issues.

Keep in mind that an SFR is considered a "filed" return for IRS compliance purposes. Hence, the IRS generally will not ask for you to file in place of it. Unless your self-employed, it usually helps to do this to lower your liability. THe IRS does not retain your income information back to those years, so you will have to provide your W-2s to prove any withholding unless it is already on your IRS transcript.

I hope this helps.

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