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 188.8.131.52.15, 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.