IRC 6502

The United States District Court for the Northern District of Ohio held in United States of America v. Sherri Tenpenny, Case NO. 1:24-cv-00838, entered August 9, 2024, that the statute of limitations on debt collection had not run due to the multiple Offers in Compromise filed by the taxpayer. This practitioner believes that it is critically important to know and understand the statute of limitations on collections when dealing with outstanding balances at the IRS. It should guide the decision-making process when looking at collection alternatives. In the instant case, the taxpayer owed the IRS for outstanding balances for form 1040’s from long-ago assessments. Some were assessed 15 years ago. The general rule, as set forth in IRC 6502(a) is that the IRS has ten years after an assessment to collect a tax debt. However, there are actions that will toll the statute and effectively extend it. One such action is the filing of an Offer in Compromise. The limitations for collections is tolled for the time period that the Offer is pending, plus 30 days. In this case, the taxpayer had filed four separate Offers in Compromise over the years, tolling the collection statute many times. Despite her motion to dismiss the IRS collection action based on the running of the statute, the Court allowed the IRS to pursue the debt. In any analysis of IRS debt, it is important to know whether the collection statute is currently running and what the Collection Statute Expiration Date (CSED) is for each year. When tax periods only have a few years remaining on the CSED, it many times makes more sense to either substantiate Currently Not Collectible, or set up a Partial Payment Installment Agreement. Once these collection alternatives are established, the statute continues to run and frequently that results in debt being written off by the IRS as the CSED runs. An Offer in Compromise may be the right proposal, but it should only be made in the context of the above analysis.