Taxpayer Argues That Expired Collection Statute of Limitation Bars the IRS from Collecting

Posted on November 25, 2018

The IRS typically has ten years from the date the tax is assessed to collect that liability from a taxpayer. There are certain things that extend the collection statute of limitation, such as asking the IRS to grant an installment agreement, filing an Offer in Compromise, filing a Request for a Collection Due Process Hearing or filing bankruptcy. If a taxpayer takes steps to extend the collection statute of limitation, the IRS has additional time to collect that liability from the taxpayer. The IRS is also free to sue a taxpayer to reduce its claim to judgment if it does so before the collection statute of limitation expires. If the IRS timely brings suit to reduce the claim to judgment, and obtains a judgment, the IRS can then collect the liability from the taxpayer even though the initial ten year statute of limitation has now expired. In a recent case, the IRS sued a taxpayer to reduce its half-million dollar tax claim to judgment for the taxable years 2003 and 2004. The taxpayer argued that the IRS failed to bring suit against him while the ten-year collection statute of limitation was still open. The IRS contended that the taxpayer entered into an installment agreement to pay the liability in issue and made payments under the installment agreement. The taxpayer subsequently defaulted the installment agreement, which tacked on an additional 30 days onto the ten-year collection statute of limitation. If true, the IRS timely brought its lawsuit against the taxpayer to reduce its claim to judgment. If no installment agreement was ever granted, as the taxpayer contended, then the IRS would be out of luck on a tax bill of nearly a half a million dollars. The IRS attempted to prove the existence of an installment agreement using only IRS transcripts of account which are internal documents that demonstrate the IRS’ side of the story. The IRS was unable to produce a signed installment agreement or a letter confirming an installment agreement. Further, the Revenue Officer that was assigned to the taxpayer’s case had died and the IRS’ paper file had been destroyed. The taxpayer and his accountant testified that they never entered into an installment agreement. Rather, the accountant testified that he negotiated reduced payments to the IRS under a levy, but never agreed to an installment agreement. The IRS and the taxpayer moved for Summary Judgement, and the Court held that there was an issue of material fact, meaning that the case must go to trial to determine who wins. What do you think?