Generally speaking the IRS has ten years from the date the taxes are assessed to collect on the current liability. When the statutory expiration date is reached, the IRS should abate the tax liability and release any liens filed against the taxpayer’s property. However, this process is typically not done. Most of the time the IRS will continue collection activity even after a statute has expired, taking advantage of the taxpayers lack of knowledge about this rule.
Please keep in mind there are some actions that can “Toll” or stop this ten year collection period from running, which would then extend the time the IRS has to collect any unpaid tax liability. The most common actions that extend the statutory collection period are: a pending bankruptcy, a judgment or litigation in tax court, a collection due process appeal, a pending offer in compromise, any time the taxpayer resides outside the U.S. and when the taxpayer voluntarily signs a waiver extending the collection statute. There are other things that can toll a tax debt but they are not very common.
It is very important to remember, the IRS does not automatically stop collection action as explained earlier. Also, having a tax liability is like a finger print, everyone’s situation is a little different therefore, having a professional involved in dealing with tax issues is highly recommended.
Collection Notices – IRS Notice CP504
Having a tax debt is stressful enough, so when the IRS starts their collection actions, that can take a serious toll on you. With that said receiving an IRS Notice CP504 can be scary. Most people freak out and call the IRS on their own and end up in an Installment Agreement that was not negotiated correctly. The main thing to remember if you receive a CP504 is to not panic, you have a little time to deal with it, but you must take action. Contact a tax professional that understands what the CP504 means and discuss your options. As with most tax issues you do have options, understanding those options during this critical times is important in resolving your tax issue once and for all.