TIGTA recently performed an Audit on the Internal Revenue Service CSED operations titled “Recalculations of the Collection Statute Expiration Date Were Not Always Accurate”. According to the TIGTA Audit, “the National Taxpayer Advocate has reported miscalculated CSEDs as one of the most serious problems encountered by taxpayers.” According to TIGTA, manually recalculated CSEDs showed 39 percent of the samples contained errors. These errors included both inaccurate CSEDs and missed the required documentation to support the CSEDs. The bankruptcy calculation accounted for most of the errors.
This post will show you how to obtain the CSEDs from the IRS, calculate the CSED from the Account Transcript, and request a recalculation from the IRS. It will also show you how the Audit Detective Transcript Report Processor can help the tax professional calculate CSEDs.
How can this information be best leveraged by you, the tax professional? Let’s start by looking at the CSED Calculation. The Collection Statute Expiration Date (CSED) ends the Government’s right to pursue collection of a tax liability and is generally 10 years from the tax assessment date. This seems simple enough yet at the IRS it’s the exceptions that make it complicated. The following transactions all have their own CSED (per IRM 126.96.36.199):
TC 150 Tax return filed
TC 160 Failure to File – Manually Computed Delinquency Penalty
TC 166 Computer Generated Failure to File Delinquency Penalty
TC 170 Estimated Tax Penalty
TC 176 Computer Generated Estimated Tax Penalty
TC 180 Manually Assessed Failure to Deposit (FTD) Penalty
TC 186 Computer Generated Federal Tax Deposit Penalty
TC 234 Daily Delinquency Penalty (if it is the only CSED in the module)
TC 238 Daily Delinquency Penalty
TC 240 Miscellaneous Penalty (all except for Reference Codes 697 and 699)
TC 246 Computer Generated 8752 or 1065 Penalty
TC 290 Additional Tax Assessment
TC 294 Additional Tax Assessment with Interest Computation Date
TC 298 Additional Tax Assessment with Interest Computation Date
TC 300 Additional Tax or Deficiency Assessment by Examination or Collection
TC 304 Additional Tax or Deficiency Assessment by Examination or Collection
TC 308 Additional Tax or Deficiency Assessment by Examination with Interest Computation Date
TC 320 Fraud Penalty
TC 340 Restricted Interest (with Doc Code 47 for 9603 and subsequent)
TC 350 Negligence Penalty
Most Common Tolling Events
There are events that can extend the CSED. Certain actions taken by the taxpayer will prevent the IRS from taking collection action. The IRS reciprocates by extending the time they have to collect the debt. These are commonly referred to as Tolling Events. The most common actions that will toll the CSED are bankruptcy, pending OIC, military deferment, Collection Due Process Hearing, and pending innocent spouse. The complete list can be found in Publication 594 The IRS Collection Process(IRM 188.8.131.52.2).
The IRS can also request a waiver extension from the taxpayer. Occasionally the IRS will request this while negotiating a payment plan that they need more time to recover the tax. A waiver extension will usually show up on the transcript as a TC 550. (Check out Audit Detective’s Definitive Guide to IRS Transaction Codes and Definitions). Any additional tolling events after the TC 550 will be added to the TC 550 date. The TC 550 indicates the IRS has manually calculated the CSED.
Here are some tips when trying to manually calculate the CSED to compare with the IRS figures. Remember to always refer to the IRM.
TC 480 Pending Offer In Compromise: The time an OIC is pending the CSED will be tolled plus an additional 30 days if rejected. The TC 480 “Offer in compromise received” starts the tolling event. TC “Denied offer in compromise” ends the tolling event plus an additional 30 days. TC 482 “Offer in compromise withdraw” also ends the tolling but does not add any additional time. TC 780 “Offer in compromise accepted” also ends the tolling event without adding additional time. TC 483 “Removed offer in compromise” corrects a TC 480 posted in error. There is no tolling event when a TC 480 is closed with a TC 483.
TC 500 Military Deferment: According to the IRM the CSED is manually set when tolling for a Military Deferment. The TC 500 “Suspension of tax collection – military deferment” indicates the tolling is still open. When the tolling is stopped a TC 502 “Reverse suspension of tax collection – military deferment” closes the tolling and the TC 500 is changed to a TC 503 “Suspension of tax collection – military deferment”. The CSED is manually recalculated and entered on the Account Transcript as a TC 550 “IRS can collect until (date)”.
TC 520 Bankruptcy or other legal action filed: The TC 520 starts the tolling and the 521 ends it. This can refer to different tolling events. It can refer to a bankruptcy or a legal action such as a Collection Due Process Hearing (CDP). The CDP will also have a TC 971 “Collection due process request received timely”. The bankruptcy sometimes (but not always) will have other TC’s that will refer to the bankruptcy including, but not limited to TC 971 “Bankruptcy notification received” and TC 971 “Partial bankruptcy abatement”. The bankruptcy adds an additional 6 months to the tolling. If the TC 520 ends with a TC 522 “Removed bankruptcy or other legal action” it is not a tolling event. (For example, I believe you will see this when one spouse declares bankruptcy in a non community property state. The spouse that did not declare will not be tolled.)
TC 971 Pending Innocent Spouse: TC 971 “Innocent spouse claim received” starts the tolling event. The event is tolled as follows: From the filing of the claim until the earlier of the date a waiver is filed, or until the expiration of the 90 day period for petitioning the Tax Court, or if a Tax Court petition is filed, when the Tax Court decision becomes final, plus, in each instance, 60 days.
Taxpayer Living Outside the U.S.: The IRS can also suspend the CSED if the taxpayer is out of the country for longer than 6 months. They will also add an additional 6 months once the taxpayer returns. The IRM is not clear how the TC codes will look. I would assume the TC 550 may be the way this is calculated. I am looking for an example to verify this.
Pending Installment Agreements: According to the IRM (184.108.40.206.5), “Prior to July 2005, IRS policy permitted CSED extensions in conjunction with all installment agreements”. I am yet to see a case where an installment agreement actually tolled the CSED. Tax professionals need to be aware of this. UPDATE As of April 1st 2015 it appears IRS has started tolling when a Pending Installment Agreement is closed by a 971 Established Installment Agreement. It does not appear a Pending Installment Agreement will hold a CSED open. There are no IRS transaction codes for “Rejected Installment Agreement”.
Obtain The CSED From the IRS
The IRS does not make getting the CSED easy. If they did it would be on the Account Transcript. The IRS will give it to you when you call PPS and ask for it. There can be multiple CSEDs for each tax year if there are multiple assessments. Here is an example from the TIGTA Audit on how the IRS calculates the CSED.
How to Correct Inaccurate CSEDs
According to the Taxpayers Advocate CSED Report in April 2012, the IRS produced training for all of its Filing and Payment Compliance employees that covered CSED accuracy and adjusting account modules. According to the training “If an issue with the CSED date is identified, it must be reviewed and verified for accuracy”. Due to this training, review of the CSED should be simple to request. If the IRS Employee you are dealing with does not review the CSED, take it to their supervisor. In 2012, the IRS developed and deployed a CSED Calculator (CCalc). This should make the recalculation easier for them to determine. Of course the accuracy of the CSED calculation depends on the dates that are input into the IRS system. Many of these are done manually. Be prepared to provide documents to prove the start and end dates of the tolling event. In my experience I have seen bankruptcies that have been open for 3 years on the account transcript. In this case the taxpayer might need to provide the documentation showing the date the bankruptcy closed (remember the IRS will add 180 days to this).
New Tool Helps Determine CSED Accuracy and Appeals
Audit Detective will be launching our Transcript Management System early in 2014. This system includes the Transcript Report Processor which processes and analyzes the data into an easy to review presentation of that data. The report contains a CSED section that calculates all the different assessments for each tax year, determines the most common tolling events, and then calculates the estimated CSED date. Here is an example with some sample calculations:
The estimated CSED adds the additional tolling events to the original CSED and accounts for overlapping time periods. These tools also help in presenting your case to the IRS employees. Experienced tax professionals know that the more organized and clear a presentation is, the better the odds are of success. The report also provides the three bankruptcy discharge calculations for each assessment. These calculations come from the Account Transcripts and Separate Assessments if the account is mirrored.
Here is the tolling calculation example:
The CSEDs have been proven to be inaccurate in many cases so a tax professional needs to review the accuracy. If a CSED is found that already expired it makes all the other resolution options not needed. Once the CSED expires the IRS is prohibited from any further collection activities. The Audit Detective Report Processor will allow the tax professional to review all CSEDs for all assessments as part of the initial case review.