December 20, 2011
Bankruptcy is not always the best way to get rid of federal tax debt. Given enough time, the tax may just go away. The IRS is given 10 years from the date the tax is assessed to collect in most cases by 26 USC §6502. a section of the Internal Revenue Code. The date after which the tax can no longer be collected is called the “Collection Statute Expiration Date” or “CSED” for short in IRS lingo.
However, there are many things that can give the IRS more time to collect the tax. Under most circumstances, when the IRS collection officers are prevented from taking action to collect an overdue tax, the collection time is extended by the amount of time they can’t collect plus some extra time to restart their collection work.
Federal law prevents the IRS from using its powers to forcibly collect unpaid tax when an Offer in Compromise is pending and for an additional 30 days after the offer has been rejected if it was unsuccessful. Likewise, if a taxpayer has appealed a decision by the IRS to collect the tax by levy or siezure, the time that is taken to review the appeal, plus 30 days is added to the collection period and the CSED is extended. Both of these extension rules are
contained in 26 USC §6331 .
Additional provisions for extending the collection period are contained in 26 USC §6503. This section of the Internal Revenue Code provides for extension when the assets of a taxpayer are in the custody or under the control of any court, and for 6 months after they are released. The collection period also is extended for the period of time when a taxpayer is outside of the United States continuously for six months or more.
One common way the IRS collection period is extended and the CSED is delayed is by the filing of a bankruptcy court proceeding. Because federal law prohibits collection of a pre-bankruptcy tax while the case is being processed, 26 USC §6503(h) allows the IRS tax collectors additional time equal to the amount of time the case was open plus an additional 6 months for collection after the case is closed or the stay is released.
Unless it has a secured claim, the IRS is no longer able to collect tax after bankruptcy if the tax was discharged. To learn more about what types of tax debts are discharged in a bankruptcy, read: What About The IRS? and Use Bankruptcy To Solve Tax Problems. Both of these articles and many more can be found on the Bankruptcy Law Network .