Limits on collection.

• Author: Singer, Robert M.
• Position: IRS tax collection

Generally, the IRS has three years to assess tax (Sec. 6501(a)) and 10 years from the assessment date to collect it (Sec. 6502). Under prior law, the Service and a taxpayer could agree to extend the statute of limitations (SOL), apparently without limit on the number of extensions permitted (Sec. 6502).

Often, the IRS does a wage levy immediately before the end of the SOL collection period to pressure a taxpayer to agree to extend it. The taxpayer may not be given written notice before the Service's action. Because a Sec. 6334 IRS wage levy leaves fewer funds for a taxpayer, he may be at the mercy of a Revenue Officer to release the levy in exchange for an installment agreement combined with an extension of the SOL for collections.

Trust fund recovery penalties are not dischargeable in bankruptcy; if an extension of the SOL on collections is continuously given, a taxpayer could die before the taxes are paid. In essence, the penalty is a lifetime debt.

Fortunately, the Internal Revenue Service Restructuring and Reform Act of 1998 changed the law to provide that SOLs can be extended "if there is an installment agreement between the taxpayer and the Secretary, prior to the date which is 90 days after the expiration of any period for collection agreed upon in writing by the Secretary and a taxpayer at the time the installment agreement was entered into" (Sec. 6502(a)(2)(A)). The Conference Agreement states, "the extension is only for the period for which the waiver of the statute of limitations entered into in connection with the original written terms of the installment agreement extends beyond the end of the otherwise applicable 10 year period, plus 90 days."

Narrowly interpreting the Conference agreement, the extension only applies to the "original" written installment agreement. Further, there should be only one agreement (i.e., an IRS agent cannot force a client who, in good faith, entered into an original installment agreement that extended the SOL, to enter into a second installment agreement). The extension is "only" for the period for which the waiver of the SOL was extended; there is "only" one extension period.

Taxpayers would be wise to enter into a written installment agreement before the end of the collection period. Regs. Sec. 301.6159-1(c) generally provides that the IRS cannot change an installment agreement, absent a significant change in financial circumstances. This should allow a taxpayer to keep an agreement in place until...