About two years ago, TAS received cases where either the taxpayer or the Power of Attorney (POA) correctly questioned the validity of a collection statute expiration date (CSED) calculation while working with Collection. Based on the cases we were seeing, TAS looked deeper and identified a systemic problem. Working together, TAS Case Advocacy and Systemic Advocacy identified affected cases and are working to make sure accounts are corrected and refunds (where applicable) are issued. But this is a complicated issue that involves a case-by-case review. I want to get the word out about this problem so taxpayers or their representatives are empowered to advocate for themselves or their clients.

Generally, IRC § 6502 provides for the statutory limitation period for collection. The IRS refers to the end date of this time period as the Collection Statute Expiration Date, or CSED. Treasury Regulation § 301.6159-1(g) tolls the CSED while an installment agreement (IA) is pending, or 30 days after an IA is terminated or rejected, and during any appeal of that decision. The problem TAS has identified centers around a computer glitch that tolled the CSED for an inordinate amount of time in certain case types involving IAs. The five “buckets” of cases that TAS examined involve the following types of cases:

Bucket 1 = multiple pending IAs with only one corresponding rejected IA determination

Bucket 2 = one pending IA and one approved IA where 52 or more weeks have passed

Bucket 3 = multiple pending IAs with one approved IA, where 26 or more weeks have passed

Bucket 4 = one pending IA with one rejected IA, at least 52 weeks later

Bucket 5 = one pending IA, with no other action on the IA request for at least 52 weeks

The IRS agreed to review cases in bucket 3. In an unpublished report, the IRS found that approximately 83 percent of those taxpayers had incorrect CSEDs and will be adjusted. TAS believes this number should be higher and is working to revisit the IRS analysis. For the 83 percent of taxpayers, if a payment was made after the CSED expired and the statutory limitation period for refunds (known in the IRS as the Refund Statute Expiration Date, or RSED) is still open, the IRS will first offset that payment to any other outstanding liability. If there is no outstanding liability, it will refund the money to the taxpayer. The IRS will notify taxpayers receiving a refund or offset. This is a start, but it is not a complete fix.

First, the IRS must review the cases in all five buckets. Second, I have asked the IRS to identify and contact all the impacted taxpayers, regardless of whether the IRS believes the taxpayer is due a refund. This is because taxpayers may have made an informal claim before the RSED, or they may otherwise want to challenge the IRS’s position. This approach protects the taxpayer’s rights to be informed, to pay no more than the correct amount of tax, and to challenge the IRS and be heard…

In the meantime, I want to inform taxpayers and their representatives about this issue so they will know to check if a CSED seems older than 10 years. Moreover, I want to let taxpayers know there are options if they have been affected by this glitch.

Payments received after a CSED expiration are considered overpayments under IRC § 6401(a). IRM 5.1.19.4(2) also instructs IRS employees not to solicit payments on accounts that have expired CSEDs. If a payment is made on an expired CSED, the IRS employee must inform the taxpayer and ask if he or she wants to still make the payment or have the payment returned. If the taxpayer’s intentions cannot be ascertained, the employee must return the payment.

If a refund claim is made within the limits defined in IRC § 6511, the IRS is authorized to apply an overpayment to another liability but must refund any balance to the taxpayer.  A claim of refund for an overpayment must be made by the taxpayer within three years from the time the return was filed or two years from the time the tax was paid, whichever period expires later. It is possible that some taxpayers in the identified buckets are still within the window of time to make a refund claim.

Some taxpayers may have requested a return of levied proceeds under IRC § 6343(d). Since collection of a debt after the CSED expires is in violation of the law, under Treasury regulation § 301.6343-3(d), it is in the best interests of the United States and the taxpayer to have these proceeds returned to the taxpayer. In these instances, the IRS must return the levied proceeds. These proceeds may not be credited to any outstanding tax liability of the taxpayer, including the one with respect to which the IRS made the levy, without the written permission of the taxpayer.

As part of its review, the IRS is looking in the files that remain to see if any taxpayer getting an offset previously made a refund claim or request for return of levied proceeds. However, the information still available in these files may be limited. It is possible the taxpayer or POA tried to address the CSED or collection action earlier in the case but the IRS no longer has a record of it. If so, taxpayers should bring forward proof that he or she previously made either a formal or informal request. Also, the taxpayer may still be within the window of time to request the return of his or her money.

Even if the RSED is closed on a taxpayer’s case or a taxpayer has not previously made a refund claim or request for return of levied proceeds, he or she may still qualify for relief under IRC § 7433. IRC § 7433 allows the taxpayer to seek civil damages when the IRS has acted negligently in collection of a tax debt. TAS cannot provide legal advice, so this information is being offered only to inform taxpayers of their rights. To qualify for relief under IRC § 7433, several requirements must be met:

• The IRS employee must have acted recklessly or intentionally, or by reason of negligence to violate a provision in the Tax Code;
• The IRS employee must have been acting in relation to a collection action;
• The taxpayer must have exhausted all administrative remedies to address the violation;
• The taxpayer must have incurred damages directly related to the negligent conduct; and
• The taxpayer must bring the suit within two years after the date the “right of action accrues.”

If a taxpayer received a letter from the IRS acknowledging an error on his or her account, the taxpayer should make sure to consider all options. Practitioners may want to check the CSEDs for taxpayers who may fit into one of the five buckets mentioned above. If the taxpayer or POA raised concerns over a CSED that involved IAs previously with the IRS and are not satisfied with the response received, they can contact their local TAS office. Taxpayers may also qualify for services from a Low Income Taxpayer Clinic.