Collection Statute End Date

I filed my 2003 federal return on time and got a letter from the IRS saying I owe $14000. Can the IRS stay after me forever or until the entire amount is paid?

No. There is a Collection Statute End Date (CSED) of 10 years. From the time you file your return the IRS has up to 3 years to assess tax liability. The date the tax is assessed begins a 10 year period of time during which the IRS can collect from you. Once this 10 year statute has expired you cannot be held liable for the debt. This applies to liens as well, once the statute expires the lien is automatically released. However there are certain actions that can extend the CSED such as Bankruptcy, a Collection Due Process Hearing, a pending Offer in Compromise, military deferment for those out of the country and for taxpayers currently living outside of the US. In some negotiation the IRS will accept certain repayment terms if the taxpayer agrees to extend the statute. Also, since nonfiling can be regarded as a criminal offense there is no statute on an unfiled return.

Forgiveness of Debt

I recently recieved a 1099-C in the mail for Cancellation of Debt. I had a home that was foreclosed on in 2006 but that home was sold and I no longer own it. Why is the IRS trying to collect taxes on something I don't own?

The 1099-C you received for Cancellation of Debt is treated as income in the eyes of the IRS and should be reported as Other Income on Line 21 of your return. For example, if you owed $100,000 on the home and the foreclosure process yielded a sale price of $75,000, this amount is $25,000 short of satisfying the mortgage against the home. Since the lender is not paid the full amount that is owed they file the 1099-C treating the $25,000 shortfall as taxable income if they have been unable to collect any of the balance due. There is also a form 1099-A that is issued in the event of Abandoned Property where the owner simply vacates the property with no intention of redeeming it.

Substitute for Return

I own a small business and haven't filed my returns for the last 4 years and the IRS is sending me a bill stating I owe taxes during that period of time. How can this be and how do I fix it?

Likely what has happened is that the IRS has discovered you had income that was unreported and they filed a return on your behalf. This is called a Substitute for Return(SFR) and probably includes penalties for failing to file on time. When a SFR is filed it is done so in the best interest of the US Treasury filing as Single with standard deductions. If a SFR is filed and there is liability the IRS will assess the balance and pursue collection. If a refund is due the IRS will leave it as unfiled. The unfiled returns can be filed and the SFR corrected which may reduce your tax liability. However it is unlikely any penalties will be reduced or eliminated unless you can provide reasonable cause for failing to file such as a hardship or unusual circumstance beyond your control.

"Pennies on the Dollar"

So often I am asked by clients if their tax liability can be settled for 'pennies on the dollar'. They tell me they have been told the IRS will accept most any reasonable offer if the tax payer is ready to pay. I have told them the IRS will accept 'pennies on the dollar' if thats all you have the ability to pay and are likely to pay before the end of the statute for collections. To be more specific, if a person owes $50,ooo in taxes, interest and penalities and lives in a home with plenty of equity, has a good income and plenty of assets and has the ability to pay the full amount, that is exactly what the IRS will try to collect. The Offer in Compromise is designed for those who do not have the ability to pay the amount in full within the statute period