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Posts: 5
Reply with quote  #1 
I have a client who has not had a self prepared (or IRS prepared) return since TY 2005 (return filing date 12/11/06). I contacted the IRS and obtained wage and income transcripts for 2002 - 2013. He has old tax liabilities for 2002 - 2005 TY, but going forward he had minimum ordinary income (less than $1000 per year) and Social Security Disability.

I am trying to determine the best course of action, two of his oldest tax returns are past the 10 statute of limitations for collections. The tax liabilities for TY 2004 & 2005 will not hit the ten year mark until the end of 2016.

At this time it appears that the IRS has been processing small levies against his SSA benefits. I instructed the client to verify the levy status with the SSA office.

I'm trying to determine the best course of action for the client. Should I go back and file these prior year returns, even though they will not reduce his tax liability or should the client leave these old tax years and liabilities alone? I was thinking that a possible offer and compromise would help to reduce the $4000 balance (total for TY 2004 & 2005) that is still outstanding and possibly release the IRS levy on his SSA.

My worry is that if I start digging into these older tax years fort he offer and compromise, can the IRS still wrap the 2002 and 2003 tax debt ($8000.00 total for both years) into that offer and compromise, or does the ten year collection statue make those two tax years uncollectible?
Reply with quote  #2 
Filing of returns and assessment of tax starts the statue for collections. 

Posts: 3
Reply with quote  #3 
The 10 year collection statue you mention does not start until the return is filed.  I would contact IRS (with POA) and ask them what they want from this taxpayer to get compliant.  My understanding is that they might just ask for the last 6 years.

Posts: 1
Reply with quote  #4 
As per IRC Section 6501(c)(3) there is no limit to assess tax on a un-filed tax year. Also, the six-year grace period is merely an IRS policy, not actual law, which means that the IRS could require the individual to file returns beyond the six-year period. AFTER a return has been filed, THEN the statute of limitation kicks in. Per IRC Section 6020, the IRS can file a return for the individual. For these returns the statue of limitation ONLY kicks in after the individual files his or her return for that year in which the IRS has filed an SFR (Substitute for Return).
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