QUESTION:
In 1995 I closed a business that was failing. One of the main things affecting my business was the payroll tax that I owed the IRS. In February 1997, the IRS assessed the trust fund penalty against me because the business was closed and they could not get any money from that. I am trying to sell my property and now the IRS still says I owe them money from 10 years ago. I filed an offer in compromise in 2005, but it was denied. What gives?
ANSWER:
Well, you’re correct that the IRS may only collect from you for ten years. However, that ten year statute of limitations can be extended for several reasons. First, you can voluntarily extend the statute of limitations and that may be an acceptable strategy in some situations. But, in your case, the statute of limitations is extended by the filing of an offer in compromise. Filing an offer in compromise, collection due process hearing request or bankruptcy all "freeze" the statute of limitations. So long as your offer is being reviewed, the statute of limitations is not running. Therefore, if your offer was considered for one year, you will have to add one year on to the end of the ten year date. So unfortunately, you may have to wait to sell your land until that extra time runs off so you do not have to pay the trust fund amount to the IRS.