Statute of Limitations on Collection Actions
For many years, no statute of limitations existed on the collection of an income or franchise tax delinquency. Beginning in 2006 2, a statute of limitations (SOL) on our collection actions went into effect.
R&TC Section 19255 was created to require us to permanently abate unpaid debts after 20 years, and established specific circumstances under which debts will remain due and payable beyond the 20-year period.
When does the 20-year SOL start? The time period begins to run on the assessment date, commonly called the statutory lien date (SLD). Collection stays suspend or extend the 20-year SOL. For example, a bankruptcy, an approved installment agreement, or during any other period during which collection of a tax is suspended, postponed, or extended by operation of law will serve to extend the SOL period.
What is the SLD? R&TC Section 19221 provides that if a tax liability is not paid at the time that it becomes “due and payable;” a perfected and enforceable state tax lien is created for the amount of the tax liability. This point in time is called the assessment date or the SLD. If more than one liability is “due and payable” for a particular taxable year, the later date is used. For example, a taxpayer files a return with a balance due on April 15, 1999, and we later audit the year and issue a Notice of Proposed Assessment that becomes due and payable on April 15, 2001, the SLD is April 15, 2001.
What are collection stays? Collection stays are the times when we cannot take involuntary collection action due to one or more of the following reasons:
- The taxpayer/debtor is in bankruptcy plus six months.
- The taxpayer/debtor is in an approved installment payment agreement.
- The taxpayer/debtor is in serving in the military and in a combat zone.
- The taxpayer/debtor is in child support collection plus 60 days.
- We postpone collection because of a presidentially declared disaster or terroristic or military action.
2 Applicable on and after July 1, 2006, to any liability due and payable before, on, or after July 1, 2006