The IRS is required to follow some specific procedures when collecting delinquent income taxes. The first step in the collection procedure is the "assessment" of the tax.
For a federal tax, the assessment is the entry of a determined tax liability on the books of the Internal Revenue Service. The Internal Revenue Code, (IRC) section 6201(a) authorizes the Secretary of the Treasury to make assessments and 6201(a)(1) directs the same to assess all taxes that are determined by the taxpayer on a return or list, or as determined by the Secretary of the Treasury on a return or list.
IRS Regulation Sect. 301.6203-1 states requires that the district director and the director of the regional service center appoint one or more "assessment" officers. The assessment of the tax is actually made by this assessment officer when he or she signs the summary record of assessment. The IRS uses a form 23-C to make the assessment. This is why the assessment date is often known as the 23-C date.
Before the IRS can make an assessment of the tax, someone has to determine the amount owed or the tax liability. As stated above, this is done by the taxpayer when a return is filed. The Commissioner of the Internal Revenue can make a determination of additional tax liability by simply issuing a "notice of deficiency". In order for this notice of deficiency tax to be assessed it must "mature". This means that 90 days has to pass from the date the IRS notices the taxpayer of the deficiency. If the Taxpayer challenges the deficiency notice by filing a Tax Court Petition, the maturity date is 90 days after the Tax Court decision becomes final.
The assessment is PRESUMED to be correct and the taxpayer has the burden of proving otherwise.
A lien arises on all of the taxpayer's property both real and personal, rights to the property after the assessment is properly made and noticed. This lien is often called a "secret" lien because only the IRS and the taxpayer are aware of it. It is effective against all others with the exception of those specifically identified in the Internal Revenue Code.
The Assessment Lien and the Notice of Federal Tax Lien should not be confused. The Notice of Federal Tax Lien is the public proclamation of the existence of the assessment lien.
Some good news: The IRS is limited in the time it has to assess a tax debt. It has three years to assess a tax determined to be due per IRC Sect. 6501. The three year period begins to run from the latter of the due date of the return or the date the return is filed.
There are a few exceptions to the three year limit rule and a number of things that can extend the time period of course.
First, if the taxpayer voluntarily agrees to extend the three year period. See IRC 6501(c)(4).
Second, the timely issuance of a notice of deficiency
Third, an application for a taxpayer assistance order
Fourth, a bankruptcy petition filing
Fifth, a Receivership
Sixth, a Designated summons issued by the IRS to a corporate taxpayer
Seventh, a summons issued to a third party where the taxpayer moves to quash it.
Eighth, the IRC sect. 6501(e) six year exception. The statute of limitations on assessment is extended to six years if the taxpayer under reports more than 25% of the gross income stated on the original tax return.
Ninth, the Fraud Exception. The three year rule does not apply to the assessment of taxes attributable to a false or fraudulent return that was filed with an intent to evade the payment of taxes.
The IRS cannot assess a tax after the statute of limitations has expired even if the taxpayer agrees to the assessment.
Sometimes a defense exists within the details surrounding the assessment of the tax, or care must be taken if banrkutpcy is being filed just prior to the date the statute on assessment is about to run. If you have been assessed or are about to be assessed, you should speak to a qualified tax attorney about potential defenses and options.