Tax liability, assessment, and delinquency occur at different times

Plain-English summary

Chief Counsel distinguished the creation of a tax liability from its later assessment and payment deadline. For a calendar-year individual, income tax liability exists when the tax year closes, even though the amount may not yet be determined or assessed. Assessment records the liability and triggers consequences such as the collection limitation period, while the statutory payment date determines when the amount generally becomes past due. Notice and demand may occur later still and is relevant to the federal tax lien. Whether an unpaid amount is a “delinquent federal debt” can depend on the statute and purpose using that phrase, although most liabilities become past due when not fully paid by the payment deadline.

Ruling snapshot

• Question: When does an unpaid Form 1040 amount become a delinquent federal debt, and how does that differ from assessment?
• Outcome: Advice given, the answer depends on purpose, but liability, assessment, due date, and lien are distinct events
• Key authorities: IRC §§ 6303, 6321, and 6502

Full text (IRS public release)

 ID:      CCA_2022052409542541                  [Third Party Communication:

 UILC:    6201.00-00, 6303.01-00                Date of Communication: Month DD, YYYY]

Number: 202346013
Release Date: 11/17/2023
From: ----------------
Sent: Tuesday, May 24, 2022 9:54:25 AM
To: -------------------
Cc: ----------------
Bcc:
Subject: RE: assessments v. liability


Noelle,

You’ve asked about the distinction between assessments and liabilities and when an
unpaid Form 1040 liability becomes a “delinquent federal debt.” The Code imposes
liabilities. Different liabilities are imposed at different times. For example, an income
tax liability exists immediately after midnight on December 31 (this assumes a calendar
year taxpayer - there are different taxable periods allowed for the income tax). Once
the period closes, there is a liability imposed based on all of the items that comprise the
liability (gain, loss, etc.), even though the amount might not be subject to determination
for a while. And other liabilities are imposed at other times. There are excise tax
liabilities that are imposed on activities, and employment tax liabilities imposed on
wages, by way of examples.

The existence of a liability is distinguishable from an assessment. The assessment is
the (later) recording of the liability, and the assessment will have its own consequences
(e.g., the section 6502 period of limitation on collection after assessment will be
triggered). A liability is also distinguishable from the payment due date for such liability,
which also is established by statute. For example, income taxes are due on April 15 of
the following year (this is a bit oversimplified, it assumes individuals, and calendar
years, etc.). And there are also rules regarding early payments (they are treated as
being paid on the due date, but only for certain purposes).

At the end of the day, to answer your question regarding when a liability is considered to
be past-due, you really need to specify the purpose for which you are asking. For most
(nearly all?) purposes, a liability is past due if it is not paid in full as of the payment due
date. Derivatively, a liability is not past-due if the due date has not elapsed, even if the
liability has been imposed. And the reason I say you need to ask for a particular
purpose is because I don’t think there is an answer in the abstract. An example of a
purpose for which you might ask the question would be interest. Underpayment interest
is imposed not just on an unpaid liability, but on a liability that is past due. That is why
interest does not accrue from January 1 on an unpaid income tax liability.
                                             2

Consider section 6303 notice and demand. Notice and demand is required for the FTL
to arise under section 6321. A notice and demand that represents a first contact letter
is actually a notice of assessment and a demand for an already past-due payment
obligation. The taxpayer was required to pay earlier by statute. If the taxpayer neglects
to pay following notice and demand, which follows assessment, which follows the filing
of the form 1040 in your hypothetical, which follows the close of the tax year, then the
lien will not arise until long after the liability was imposed. The liability was, in fact,
imposed much earlier. This can be demonstrated by considering bankruptcy. If a
taxpayer files for bankruptcy protection in March, the Service can (and will) file a proof
of claim that will include the income tax liability for the previous (and now closed)
year. The liability exists, even though the payment due date may not have elapsed.

I understand that this is a hypothetical. If you have a live matter, and it involves a
statute that is looking for a “delinquent federal debt,” then there might be an established
black-letter-law answer particular to whatever purpose this is. In that case, please
follow up so that I can check. But, in general, I hope this answers your question about
the distinction between a liability and an assessment and when a liability becomes
delinquent.

Happy to discuss. Regards!

Micah A. Levy
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