Can you ‘run out the clock’ on your past tax debt? It’s a question that I have been asked more than once over my career.
The short answer is ‘Yes, there is a statute of limitation for IRS collections.’… but you will want to hear the long answer before you decide to go this route.
Understanding the IRS statues of limitations can be tricky and can get you into trouble if you don’t know the details. I will outline some of the details in this article. But I would recommend you give me a call for a free phone discussion before trying to take this route on your own.
The IRS can’t come after you forever. As per the 1998 IRS Reform and Restructuring Act, taxpayers have limited protections from the collection division of the IRS. Generally, IRS has up to 10 years to collect a liability from the date of assessment.
After a period of 10 years on the statute of limitations, the IRS is unable to collect unpaid taxes But, there are several things to be aware of about this 10-year rule.
First, the 10 years begins from the date of assessment, which is usually the 15th of April of the year that the taxes were due. But the start date could be the date the tax return was filed, Whichever date is the latest is the date that the 10 year period is measured from. If no tax return is filed, the period will begin to run on the date the Internal Revenue Service assesses the tax against a taxpayer.
Secondly, the 10-year period can change if you file an amended return, the Internal Revenue Service audits you or files a substitute return on your behalf, and/or you file an amended return to correct their return.
Other factors could extend this 10-year statute such as:
In rare cases, the IRS can file a law suit in Federal Court prior to the statute of limitation, which creates a new limitation extension.
Ultimately, the Collection Statute Expiration Date (CSED) is governed by the Internal Revenue Manual.
The CSED can be extended up to 5 years if you are negotiating with them about a compromise or a Taxpayer Assistance Order. When this happens, the IRS will request that the taxpayer sign a waiver.
In cases of bankruptcy, the CSED is generally suspended and replaced with a period that equals the duration of the bankruptcy proceedings plus six months.
An Offer-in-Compromise filing (sometimes referred to as a “Fresh Start Program”) will extend the CSED for the duration of the process plus an additional 30 days.
If a taxpayer resides outside of the U.S. for a continuous period of at least six months, the statutory period on tax collection will be suspended. “To make certain that the Government has an opportunity to collect the tax after the taxpayer’s return, the period does not expire (where the taxpayer has been out of the country for six months or more) until six months after the taxpayer’s return to the country” (“Section 10. Collection Statute Expiration”).
In some cases, the IRS statute of limitations can work to your advantage. But you need to know if your case is one that can benefit from the statute of limitations.
Don’t hesitate to contact me to learn what is the best strategy for you. And if you can’t ‘run out the clock’, I can help you strategize and negotiate the best payment plan between you and the IRS.