How Long Can IRS Collect Back Taxes? Statute of Limitations on IRS Debt Collection
The Internal Revenue Service has a 10-year statute of limitations on tax collection. This means that the IRS cannot collect tax debts that are more than 10 years old. However, there are certain actions such as filing bankruptcy or applying for an offer in compromise that can pause the clock and extend the statute.
In this guide, we explain the 10-year statute of limitations on IRS tax collection. We look at the actions that can toll (pause) the clock for the collection statute, and we briefly touch on tax resolution options that leverage this limitations period to save taxpayers money.
What Is the 10-Year Statute of Limitations IRS?
A statute of limitations (SOL) is a federal or state law that limits the period allowed to file legal proceedings. For instance, if you want to charge someone with a crime or bring a lawsuit against them for damages, you need to do so before the statute of limitations expires. Similarly, the IRS also has a collection statute that limits how long the IRS can take to collect a tax debt.
In other words, a statute of limitations is a deadline defined by law. Regarding the collection of federal taxes, this deadline is called the IRS statute of limitations on collection. It is the period the IRS has to collect on taxes owed for a specific assessment. For example, if the IRS wants to issue a federal tax lien, garnish your wages, or seize your assets because you owe money, the agency must do so within the defined time period. If the IRS doesn't collect your taxes by the end of the allowed time frame, the agency can no longer collect the debt.
What Is the Collection Statute Expiration Date?
The last day that the IRS can collect a tax debt is called the Collection Statute Expiration Date (CSED). Often, the IRS aggressively pursues taxpayers who owe taxes right before their CSEDs arrive. Why? After this date, the IRS cannot legally take you to federal court over the taxes. Therefore, the taxes owed essentially disappear. Because of this taxpayers who haven't heard anything from the IRS for years after a tax assessment may suddenly experience a flurry of collection actions as their CSED approaches.
When Does the 10-Year Statute of Limitations on Tax Collection Start?
You know that the IRS has 10 years to collect back taxes, but when does this time frame start? The ten-year statute of limitations period begins when the IRS assesses tax liabilities. The tax assessment happens when you file a tax return or when the IRS assesses a tax liability for you. For instance, if you file a tax return and then the IRS realizes that you didn't report all of your income, the IRS will send you a notice letting you know that additional tax has been assessed against you.
Keep in mind that the first notice is not necessarily a tax assessment. Typically, it's a proposed amount, and you have the right to contest it. But if you don't respond within a certain time frame, the IRS will formally assess taxes. For instance, if you fail to file a tax return and the IRS files for you (known as a “Substitute for Return”), that doesn’t necessarily set the CSED. Instead, the IRS determines the CSED based on the assessment date which occurs after the SFR.
Can the IRS Go Back More Than 10 Years?
Technically, if you fail to file a tax return, there is no deadline for an assessment of tax liability. However, in most cases, the IRS observes a six-year statute of limitations for unfiled returns. In other words, if you don't file your returns, the IRS will generally only go back six years. However, if the IRS believes you have been trying to evade taxes, the agency will go back further.
Note that the IRS usually waits a few years before issuing an SFR. Once the SFR posts to the taxpayer’s account and the IRS assesses taxes, the 10-year time clock begins. Therefore, waiting to file a tax return, is not a strategy for shortening the statute of limitations on collections.
When the 10-Year Statute of Limitations on Tax Debt Collection Gets Extended
There are multiple ways to suspend or toll the CSED date(s) for taxes owed. These tolling events can complicate statute calculations. Tolling the collection statute refers to pausing the clock. For instance, if the limitations period is paused for 10 months, those 10 months get added to the end of the period.
Here's an example, imagine that it has been six years since you received a tax assessment. The IRS has four more years to collect before the limitations period ends. Then, you apply for an offer in compromise. The IRS pauses the clock while it reviews your application. Six months later, the IRS decides to reject your offer-in-compromise application, and the collection limitations period restarts. Because the clock was paused for six months, the IRS still has four years to collect the tax.
If two tolling events overlap (examples below), the IRS can only toll the days that overlap once. There are a few ways to toll or suspend the statute of limitations on IRS collections:
If a taxpayer decides to file for bankruptcy, the bankruptcy court issues an automatic stay for the tax debts included in the bankruptcy. The statute of limitations on IRS collections becomes suspended through the duration of bankruptcy proceedings plus six months. Since a taxpayer cannot always discharge taxes in federal bankruptcy court, it is essential to understand when the collection time clock will resume. Contact a bankruptcy attorney or a tax relief specialist to learn more.
If you request an installment agreement (aka a monthly payment plan on your back taxes), the period from the request to the decision by the IRS tolls the statute. The SOL also gets suspended for 30 days after a denial or termination of an Installment Agreement. The IRS can also toll the SOL when the taxpayer submits an appeal for an installment agreement request the IRS rejected. Pending Installment Agreements where the IRS does not accept or reject the IA do not toll the CSED(s).
Innocent Spouse Relief
A request for innocent spouse relief tolls the statute until the expiration of the 90 days to petition the tax court. If you petition the tax court for an IRS denial, this leads to the suspension of the SOL until the final court decision plus 60 days.
Offer in Compromise
If you submit an Offer in Compromise (OIC), the period from when you request the OIC to when the IRS makes a decision tolls the statute respectively plus 30 days.
Collection Due Process Hearing
When you request a Collection Due Process Hearing (CDP), the IRS suspends the statute of limitations while the hearing is pending. This rule applies to CDP requests within 30 days after a final notice of intent to levy.
Living abroad for six months
If you live outside the U.S. for six months consecutively, this event leads to the suspension of the SOL as well. Furthermore, the collection statute does not expire until six months after the taxpayer returns to the United States.
If the taxpayer’s military service impairs the IRS’s ability to collect, the IRS can suspend the CSED during the taxpayer’s military service plus 270 days. If the taxpayer is in a combat zone, the collection statute becomes suspended plus an additional 180 days.
Taxpayer Assistance Order
If the taxpayer files Form 911, this tolls the statute while the case is pending review. The taxpayer may file this form when the taxpayer is suffering and about to experience a tax levy or tax lien that will cause extreme economic hardship.
If the IRS takes a rare action and sues the taxpayer for the collection of back taxes or the taxpayer is in litigation with the IRS, the SOL also becomes suspended. Generally, the IRS files suit for the collection of back taxes.
Voluntarily Extending the Statute of Limitations
The IRS may also toll the 10-year statute of limitations on collection if the taxpayer voluntarily agrees to extend it. The extension is generally for five years, but it can vary. For instance, if you are going to come into certain assets after the CSED date, the IRS will generally request an extension to the CSED dates. Then, the IRS can collect the tax debt based on those assets.
In some cases, agreeing to extend the statute may be in your best interest. In other cases, it may not be the best idea. Don't sign anything agreeing to extend the statute of limitations on tax debt collection until you consult with a tax professional.
Other Statute of Limitations on IRS Debt
The collection statute of limitations is not the only SOL used by the IRS. The IRS has a few other limitation periods including the following:
- Three-year statute of limitations on tax refunds — If you want to amend or file a tax return to collect a refund, you only have three years from the original due date of the return. You can file or amend your tax return after this deadline. You just won't be able to collect a refund
- Three-year statute of limitations on tax return audits — Generally, the IRS observes a three-year statute of limitations on auditing tax returns. That means if your return was filed more than three years ago and it hasn't been audited yet, it probably won't be. But there are a couple of exceptions to this rule.
- Six-year statute of limitations on tax audits — If the IRS believes that you have substantially understated your gross income, the agency will go back up to six years to audit your old returns. Typically, this requires you to have understated your gross income by at least 20 to 25%.
- Unlimited statute of limitations on tax audits and assessments — In cases of tax evasion, there is no statute of limitations. The IRS can go back an unlimited amount of time to audit your old tax returns. The agency can also go back an unlimited amount of time to assess taxes on unfiled returns.
Wondering how long you have? Worried that the IRS is going to audit an old tax return, assess a tax from an unfiled return, or start collecting your back taxes? Then, reach out to a tax professional today. They will be able to answer your questions about the statute of limitations and help you find the best tax relief method for your situation.
Leveraging the Statute of Limitations to Get Tax Relief
In a lot of cases, the IRS ramps up collection efforts as the collection statute expiration date gets closer. This is because the IRS knows that it has limited time to collect the tax debt, or it will lose its chance. The IRS can get very aggressive in this situation.
But on the flip side, you can also use this limited time to your advantage to convince the IRS to accept your tax relief proposal. When you contact a tax professional, they will let you know the best options in your situation, but to give you a sense of the possibilities, look at the following:
- Offer in Compromise — If the IRS knows that it is losing time to collect your unpaid taxes, it may be more willing to accept a lower offer in compromise. Remember, however, that applying for an offer in compromise pauses the collection clock, and the IRS generally won't accept an offer if it believes that it can collect more than you've offered.
- Partial Payment Installment Agreement — With a PPIA, the IRS accepts monthly payments on your tax debt until the collection statute expiration date. Then, the remaining portion of your tax liability just expires. You don't have to pay it back. This plan is like a hybrid of an offer in compromise and an installment agreement.
Can You Ignore Your Tax Debt Until the Collection Statute Expires?
If the IRS cannot collect after a certain deadline, perhaps you should just hide until the deadline approaches. That is a tempting idea, but it's not an effective idea. This can really only work if you want to hide out, not work, and not pay taxes for at least a decade. But anything you do such as getting a job, registering a vehicle, buying land, etc can put you back on the IRS's radar.
In most cases, you should not try to “hide” from the IRS until the CSED approaches. It’s always better to contact the IRS and work out an arrangement. A tax professional can help you. An excellent licensed tax professional will consider a taxpayer’s CSEDs as they define the tax resolution strategy.
How to Find the Collection Statute Expiration Date for Your Tax Debt
Do you owe back taxes? Wondering how long the IRS has to collect? To find the CSED, you can contact the IRS at 1-800-829-1040. The IRS provides transcripts requests online, which will include the CSED dates. If the CSED has already passed, you will see Code 608 as an entry on the IRS transcript for the particular year in question.
You may want to hire a tax professional to check the collection expiration date. IRS CSEDS are inaccurate 40% of the time, according to TIGTA. To ensure your rights are protected, you may need to seek help from outside the IRS.
What Are the Collection Statute Expiration Dates for State Tax Debt?
Every state has its own tax administration agencies. Some states even have multiple agencies for different types of taxes. There is no single expiration date for collecting state tax debt. Every state has its own collection statute.
Some, like the IRS, are just 10 years, but other states can take up to 20 years to collect state back taxes. Because the tax laws vary so much from state to state, you should work with a tax pro based in your state to ensure the person you hire understand the rules in your area.
Get Help With Back Taxes Today
If you have back taxes and you need help in determining the CSED dates for the tax years you owe, contact a licensed tax professional. Using TaxCure, you can search for local tax pros who have experience with your particular tax issue. They can answer your questions and help you find the best resolution option for your back taxes.