What Restarts the IRS Collections Statute of Limitations?

What Restarts the IRS Collections Statute of Limitations?

The IRS generally has 10 years to collect unpaid taxes, penalties, and interest from the date the tax was assessed. This 10-year timeframe is known as the collections statute of limitations. After it expires, the IRS can no longer legally collect the remaining unpaid balance – this is called the Collection Statute Expiration Date (CSED)[1]. However, certain actions by the taxpayer can restart or extend the 10-year statute of limitations.

Understanding the 10-Year Statute of Limitations

The statute of limitations starts running on the date the IRS assesses additional tax owed[2]. This is usually when a return is filed or the due date of the return. The IRS then has 10 years from that date to collect through actions like wage garnishment, bank levies, and seizing property.

After 10 years passes, the statute of limitations expires and the IRS can no longer pursue collection. Any unpaid balance still owed becomes uncollectible[3]. This provides relief to taxpayers with older tax debts.

Actions That Restart the 10-Year Statute of Limitations

While the statute of limitations generally runs for 10 consecutive years, certain taxpayer actions can restart or pause the timeframe[4]:

Filing An Amended Return

If a taxpayer files an amended return showing additional tax owed, this restarts the statute of limitations on the date filed. It establishes a new 10-year timeframe to collect the additional tax.

IRS Audit and Assessment

If the IRS audits a taxpayer’s return and determines additional tax is owed, the statute resets. The 10 years starts running from the date the IRS makes the assessment.

Bankruptcy

When a taxpayer files for bankruptcy, the statute of limitations is suspended. The clock stops running until 6 months after the bankruptcy closes. This can delay the CSED by months or years.

Offers in Compromise

Submitting an offer in compromise to settle tax debt for less than owed restarts the statute of limitations. It remains extended while an offer is pending and for 30 days after rejection or withdrawal.

Installment Agreements

If a taxpayer cannot fully pay their balance due, they can request an installment agreement to pay over time. Like offers in compromise, this restarts the statute of limitations clock.

Appeals

If a taxpayer appeals an IRS decision, such as an audit finding, the statute of limitations is suspended until the appeal concludes and for 30 days after.

Leaving the Country

If a taxpayer leaves the country for at least 6 continuous months, the 10-year statute is suspended for time spent abroad.

Collection Due Process Appeals

Taxpayers can appeal many IRS collection actions. The statute of limitations stops running during the appeal and for 30 days after resolution.

Military Deferment

For those serving in combat zones, the statute of limitations is suspended for 180 days after leaving the combat area.

Disaster Relief

For taxpayers in presidentially declared disaster areas, the statute of limitations is extended by the time period the IRS provided relief plus 90 days.

Using the Statute of Limitations Strategically

The complex rules around the collections statute of limitations can provide opportunities for certain taxpayers. With a tax professional’s help, they may use the statute strategically[5]:

• Attempt to “wait out” the statute of limitations if it is close to expiring. This requires avoiding IRS collection until the 10-year period ends.
• Extend the statute through installment agreements, offers in compromise, and appeals if more time is needed to resolve tax debts.
• Have an experienced tax attorney confirm the IRS properly calculated the CSED. Errors can occur.

The statute of limitations provides important taxpayer protections. But navigating this area can be complex, often requiring assistance from a tax relief professional.