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How to Avoid IRS Collections Activity on Old Tax Debt

How to Avoid IRS Collections Activity on Old Tax Debt

Dealing with the IRS can be super stressful, I feel you. But there are ways to get them off your back, even if you have old tax debt. This article will give you some practical tips and info to help you navigate the collections process.

The 10 Year Rule

Generally, the IRS has 10 years to collect back taxes from the date they were assessed (this is called the collections statute expiration date or CSED). After 10 years, the remaining unpaid balance is forgiven (meaning you don’t have to pay it anymore).

There are some exceptions though – the 10 years can be extended if you do certain things like file bankruptcy, request a collection due process hearing, apply for an offer in compromise, etc. But in most cases, 10 years is the limit.

What Happens During Those 10 Years

The IRS doesn’t just sit around for 10 years waiting to collect. They start sending notices and taking collection actions right away. Here’s a quick rundown of what to expect:

  • Notice of balance due – mailed within 60 days of you filing a return with unpaid tax.
  • Notice of intent to levy – mailed after the first notice. Gives 30 days to pay before a levy.
  • Final notice of intent to levy – mailed after 30 days if you don’t pay.
  • Levy – the IRS can levy your wages, bank account, or other assets.
  • Notice of filing federal tax lien – mailed after the levy notice. Allows IRS to stake a legal claim on your property.
  • Notice of intent to seize property – mailed after the lien notice if you still haven’t paid.

As you can see, the IRS doesn’t mess around. They will escalate collection actions rapidly if you ignore their notices.

Options Once You Get Collection Notices

Don’t panic if you start getting collection notices on old tax debt. You still have options to resolve it or at least buy more time:

  • Payment plans – The IRS may let you set up an installment agreement to pay over time. This prevents more aggressive actions as long as you stick to it.
  • Offer in compromise – You can settle tax debts for less than the full amount owed if you can prove financial hardship. Use the IRS pre-qualifier tool to see if you qualify.
  • Currently not collectible status – The IRS may temporarily delay collection if they determine you can’t pay anything right now due to financial problems.
  • Collection appeals – You can challenge IRS collection actions (like a levy) by requesting a Collection Due Process hearing.

The key is taking action quickly after getting those first few notices. Don’t wait until they start garnishing your wages or seizing assets.

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What About New Tax Debt?

Having old tax debt go past the 10 year limit can be a big relief. But make sure you stay current on any new tax bills, or the cycle will just repeat itself. Here are some tips:

  • File your returns on time, even if you owe. The failure to file penalty is 5% per month.
  • Pay as much as you can upfront if you owe. The failure to pay penalty is only 0.5% per month.
  • Get on a payment plan immediately if you can’t pay in full. This minimizes penalties and interest.
  • Adjust your withholding if needed so you don’t owe a big chunk at tax time.

Following these tips will help prevent new tax debts from spiraling out of control. And be sure to set aside some money throughout the year for your tax bill.

Other Consequences

Having unpaid tax debts, even old ones, can cause other problems too:

  • Your passport may be revoked if you owe over $50,000.
  • It can hurt your credit score, making it harder to get loans.
  • You may not be able to renew state licenses (like a driver’s license) until resolving IRS issues.
  • If you own a business, you may not qualify for some government contracts.

So getting back in good standing with the IRS, or at least letting the 10 years expire, can prevent other headaches down the road.

When to Get Professional Help

Dealing with the IRS can be confusing, and the stakes are high if you make a misstep. Consider getting help from a tax pro if:

  • You owe $25,000 or more in back taxes.
  • You own a business or have complex tax situations.
  • You’ve already received a levy notice or lien notice.
  • You need help qualifying for currently not collectible status or an offer in compromise.

A tax attorney or enrolled agent can advise you on the best strategies and represent you before the IRS. This gives you the best chance of reducing penalties and interest and resolving the debt on favorable terms.

The Bottom Line

Having old tax debt hanging over your head is zero fun, trust me. But you do have options, including waiting out the 10-year limit in many cases. Just don’t stick your head in the sand – take action quickly when those IRS notices start rolling in. And consider getting professional help if your situation is complex. Relief is possible with the right approach!

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