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What is the IRS Statute of Limitations on Tax Collection?

What is the IRS Statute of Limitations on Tax Collection?

Trying to understand the IRS statute of limitations can be tricky. This article will explain everything you need to know about how long the IRS can legally collect back taxes and penalties from you. I’ll discuss the key laws and legal precedents in plain English, so you can understand how the statute of limitations affects your tax situation.

The Basics of the IRS Statute of Limitations

The IRS statute of limitations refers to the time period during which the IRS can legally collect taxes, penalties, and interest from a taxpayer. According to Internal Revenue Code Section 6502, the IRS generally has 10 years to collect back taxes after the date the tax was assessed [1]. This 10-year limit applies to collecting back taxes, penalties, and interest.

The date when the 10-year clock starts ticking depends on when the IRS assessed the tax. The assessment date is usually the latter of:

  • The day you filed your tax return, or
  • The due date for filing your return

For example, say your tax return for 2022 was due on April 18, 2023. If you filed your return on March 1, 2023, the 10-year limit starts on April 18, 2023. But if you filed late on June 1, 2023, the clock starts ticking on the day you filed, June 1st.

After this 10-year collection statute expiration date (CSED) passes, the IRS can no longer legally collect the remaining unpaid balance [2]. The IRS calls this the Collection Statute Expiration Date (CSED). When the CSED passes, the IRS’s right to pursue collection also expires.

When the IRS Can Collect for Longer Than 10 Years

There are some exceptions where the IRS can collect taxes for longer than 10 years:

  • Tolling the statute of limitations – Certain taxpayer actions can pause or “toll” the 10-year clock, extending the time the IRS has to collect. Things like filing bankruptcy, requesting an installment agreement, or submitting an Offer in Compromise can toll the statute. The clock stops running during the time these requests are pending.
  • Extending the statute – In some cases, the statute is extended beyond 10 years, giving the IRS more time to collect. For example, if you appeal a rejected Offer in Compromise, the time your appeal is pending extends the statute.
  • Lawsuits – If the 10-year limit is close to expiring, the IRS can sue you in court to obtain a judgment allowing collection beyond 10 years.</ Here is a 3000 word article in HTML format about the IRS statute of limitations on tax collection:

    What is the IRS Statute of Limitations on Tax Collection?

    Trying to understand the IRS statute of limitations can be tricky. This article will explain everything you need to know about how long the IRS can legally collect back taxes and penalties from you. I’ll discuss the key laws and legal precedents in plain English, so you can understand how the statute of limitations affects your tax situation.

    The Basics of the IRS Statute of Limitations

    The IRS statute of limitations refers to the time period during which the IRS can legally collect taxes, penalties, and interest from a taxpayer. According to Internal Revenue Code Section 6502, the IRS generally has 10 years to collect back taxes after the date the tax was assessed [2]. This 10-year limit is called the collection statute expiration date (CSED).

    So for example, if you filed your 2018 tax return late, on June 1, 2019, the IRS would have until June 1, 2029 to collect any unpaid balance. After the 10-year period expires, the IRS can no longer pursue collection actions like garnishing your wages or seizing assets [1].

    When Does the Clock Start Ticking?

    The 10-year statute of limitations starts running from either:

    • The date you filed your tax return, or
    • The due date for filing the return, whichever is later

    So if you filed your 2022 return on time by April 18, 2023, the clock would start on April 18. But if you filed late, say on June 1, 2023, the 10 years would begin counting down from June 1.

    What About Unfiled Tax Returns?

    If you never filed a tax return, there is no statute of limitations – the IRS can try to collect at any time! The 10-year limit only starts if you actually file the return, even if it’s late [3].

    When the IRS Statute of Limitations Can Be Extended

    There are some important exceptions to the 10-year statute of limitations rule. The deadline can be pushed back in certain situations that “toll” or pause the clock, giving the IRS more time to collect.

    If You Go Into Bankruptcy

    Filing bankruptcy pauses the statute of limitations clock while the bankruptcy case is pending. Then after the bankruptcy ends, the IRS gets an additional 6 months to collect [4].

    If You Apply for an Offer in Compromise

    Submitting an offer in compromise to settle your tax debt for less than the full amount owed also suspends the 10-year limit. The clock stops running from when the IRS receives your offer until it’s accepted, rejected, or withdrawn. And if the offer is rejected, you get an extra 30 days [4].

    If You Request a Collection Due Process Hearing

    Asking for a Collection Due Process hearing with the IRS Office of Appeals stops the statute of limitations clock until the hearing concludes and any appeals are final. Then you get an additional 90 days [4].

    If You Are Out of the Country

    If you are out of the country for at least 6 months, the IRS gets an extra 6 months to collect after you return to the U.S. [3].

    If You Signed a Waiver

    The IRS may ask you to voluntarily sign a waiver to extend the 10-year limit. For example, if you enter into an installment agreement to pay your tax debt over time, the IRS usually requires a waiver extending the deadline by the length of the payment plan [2].

    When the Statute of Limitations Does Not Apply

    In limited circumstances, the IRS can try to collect back taxes even after 10 years:

    If You Never Filed a Return

    As mentioned above, the statute of limitations does not start running until you actually file a return. If you never file, the IRS can try to collect at any time.

    If You Committed Fraud

    There is no collection statute of limitations if the IRS finds you filed a fraudulent return or intentionally tried to evade paying taxes. So the 10-year limit does not protect you in cases of tax fraud [3].

    Strategies with the Statute of Limitations

    Understanding the statute of limitations gives you options if you owe back taxes:

    Waiting Out the IRS

    If you only have a couple years left until the statute expires, you may want to just wait it out instead of entering into a payment plan or offer in compromise. The IRS may ramp up collection efforts as the deadline nears, but cannot take action after it passes.

    Negotiating with the IRS

    When the statute is close to expiring, the IRS may become more likely to settle your tax debt for less than you owe. Collecting something is better than nothing once the deadline passes. So you may have leverage to negotiate a deal.

    Disputing the Statute Expiration Date

    The IRS does make mistakes calculating the correct statute expiration date. So it’s important to confirm the date yourself or with a tax professional. If the IRS date is wrong, you may be able to prove the deadline has already passed.

    Avoiding Statute Extensions

    Since actions like signing a waiver or requesting an offer in compromise extend the statute, avoid those if you want the clock to keep running out.

    How to Find Your Collection Statute Expiration Date

    To look up when the IRS deadline to collect tax from you expires:

    1. Check your IRS account transcript online, or
    2. File Form 4506-T to request a transcript by mail

    The transcript should list your Collection Statute Expiration Date (CSED) so you can confirm it yourself.

    Get Help with the IRS Statute of Limitations

    I hope this overview helps you understand how long the IRS can legally collect back taxes from you. Use the information to make smart choices in dealing with your tax debt. The collection statute expiration date is a key fact that affects your options.

    To be sure you fully understand how the statute of limitations works in your unique situation, I recommend consulting a tax professional. An experienced tax attorney can advise you on the best strategies based on your CSED.

    Don’t let the IRS statute of limitations intimidate you. Knowledge is power when it comes to navigating tax debt. With the right help, you can take control of your tax situation.

    References

    1. IRS: Time IRS Can Collect Tax
    2. IRS: 5.1.19 Collection Statute Expiration
    3. IRS: Statutes of Limitations for Assessing, Collecting and Refunding Tax
    4. Taxpayer Advocate Service: Collection Statute Expiration Date (CSED)
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