Did you know the IRS can’t pursue you for a tax debt forever? Yes, even tax collection has a time limit. The law refers to this as the collection statute of limitations, which legally bars the IRS from collecting a tax debt after the 10-year collection period passes, but the time limit can be paused and extended in some situations.
If you owe taxes, you need to know when you can leverage the collection statute expiration date (CSED) to your advantage. You must also be aware that, although it’s possible to wait out the IRS, it’s rare, and there’s often a flurry of aggressive collection activity near the CSED.
Key takeaways
- The IRS has 10 years to collect a tax debt. It cannot take collection actions after the time expires.
- The collection period ends on the collection statute expiration date, which appears on your tax transcript.
- Certain events can pause the clock, but the extra time gets added to the end.
- If you don’t pay, the IRS can garnish wages or use other collection actions during the 10-year collection period.
- If you don’t file a return, the statute of limitations never starts for audits, assessments, or collections related to that tax year.
Critical Definitions to Understand the IRS 10-Year Time Limit
To understand how the collection time period works, you need to know these key terms:
- Statute of limitations (SOL) – Time limit for a person or the government to take legal action against someone.
- Collection statute of limitations – Time limit for the IRS to collect tax debt, which starts on the assessment date and runs for 10 years.
- Assessment date – The date the IRS officially assesses your tax liability, making it legally enforceable, which is not the same day as you file the return.
- Tolling – The IRS must stop collections if you apply for payment plans or settlements, if you appeal, or if you file for bankruptcy. The extra time gets added to the collection time frame.
Lien vs levy– A lien is when the IRS has a “legal claim” to your property as a security for tax debt, while a levy is when the IRS seizes property to cover the debt.
What Is a Statute of Limitations?
A statute of limitations is a law that dictates how long a person or the government has to take legal action to enforce a right. Statutes of limitations can apply in civil and criminal cases, and they exist to protect defendants from legal actions that are so old that it would be unreasonable to expect the defendants to defend themselves effectively in court.
For example, imagine the IRS saying you didn’t fully pay your taxes in 2010. The IRS alleges that you improperly claimed deductions and asks that you produce documents to support those deductions. Is it realistic for the IRS (or a court) to expect you to keep receipts and other federal tax-related documents that are that old? Thankfully, the answer is “no.” This logic underscores the time limit on IRS collections as well.
How Long Can the IRS Collect Back Taxes?
The IRS has 10 years from the date the taxes are assessed to collect unpaid taxes. The assessment date is not the day you file your return or the due date. Rather, it is the specific date, usually shortly after your return is processed, when the IRS formally records your tax liability on its books. For example, if you file your 2023 tax return on October 15, 2024, and the IRS assesses the tax on November 15, 2024, the 10-year collection period begins on November 15, 2024.
The date can also change if the IRS assesses additional tax against you. For instance, say that the IRS discovers that you have unreported income and sends you a notice that it has adjusted your tax return. If this happens, you generally have 30 days to contest the proposed assessment. If you don’t do anything, the taxes are assessed approximately 30 days after the notice date, and that’s when the clock starts for the statute of limitations.
Why the IRS may still try to collect after 10 years
There are many reasons why the IRS may still pursue collections after 10 years including:
- Tolling: There are events like requesting a Collection Due Process hearing, filing for bankruptcy, or applying for an OIC or installment agreements that can pause the clock, extending the time ( more on this later).
- Multiple assessments: If the IRS assessed your taxes more than once a year, each assessment will have its own expiration date. A good example that can lead to this is additional tax debt from a tax audit.
- Incorrect CSED calculations: The IRS can make errors by misapplying transaction codes, not stopping tolling, or for other reasons. CSEDs are frequently incorrect. Reach out to a tax attorney if you think the IRS has the wrong date for your CSED.
- Different tax years: All tax years have a different CSED, so if one of your tax debts has expired, the IRS will still pursue collection for other tax debts.
What Happens If You Owe Taxes, and How Does the Statute of Limitations Affect Your Case?
Often, the IRS ignores tax debts for years, and then the agency ramps up collection actions just before the statute expires. This can catch taxpayers off guard — if you’ve been under the radar for years and then suddenly your debt catches up to you, and you get a flurry of confusing and complicated IRS notices that leave you feeling stressed.
While these notices can be scary and hard to understand, the worst thing you can do is ignore them. Receiving notices means that the IRS is finally paying attention to your account and trying to collect the balance before the statute expires.
As long as the IRS has the right to collect, it can enforce collection actions such as garnishing your wages or seizing your assets. To seize your assets, the agency just needs to give you a 30-day notice and advise you of your right to appeal. If you ignore this notice and decide not to appeal, the IRS can move forward with the levy, and once that happens, it can be tough to undo the process and protect your assets. But if the CSED has come and gone, then the IRS can no longer take these collection actions against you.
Because of this, you can leverage the statute of limitations to your advantage. If the IRS knows it has limited time to collect the debt, the agency may become more likely to accept a settlement on your taxes where you don’t have to pay your entire tax debt. For the IRS and other state taxing authorities, collecting a portion of your debt is always better than nothing, giving you some negotiating power when you’re facing a large tax balance.
What Should I Do If I Think the Statute of Limitations Has Expired?
First and foremost, don’t call the IRS to ask them to confirm that the statute of limitations has run on a tax debt you have with them. While unlikely, the IRS may have forgotten about your tax debt. The last thing you want to do is remind them about your tax debt and have them resume collection activities against you.
What you should do is talk to a tax professional about your options. It’s possible that you should do nothing. But it’s also possible that doing nothing won’t make the debt go away very easily, so you’ll want to use this upcoming statute of limitations deadline as leverage to negotiate a more advantageous tax debt settlement with the IRS. However, either option will require you to first confirm your CSED by looking at your tax transcript.
How to Find the CSED on Your Tax Transcript
Getting a transcript is the most effective first step to knowing your CSED, as it has the tax assessment dates, tax liability, and the date you filed your returns.
To find the Collection Statute Expiration Date (CSED) for your tax debt, you can do one of the following:
- Create an online IRS account and request an account transcript
- File Form 4506-T, Request for Transcript of Tax Return, to request a transcript by mail.
- Contact a licensed tax professional to help you get your transcripts.
The account transcript will show you the earliest CSED. If you have tax debts from multiple time periods or from different assessments in the same period, remember that some of your debts may expire after the date shown.
Also, note that the IRS makes mistakes with CSED calculations. If you believe the date shown is incorrect, contact a tax attorney to help you before engaging with the IRS to ensure you don’t make a decision that extends the CSED further when unnecessary.
Can the IRS Take More Than 10 Years to Collect Tax Debts?
Sometimes, the IRS takes over 10 years to collect tax debts. This happens when an event stops the clock on the statute of limitations and extends the deadline. This is called tolling the statute of limitations.
For example, imagine that you have five years left until the statute of limitations expires. Then, you take an action that pauses the clock for two months. At the end of those two months, you still have five years left on the statute of limitations. If the clock had not stopped, you would only have four years and 10 months left.
This setup ensures that the IRS has 10 years to collect the tax debt. It also ensures that you can apply for payment plans and appeal IRS decisions without worrying about collection actions while doing so.
Tolling the Statute of Limitations
Here are actions that toll the collection statute:
- Offer in compromise: The IRS pauses the clock when reviewing your offer and then restarts when the offer is approved or rejected. If the IRS rejects the offer, it tolls the clocks for an additional 30 days.
- Installment agreement: When you apply for a payment plan, the statute is tolled while your application is pending. If rejected, the statute tolls for another 30 days.
- Innocent spouse claim:— The statute tolls on the day you apply, and then it restarts at a range of different times depending on the situation. It only tolls the statute for the spouse who applies. It doesn’t affect the CSED for the other spouse.
- Filing bankruptcy: This tolls the statute during the bankruptcy case and for six months afterward.
- Collection due process hearing: The clock stops from the time you appeal until 90 days after you receive a decision from appeals.
- Leaving the country for six or more months in a row: In this case, the statute does not expire until at least six months after you return to the United States.
The good news is that the IRS can’t pursue collection actions against you when the clock stops. This means the agency cannot garnish wages, seize assets, or take any other actions that affect your personal finances while the collection statute is tolled.
Sometimes, the IRS may ask you to sign a waiver to extend the statute of limitations. This may happen when you apply for a partial payment installment agreement. Do not sign a waiver unless you consult a tax professional first.
What Happens When the IRS Extends the Statute of Limitations on Collections?
When the IRS extends the statute of limitations, it gives the agency more time to collect the tax debt. As explained above, the agency can extend the statute if you sign a waiver or if you take an action that tolls the time clock.
Unfortunately, according to the Taxpayer Advocate’s 2015 Annual Report to Congress, the IRS’s “computers cannot reliably track extensions.” This can create significant confusion and lead to disputes over the correct CSED. Another way a CSED dispute can arise is when there’s disagreement about facts relating to the tolling of the statute of limitations.
For instance, the CSED gets pushed back if you’re outside the United States for more than six continuous months. The IRS might believe you returned to the United States at a later date than you really did. This is why it’s important to consult with a tax professional if you believe the validity of your tax debt hinges on the CSED.
Leveraging the Statute of Limitations to Get a Tax Settlement
Normally, when you set up a payment plan, you must be able to pay off the full tax bill by the collection statute expiration date. However, if you can’t afford to do that, you may qualify for a partial payment installment plan (PPIA). A PPIA lets you make monthly payments until the collection statute expires. Then, the IRS forgives the remaining amount of the tax debt.
Here’s an example. Say that you owe $36,000, and it expires in three years. With a traditional payment plan, you would need to pay $1,000 per month for 36 months. But what if you couldn’t afford that amount? Then, you would submit a financial disclosure to the IRS to request smaller payments. If you were able to pay $100 a month, the agency would collect that for three years. Then, it would write off the remaining portion of the debt. In this example, you’d save over $30,000.
One potential drawback of a PPIA is that these arrangements are not set in stone. The IRS has the right to revisit your financial situation every two years. If your finances improve, the agency may demand a larger monthly payment or payment in full. Also, if you default, the IRS has the right to cancel the PPIA and resume collection actions against you.
Keep in mind that the IRS always wants to collect as much as possible of your tax debt. The agency generally won’t settle tax debts if you sell assets or use your income to cover the debt. However, there’s a lot of subjectivity involved in negotiating a settlement with the IRS, and for the best results, you should work with an experienced tax attorney who understands these programs.
Offers in Compromise and the Statute of Limitations
An offer in compromise (OIC) is the IRS’s most popular tax settlement program. If you qualify, it can allow you to pay off your tax debt for less than what you owe, but you need to be aware of how the statute of limitations interacts with this program.
When you apply for an offer in compromise, it stops the clock on the statute of limitations. If the IRS rejects your offer, the clock starts again 30 days after the rejection. However, the clock stops again if you appeal the rejection. This whole process can take up to a couple of years.
If you only have two years left until the collection statute expires, you may be better off not applying for an OIC and instead applying for a PPIA. Another option is to try to wait out for the IRS. A tax attorney can help you identify the most effective option in your situation.
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What Are Some Other IRS Tax Statutes of Limitations?
Unfiled Tax Returns
Most of the above scenarios relate to situations where the taxpayer filed their return. But what if you don’t file? In this case, the statute of limitations clock never starts. In theory, the IRS can go back an unlimited amount of time for unfiled returns. The agency can assess tax against you and then forcibly collect the tax. However, in most cases, the IRS only goes back six years with unfiled returns.
Audits
The statute of limitations for the IRS to conduct a tax audit is three years. The clock begins at the date of the original filing deadline or the date the IRS actually receives the tax return (in cases when you filed your return late), whichever is later.
If the audit relates to a significant understatement of income (25% or more), a six-year statute of limitations applies instead.
Tax Refunds
This statute of limitations applies to you in that you have three years from the original filing deadline to file a return asking for a tax refund. If you want to claim a refund for the 2023 tax year (or file an amended tax return for that year), you’d have until April 15, 2027, to file the necessary tax return. You can file a claim for refund two years from the time a tax was paid, if that date comes after the three-year period.
Fraud
There’s no statute of limitations in cases of civil tax fraud. However, if you’ve committed criminal tax fraud (also known as tax evasion), then the statute of limitations is usually six years.
State Tax Statutes of Limitations
In addition to the federal tax statute of limitations, similar laws apply at the state level to unpaid state taxes. In some cases, the statute of limitations can be far longer.
In Georgia, the DOR has five years after assessment to file a state tax lien, referred to as a tax execution. Then, the Department of Revenue has 10 years from the recording date to collect the unpaid tax. Like the IRS statute of limitations, this time limit can be tolled and extended for several different reasons.
Can You Wait Out the IRS?
Yes, you could technically wait out the IRS. If you can fly under the radar for 10 years, you won’t have to pay your tax bill once it expires. However, this can be difficult and financially damaging, and also nearly impossible. The IRS gets aggressive with its collections when the CSED is near. Here are some actions they may take to pressure you:
- Wage garnishment: The IRS can instruct your employer to withhold part of your paycheck to cover your tax debt. Yes, you can find another job, but the IRS has enough resources, so they’ll eventually catch up with you and resume collections. Also, not documenting income can really limit you if you ever decide to get a loan.
- Bank Levy: The IRS can instruct your bank to freeze your account funds up to what you owe in taxes.
- Revenue Officer (RO) assignment: If the Automated Collection System has been handling your case, the IRS can transfer it to the RO, who can take a deep dive into your finances and seize assets to cover tax debt.
- Pressure to sign the collection statute waivers: The IRS can execute a Form 900, Tax Collection Waiver, to extend CSED. If this happens, consult a tax professional before signing it.
The bottom line is that it can be possible to wait out the IRS, but in most cases, doing so will hurt you financially and/or cause you more stress than it’s worth.
Frequently Asked Questions ( FAQ)
Here are some common questions on the IRS 10-year statute of limitations on back taxes:
When does the IRS 10-year statute of limitations start?
The clock starts ticking on your assessment date when the IRS formally records your tax debt. Usually, shortly after you file your tax returns.
Does tax debt automatically go away after 10 years?
If there were no tolling events, yes, the tax debt automatically expires 10 years after the assessment date. The IRS can’t legally collect after CSED.
What can I do to prevent the CSED from extending?
Avoid filing for bankruptcy or applying for an OIC close to the CSED. Also, follow through with your monthly payments if you have an installment agreement in place to avoid triggering the CSED extension. Consider working with an attorney for a better strategy.
Let’s Worry About Your Tax Debt
Are you struggling with tax debts? Dealing with collection actions on a debt you thought had expired? Has the IRS calculated your collection statute expiration date correctly? We can help.
At Wiggam Law, we take our time to fully understand your tax situation and the CSED before taking any major steps. Keep in mind that although you don’t want to ignore your tax bill, you also want to use the CSED to your advantage.
Timing is everything when dealing with the IRS. If you’d want to learn more about how best to handle your situation, schedule a consultation with us today.
