The Truth about the IRS 10-Year Statute of Limitations on Back Taxes

Gavel and hourglass counting down IRS statute of limitations on back taxes

The IRS is one of the most effective debt collectors in existence, but there eventually comes a point in time when the IRS is legally required to let go of an uncollected tax debt. 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.

It might seem too good to be true that you can make an unpaid tax bill go away simply by ignoring it long enough. As nice as it sounds, trying to eliminate a tax debt by dodging the IRS until the collection statute expiration date (CSED) isn’t as easy as it seems. Not only does the IRS sometimes miscalculate the CSED, but there are usually better ways of dealing with tax bills you can’t afford to pay back immediately.

Let’s take a look at how the collection statute of limitations works and why you don’t always want to rely on its expiration as a primary method for dealing with your unpaid taxes.

Key takeaways

  • Statute of limitations (SOL) – Time limit for a person or the government to take legal action against someone.
  • SOL on tax debt collection – The IRS has 10 years to collect a tax debt.
  • IRS collections – If you don’t pay, the IRS can garnish wages or use other collection actions during the 10-year collection period.
  • Tolling – The IRS must stop collections if you apply for payment plans, settlements, or bankruptcy. The extra time gets added to the collection time frame.
  • Expiration – The IRS cannot collect the tax debt once the collection period expires.
  • Collection expiration date – This date is on your tax transcript.
  • Other limits – The IRS also has time limits on how long it can take to audit your return or assess taxes against you.
  • Unfiled returns – If you don’t file a return, the statute of limitations never starts for audits, assessments, or collections related to that tax year.

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 the later of the day the return was filed and processed or its due date. For instance, if your tax return was due April 15, 2024, and you filed on March 1, 2024, the clock starts on April 15.

However, if you file late, the clock starts ticking on the day the IRS processes the return after you file it. For example, if you file your 2023 tax return on October 15, 2024, and the IRS processes it on November 15, 2014, the 10-year collection time frame starts on November 15, 2024, not April 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.

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 may be able to 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

To find the Collection Statute Expiration Date (CSED) for your tax debt, you can create an online IRS account and request an account transcript. Alternatively, you can use Form 4506-T, Request for Transcript of Tax Return, to request a transcript by mail. Getting one online is free, but you have to pay to get a mailed copy.

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 the IRS makes mistakes with CSED calculations. If you believe the date shown is incorrect, contact a tax attorney to help you.

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 causes the clock to stop ticking 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:

  • Applying for an offer in compromise — This tolls the statute from the day you apply to the 30 days after the IRS rejects the offer.
  • Requesting an installment agreement — When you apply for a payment plan, the statute is tolled while your application is pending.
  • Filing an 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.
  • Appealing a collection action through a 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 that the agency cannot garnish wages, seize assets, or take other actions that can 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 can happen when you apply for a partial payment installment agreement, which can delay the collection expiration date by up to six years. 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 a lot of confusion and lead to disputes over what the correct CSED is. 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 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’ 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.

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 limitation 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.

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.

Keep in mind that if you have a job, your employer will report your wages to the IRS along with your address. Similarly, if your bank pays you any interest, they will also send a statement to the IRS with your name and address. The IRS can use this information to find you, and if the agency thinks that it can collect the tax debt, it will move forward with enforced collections such as wage garnishments and asset seizures.

If you file a tax return to get a refund, the IRS will keep the refund and apply it to your tax debt. The tax return will also give the IRS the information it needs to find you and collect the tax debt. However, if you don’t file, you’ll miss out on the refund, and you won’t get the funds credited to your account.

People who decide to wait out the IRS generally don’t have healthy financial lives. They often try to work for cash “under the table,” which limits their ability to get good jobs. They struggle to get loans because they lack documented income or tax returns. This can prevent them from buying homes or cars.

Another consideration is that you manage to wait out the IRS, but they mistakenly believe that the statute of limitations deadline hasn’t yet expired. As a result, the agency continues to take steps to collect the tax debt by sending you notices, filing a federal tax lien, or placing a levy on your property. If you decide to wait out the IRS when the CSED comes and goes, you’ll need to take proactive steps to make sure the IRS stops trying to collect the tax debt. This may include asking the IRS for a Certificate of Release of Federal Tax Lien or for them to release their tax levy on your property (if applicable).

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.

Get Help With Your Tax Debt Now

Are you struggling with tax debts? Dealing with collection actions on a debt you thought was expired? Has the IRS calculated your collection statute expiration date correctly? If any of these questions apply to you, contact the experienced tax attorneys at Wiggam Law today. Note that although the IRS suspended many collection actions during COVID, as of 2024, the agency is sending out Letter LT38, followed by more collection notices and intensifying collection actions.

At Wiggam Law, we are dedicated to helping our clients get out of tax debt so they can move on with their lives. We understand that people get behind for all kinds of reasons, and there’s no one-size-fits-all solution. To get customized help for your tax troubles, schedule a consultation with our team or call us at (404) 233-9800.

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