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 only has about ten years after the tax is assessed to collect back taxes. This is called the collection statute of limitations, and the last day that the IRS can collect your tax debt is the collection statute expiration date (CSED). If you’re dealing with unpaid taxes, you need to understand how this date affects your options.

It’s also critical to note that the IRS occasionally miscalculates this date. To protect yourself and your assets, you may want to work with a tax professional to determine if your tax liability is accurate. In the meantime, here’s what you need to know.

How Does the 10-Year Limit Affect People Who Owe Back Taxes?

Often, the IRS will ignore tax debts for years, and then, the agency will ramp 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. If you ignore that notice, the IRS can move forward with the levy, and once that happens, it can be very hard to undo the process and protect your assets.

On the other hand, 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. 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 debt.

Can the IRS Take More Than 10 Years to Collect Tax Debts?

In some cases, the IRS can take more than 10 years to collect tax debts. This happens when an event causes the clock to stop ticking on the statute of limitations and the deadline gets extended. This is called tolling the statute of limitations.

To give you an 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.

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.
  • Filing a Taxpayer Assistance Order — The statute is tolled from the day you file the assistance order until the Taxpayer Advocate issues a decision on your request.
  • 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 get back to the United States.

Note that if you file a Taxpayer Assistance Order, it stops the clock. However, if you call the Taxpayer Advocates and ask for help, it does not stop the clock. To be on the safe side, call the Advocates if you want help rather than applying in writing.

The good news is that when the clock stops, the IRS cannot pursue collection actions against you. 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.

In some cases, the IRS may ask you to sign a waiver to extend the statute of limitations. Often, this happens when you apply for a payment plan, which can delay the collection expiration date by up to five 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 IRS 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. It also indicates that you shouldn’t always trust the IRS’s deadline. A tax professional can ensure that you’re working with the right date.

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 to request a transcript. It’s free to get one online, 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 time period, keep in mind that some of your debts may expire after the date shown.

You can also call the IRS directly to ask how the agency has calculated the statute expiration date. Once you know your CSED, you may be able to leverage it to get a tax settlement.

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.

The only 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.

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 could sell assets or use your income to cover the debt. However, there is 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 is the IRS’s most popular tax settlement program. If you qualify, it can allow you to pay off your tax debt for pennies on the dollar, 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 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 applying for a partial payment installment agreement or even just seeing if you can wait out the IRS. A tax attorney can help you identify the most effective option in your situation.

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 latter of the day the return was filed or its due date. For instance, if your tax return is due April 18, 2023, and you file on March 1, 2023, the clock starts on April 18.

However, if you file late, the clock starts ticking on that day. For example, if you file your 2022 tax return on October 15, 2022, the 10-year collection time frame starts on that date.

The date can change if the IRS assesses additional tax against you. For instance, say that the IRS discovers that you have unreported income, and it 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 30 days after the notice date, and that’s the date that the clock starts for the statute of limitations.

Statute of Limitations for Unfiled Tax Returns

Most of the above scenarios are related to situations where the taxpayer filed their return. But what if you don’t file? Well, in this case, the statute of limitations doesn’t get started. 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.

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 don’t have documented income or tax returns. This can prevent them from buying homes or cars.

Here’s the bottom line — it can be possible to wait out the IRS, but in most cases, doing so will hurt you financially and cause you more stress than it’s worth.

Get Help With Your Tax Debt Now

Struggling with tax debts? Dealing with collection actions on a debt you thought was expired? Wondering if the IRS has calculated your collection statute expiration date correctly? Then, 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 which will be 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, call us at (404) 233-9800 or schedule a consultation today.