This is a question that many have when they first hear about the IRS statute of limitations on collections. In this post, we’ll answer that question and a lot more as we take a deep dive into the rules governing the statute of limitations placed on the IRS when they are trying to collect back taxes.
How long is the limitation period?
As already hinted at, the statute of limitations on IRS debt is 10 years. This means that under normal circumstances the IRS can no longer pursue collections action against you if 10 years have passed since the clock started on your tax debt. A fairly lengthy list of actions can occur that will allow the IRS to extend that 10 year period, however. Properly identifying how long you have before the IRS statute of limitations runs out means understanding all of the circumstances the may buy the IRS more time.
When does the limitation period begin?
You can’t calculate how far back the IRS can collect taxes without knowing when the countdown clock starts. The IRS 10 year statute of limitations starts on the day that your tax return was processed. If you are looking for the statute of limitations on tax debt, it is safe to assume that you did not pay your tax bill when you filed them. In this case, you will receive a bill from the IRS in the mail telling you the amount that you owe. The date on this bill is the date that your 10 year period begins.
What can extend the limitation period?
There are certain actions that can be taken by you, or by the IRS, that will extend the 10-year time frame that they have to collect the debt within. It is important that you know what these actions are. In the case of actions that you take, this will allow you to fully understand the pros and cons when deciding whether or not to take them. In the case of actions by the IRS, this will allow you to understand the full ramification of those actions.
Applying for an installment agreement
When you apply for an installment agreement, the time the IRS has to collect your debt will be extended by the length of time that it takes for them to review your request. This is also true if you appeal a rejection for an installment agreement. If you are rejected and do not appeal, the suspension will still continue for 30 days after you are notified of the rejection.
Applying for an offer in compromise
Applying for an offer in compromise behaves exactly like applying for an installment agreement. The limitation will be suspended during the time they are reviewing your application, the time they are reviewing an appeal, and for 30 days after you are notified of a rejection.
Applying for innocent spouse relief
If you filed jointly and can prove that the mistake was made by your spouse and that you had nothing to do with it, you can petition the IRS for innocent spouse relief. The 10-year limitation will be suspended starting when the request is applied for. It will continue to be suspended until a court petition is filed or the 90-day window to file a petition expires, plus 60 days.
Filing for bankruptcy
If you file for bankruptcy then debt collectors are legally barred from attempting to collect a debt from you. Because of this, the statute of limitations is suspended during the time in which collections are barred. The suspension continues for six months after that restriction has been lifted.
Living outside of the United States
If you leave the country for a period of 6 months or more, then the IRS has at least 6 months after you return to attempt to collect the debt. This is true even if the statute of limitations would have otherwise expired while you were out of the country.
Does the limitation run if my account is currently non-collectible?
If you have very little money left over after you have paid all of your monthly expenses, you can contact the IRS and have them mark your account as currently non-collectible. An account in this state may still have tax liens placed on your property, but will not be subject to wage or bank garnishments and the IRS will cease all collections related activity.
With the lengthy list of things that may extend the IRS collection statute of limitations, you might be wonder what effect having an account placed in currently non-collectible status has on your 10-year period. There is good news here, as the statute of limitations continues to count down during the time your account is in currently non-collectible status.
Be aware that applying for this status means giving the IRS all of your financial information, so you must be sure that you are unable to pay the debt. Otherwise, you will have given them information that you might not want them to have. A qualified tax relief expert can help you decide if this course of action is the right one for you to take.
Are there any circumstances where there is no limitation?
As long as you are doing what you are supposed to do, the IRS back taxes statute of limitations will apply to your account. There are some circumstances, however, that allow the IRS to bypass the statute of limitations. If the IRS can show that you have filed a fraudulent return for the purposes of evading taxes, then they do not have to honor the 10-year limitation. Similarly, if you attempt to evade taxes by not filing a return at all, you will give up the statute of limitations.
More importantly, if you have behaved in a way that the IRS can prove was intended to evade taxes, then you are subject to criminal charges. In these cases, waiting them out is the last thing you want to do. Not only is there no statute of limitations, but the IRS is much more likely to work with you rather than prosecute you if you come forward and admit to your mistake. Again, this is a situation where you should talk to a tax expert to find the best path forward.
How does the IRS apply payments?
If you owe taxes on multiple years, you may be wondering how payments are handled by the IRS. Payments may be applied to your account in a number of ways. You may send them the money voluntarily, perhaps via an installment agreement or offer-in-compromise with the IRS that allows you to start making payments. The IRS may also garnish your wages or your bank account and get money from you that way.
How does the limitation affect tax liens?
If you do not pay your taxes and they cannot get the money any other way, or if you have been accepted for a currently non-collectible status and your tax debt exceeds a certain threshold, the IRS may place a lien on your property. Such a lien will negatively impact your credit as lenders will see that you owe the IRS money that you have not paid them. If you have such a lien on your property, or have been threatened with one, you might be wondering how the 10-year statute of limitations impacts it.
The federal tax lien statute of limitations is the exact same limitation as the one for back tax collection. If the IRS has placed a tax lien on your property, then that lien will expire once the 10-year period is up and the tax debt is no longer collectible.