Are There Statute of Limitations for IRS Collections?
Did you know that there is a statute of limitations for IRS collections?
Before you decide to just run out the clock on your tax debt, you should fully understand how the IRS statute of limitations works and the different classifications, their duration and how circumstances like bankruptcy can change the game.
Trying to understand the IRS statutes of limitations can be tricky, which is why I advise you to check in with me so I can thoroughly explain to you how the statute of limitations affects your tax situation.
If you still need more information, join me as I cover everything there is to know about the IRS collections statute of limitations ...
What is the IRS Statute of Limitations?
The IRS Statute of Limitations refers to the period of time during which the Internal Revenue Service (IRS) may legally collect taxes, penalties, and interest from a taxpayer. The standard statute of limitations for tax debts is 10 years, beginning from the date the tax return was filed or tax was assessed, whichever is later.
Additionally, Merriam-Webster defines statute of limitations as:
“a statute assigning a certain time after which rights cannot be enforced by legal action or offenses cannot be punished.”
Examples include filing a lawsuit after a traffic accident or for medical malpractice. The premise is that after a given amount of time, evidence, recall of the incident, credibility of witnesses, etc., will be diminished.
While the IRS collection process can be a long and drawn-out affair, it doesn't have to be, and the IRS statute of limitations on collections won't last forever.
How long can the IRS collect back taxes?
Generally, under IRC § 6502, the IRS can collect back taxes for 10 years from the date of assessment. The IRS cannot chase you forever and, due to the 1998 IRS Reform and Restructuring Act, taxpayers have a little relief from the IRS collections division’s pursuit of an IRS balance due.
After this 10-year period or statute of limitations has expired, the IRS can no longer try and collect on an IRS balance due. However, there are several things to note about this 10-year rule.
First and foremost, the statute is carefully crafted to read: 10 years from the date of assessment. The assessment date is April 15 of the year that the taxes were due or the date the return was actually filed, whichever occurs later.
This means several things:
- First, there is no way to reduce the IRS’s statute of limitations by filing your return before April 15.
- Second, there is a pretty severe penalty for late filing in that the 10-year period does not kick in until you actually file your return.
Failing to file a return or attempting to hide from the IRS does not relieve you from liability.
Next, the assessment date can change if you file an amended return or if the IRS has filed a substitute return on your behalf and you file a return to correct it.
In addition, if you tried to conceal income or have filed a fraudulent income tax return, the statute of limitations does not apply on trying to collect on an IRS balance due.
Can the IRS go back more than 10 years?
Yes, the IRS collection statute of limitations can go back more than 10 years in certain instances. For example, bankruptcy, requesting a Collection Due Process hearing, applying for an Offer in Compromise, extended periods out of the US, requesting a Taxpayer Assistance Order from the Taxpayer Advocate, or litigation proceedings.
Also, if the collections statute is close to expiring, the IRS can also sue you in federal court to obtain a judgment against you, which has its own expiration limits.
Generally, this is considered a pretty extreme action and the IRS usually does not waste the time or the resources to sue taxpayers in federal court unless the liability is several million dollars.
We have more on the IRS 10-year statute of limitations extensions coming up...
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The Collection Statute Expiration Date IRS Guide
The Collection Statute Expiration Date (CSED) falls under Section 19 of the Internal Revenue Manual (IRM). The CSED IRS rule refers to the idea that every tax assessment has a statute of limitations. The rules and procedures for the CSED are governed by statute, namely section 6502(a) of the Restructuring and Reform Act of 1998 (RRA 98).
According to the IRM, each tax assessment has a collection statute expiration date, or CSED (IRS.gov, “Part 5. Collecting Process, Chapter 1. Field Collecting Procedures, Section 19. Collection Statute Expiration,” 8/17/2013).
“Internal Revenue Code section 6502 provides that the length of the period for collection after assessment of a tax liability is 10 years. The collection statute expiration ends the government’s right to pursue collection of a liability” (“Collection Statute Expiration”).
However, due to a number of events, there are exceptions to the IRS statutes of limitations rule, with the deadlines possibly being extended. Events are specific to the taxpayer’s response.
Tolling the CSED
If the taxpayer responds with the below actions, then all of these actions and related ones will extend the collection statute of limitations for different extension and/or tolling periods (“Section 19. Collection Statute Expiration”):
- Filing an offer-in-compromise
- Application for a Taxpayer Assistance Order (TAO)
- Voluntary waiver of the statute of limitations
- Collection due process appeal
By signing a waiver of statute of limitations, the CSED can then be extended by no more than five years. The IRS can only request that you sign the waiver if it is in conjunction with a filed installment agreement.
Putting an installment agreement in place can be a helpful way to manage & mitigate IRS problems in general.
IRS statute of limitations & bankruptcy
If you file for bankruptcy, because of the automatic stay imposed by the proceedings, the CSED is generally suspended.
“Even if the suspension of the CSED under IRC 6503(h) no longer applies, the CSED still may be suspended when substantially all the debtor’s assets remain in the custody or control of the bankruptcy court under IRC 6503(b)” (“Section 19. Collection Statute Expiration”).
In this instance, the CSED is extended throughout the duration of the bankruptcy proceedings plus six months.
It is extended on non-dischargeable tax liabilities, from the date of filing for bankruptcy to the date the bankruptcy is either discharged or dismissed. The extension does not include tax debt discharged in the bankruptcy.
Offer in Compromise & the IRS audit statute of limitations
For taxpayers who file an Offer in Compromise (OIC), the CSED will be extended for its duration plus an additional 30 days.
Under certain provisions, the IRS is limited from levying and the CSED will be suspended while an Offer in Compromise is pending; will be suspended for 30 days after the rejection of an OIC; and will be suspended during the period of an appeal of a rejection.
Out of Country Status
If a taxpayer is currently residing outside of the U.S. for a continuous period of at least six months, under IRC 6503(c), the statutory period of limitations on collecting the tax owed, after assessment, will be suspended.
“To make certain that the Government has an opportunity to collect the tax after the taxpayer’s return, the period does not expire (where the taxpayer has been out of the country for six months or more) until six months after the taxpayer’s return to the country” (“Section 10. Collection Statute Expiration”).
In this case, the CSED can be suspended for a very long time.
How far back can the IRS audit you?
In general, the IRS can audit returns filed within the last three years. In some cases, the IRS can also review returns filed within the past six years if they suspect substantial errors or fraud and where the taxpayer failed to report more than 25% of their gross income.
In some cases, there is no limitation on how far back the IRS can audit, such as in cases of unfiled tax returns or intentional tax evasion.
How far back can the IRS go for unfiled taxes?
The IRS can go back six years to audit and assess additional taxes, penalties, and interest for unfiled taxes. However, there is no statute of limitations if you failed to file a tax return or if the IRS suspects you committed fraud.
This effectively means that the 10-year IRS audit statute of limitations restriction doesn't apply if you haven't filed your tax return i.e., you're completely open to investigation at this point without a date restriction.
Does the IRS forgive tax debt after 10 years?
Yes, after 10 years, the IRS forgives tax debt. After this time period, the tax debt is considered "uncollectible". However, it is important to note that there are certain circumstances, such as bankruptcy or certain collection activities, which may extend the statute of limitations.
Additionally, tax debt forgiveness after 10 years can lead to any of that forgiven tax debt having tax consequences, such as being treated as taxable income for the year in which it was forgiven.
So, how long to keep tax returns?
Keep your tax returns and supporting documents for at least three years from the date of filing or the due date of the tax return, whichever is later. If there are tax return discrepancies or if there is a need to claim a refund, keep the tax documents for up to 7 years.
Some documents, such as real estate records, stock transactions, and retirement plan contributions may need to be kept for a longer period.
But, keep in mind that since the IRS has 10 years to collect a liability from the assessment date, it might be beneficial to you to retain your records for this time period.
Either way, you should always be aware of tax debt relief options available to you and why keeping records is always important.
If you're unsure as to how this applies to your situation, get in touch with us so we can get a better understanding of your tax affairs.
Conclusion on the IRS collection statute of limitations
In some circumstances, an IRS statute of limitations will work to your advantage. That is why I encourage you to reach out to me if you want to learn how it could apply to your situation.
I can also advise you on the different types of IRS repayment options to determine which one would be best for you. Then, we can see how any statutes of limitations would extend your repayment time. It is definitely worth looking into.
 Part 5. Collecting Process, Chapter 1. Field Collecting Procedures, Section 19. Collection Statute Expiration.
 The subject of Offer in Compromise is further discussed in Part 3 of Chapter 7: What If I Can’t Pay in Full?