An Overview of IRS Collection Statute of Limitations for Unpaid Taxes
If you owe money to the IRS, you might be wondering how much time the IRS has to collect it. The answer is that it depends, although generally speaking, there is a 10-year statute of limitations for the IRS to collect unpaid taxes.
If they don’t collect your taxes within this timeframe, then you don’t have to pay your tax bill balance. For example, if you get the IRS to mark your account as currently not collectible and the collection statute expires during that time, your tax bill will essentially disappear. But before you get your hopes up, there are some details you need to know about first.
The rest of this post will talk about what these details are. If you’d like to learn more about IRS statutes of limitations, don’t hesitate to contact Damiens Law at (901) 350-4289 to further discuss your tax concerns.
What Is a Statute of Limitations?
A statute of limitations is a law that limits how much time someone (or the government) has to take legal action or take advantage of a legal right. These types of laws exist to protect individuals or entities from legal action when so much time has passed that they can’t reasonably expect to defend themselves in a lawsuit or other legal action.
For example, imagine you get into a car accident where you and the other driver were hurt. However, both your car insurance companies pay out and cover your respective medical bills, lost wages, vehicle repairs bills, and so on. Then, out of the blue 10 years later, the other driver decides to sue you.
One reason this doesn’t seem fair is because enough time has passed, and it would be difficult for you to obtain evidence to defend yourself in court. Any witnesses you might have called may have died or moved away and cannot be found. Or maybe they can be found, but their memories have faded, so their testimony would be unreliable. Plus, any traffic camera footage that might show that the other driver was at fault may have been deleted by the Department of Motor Vehicles or the police department.
The same idea principle applies to taxes, especially when the IRS tries to collect or assess taxes against you or any other taxpayer. It would be unrealistic (and unfair) to expect someone to keep tax records for over 10 years or deal with a bill that old.
10-Year Statute of Limitations for Tax Debt Collections
In most cases, the IRS has 10 years to collect an unpaid tax bill from you. The IRS sometimes refers to the end of this deadline as the Collection Statute Expiration Date or CSED. This deadline applies to not just the collection of unpaid taxes, but also to recovering any associated interest and penalties. This 10-year statute of limitations “clock” usually begins after the IRS assesses a tax against you.
Other IRS Statutes of Limitations
When it comes to IRS deadlines, the single, biggest statute of limitations is probably the 10-year deadline for collecting back taxes. But there are other IRS statutes of limitations to be aware of, too including the following.
Statute of Limitations on Tax Assessments
In most cases, the IRS has three years from the date a tax return was due or three years from when the IRS received your tax return (if it was filed late) to assess a tax. A tax assessment is essentially where the IRS concludes you owe them money for taxes and calculates the exact amount that you owe.
This tax assessment statute of limitations can be extended or suspended in certain situations, such as if a taxpayer doesn’t file a tax return, files for bankruptcy, or reports 25% or less of their income on a tax return.
Audit Statute of Limitations
For personal and corporate income tax returns, the IRS has three years from the filing deadline or three years from the date you file to audit your return. For payroll returns, the clock starts ticking on April 15, after the year the wages were paid.
In cases of fraud or income understated by more than 25%, the agency has up to six years to do an audit. There is no audit statute of limitations if the return hasn’t been filed.
The audit statute of limitations is the same as the tax assessment statute of limitations. That’s because once a return has been filed, the IRS generally relies on the audit process to assess taxes.
Refund Statute of Limitations
The amount of time you have to file a tax return for a refund is called the refund statute of limitations. You have up to three years from the filing deadline to claim a refund. This rule applies both to originally filled returns and amended returns.
Exceptions to the 10-Year Rule
There are two main exceptions to the 10-year IRS statute of limitations for collections. First, there are a few circumstances where the IRS may temporarily lift the 10-year statute of limitations. This is normally just a pause, or suspension, of the clock. Second, the IRS may extend the 10-year deadline, meaning they get more than 10 years from the date of assessment to collect a tax from you.
A collection statute of limitations with the IRS can get paused or extended if:
- You request an IRS installment agreement. The clock gets suspended for the time it takes the IRS to decide whether to grant your installment agreement request. Appealing the IRS’ decision will also suspend the CSED for the duration of the appeals process.
- You file bankruptcy. The SOL suspension lasts from the date you file your bankruptcy petition until the date the court closes your case, dismisses your case, or you receive a bankruptcy discharge. The CSED also gets extended six months after your bankruptcy concludes.
- You request a Collection Due Process (CDP) hearing. A CDP hearing request suspends the CSED until the IRS decides whether to grant your request. The suspension continues if you file an appeal, and if there are less than 90 days left on your CSED when the IRS makes a decision, the CSED receives a 90-day extension.
- You file an offer in compromise (OIC). While the IRS reviews your OIC application, there is a suspension of the CSED. The CSED suspension continues for another 30 days if the IRS rejects your OIC application or if you appeal the IRS rejection.
- You file for innocent spouse relief. A CSED suspension will remain in effect after you request innocent spouse relief until you file a waiver or the 90-day window to petition the Tax Court expires. If you decide to petition the Tax Court, the CSED suspension stays in effect until the Tax Court makes a final decision. Filing an innocent spouse relief request will also extend the CSED 60 days, although this extension won’t apply to the CSED for your spouse.
- You enter a combat zone or carry out military service. While you are in a combat zone or carrying out your military service, the CSED gets suspended. When you leave the combat zone, the CSED gets extended 180 days. When your military service ends, the CSED gets extended 270 days from the date when the military notifies the IRS.
- You spend an extended period of time living outside the United States. For the most part, the CSED will be suspended while you live outside the United States continuously for six months or longer. When you return to the United States, the CSED will then be extended by at least six months.
In some cases, the IRS may ask you to sign a waiver to extend the collection statute of limitations. Don’t do this without consulting with a tax attorney first.
Other Considerations Concerning Tax Debt Collection Deadlines
Before you plan on using any of the above information to help with your tax issues with the IRS, there are at least three things to keep in mind.
- States can have their own collection statutes of limitations, which could be different from the collection statute of limitations that applies to the IRS. This difference could relate to how long the statute of limitation “clock” runs, as well as when it starts and how it gets extended or suspended. For example, many states have up to 20 years to collect tax debts, twice as long as the IRS.
- Tax statutes of limitations can also apply to taxpayers. For instance, if you want to claim a refund or tax credit, you’ll normally need to file an amended return within two years from when you paid the tax or three years from when you filed your tax return.
- Some tax issues have no statutes of limitations. If you file a fraudulent or false tax return, there is no time limit for the IRS to take action against you. Additionally, if you never filed a tax return, the IRS has as much time as it wants before it starts assessing and collecting your unpaid taxes.
Remember, the 10-year statute of limitation time limit only begins after the IRS assesses your taxes. If they never get a chance to assess your taxes because you don’t file a return, then the 10-year clock never starts.
There is a unique deadline for each tax assessment. For instance, imagine that you file your 2023 taxes on April 15, 2024, and you owe $10,000. The IRS has until April 15, 2034 to collect that amount. But then, the IRS concludes on May 1, 2024, that you owe an additional $1,000. The IRS has at least until May 1, 2034, to collect that $1,000 tax balance from you.
Now assume the IRS completes an audit of your 2023 taxes on August 1, 2025. In that audit, the IRS concludes that you owe an additional $500. The IRS has until August 1, 2035, to collect that $500. So there are now three different CSEDs stemming from your 2023 taxes.
Have more Questions about the Statute of Limitations for Taxes?
The above information sounds a bit complicated, yet it only scratches the surface of how an IRS statute of limitations can affect unpaid taxes. Depending on the situation, you can also leverage the statute of limitations to your advantage when making payment arrangements with the IRS.
If you have any further questions, Damiens Law can help. Reach out to us for a no-obligation consultation. Let’s solve your tax problem before it gets any worse.