The IRS collections process can be stressful, especially when attempting to meet the governmental agency’s deadlines. The IRS makes use of several different types of collection tactics when attempting to recover delinquent taxes. While the IRS may issue deadlines to taxpayers, the agency is also required to collect back taxes within established IRS collections deadlines.
If you owe money to the IRS, the experienced Mississippi tax attorneys at Damiens Law are available to help you navigate the collections process. Contact us today at (601) 957-9672 to learn more about your legal options.
What is the statute of limitations for IRS collections?
In general, the IRS has a ten-year statute of limitations to collect unpaid taxes. The IRS can attempt to collect these taxes for up to ten years from the date they were assessed. While there are some exceptions, in most cases the IRS must stop its collections process after this ten-year period has expired. Each year, thousands of taxpayers have their tax debts wiped clean due to the statute of limitations expiring.
As the Internal Revenue Service collection statute expiration date begins to approach, the IRS often uses aggressive tactics in an attempt to pressure taxpayers to pay as much of their debt as they can before the deadline, or even to voluntarily extend the deadline. Taxpayers who are in this situation should carefully consider all relevant facts before agreeing to anything suggested by the IRS. An experienced tax attorney can provide legal counsel on how to best handle the situation.
When does the statute of limitations begin?
The clock for the ten-year statute of limitations period starts running on the date of the tax assessment, which is when an IRS official signs a form regarding the tax debt at an IRS Service Center. For example, the IRS typically sends a written notice of delinquent taxes as the first step of the collections process. The date listed on this notice and bill is the date that the statute of limitations begins.
When a taxpayer has not filed a return, the IRS may create a substitute return on their behalf and make a deficiency assessment at this point, which begins the statute of limitations period. This means that if a taxpayer did not file a return ten years ago, but the IRS discovers it a decade later, the collections period will begin on the date that the substitute return was created, not the tax return year.
Can the statute of limitations be suspended?
In some situations, the statute of limitations may be temporarily suspended for one or multiple periods during the collection process. When this happens, the total collection period can be extended and last more than ten years.
For instance, the collections period will be suspended in situations where the IRS legally cannot seek collections from the taxpayer, such as due to a bankruptcy filing. In this case, the limitations period would be suspended for the duration of the bankruptcy period plus another six months. The IRS will also suspend the limitations period when considering requests for installment plans, offers in compromise, or innocent spouse relief. In rare cases, the IRS may opt to extend the ten-year period by suing the taxpayer in federal court.
Should you ever voluntarily extend the deadline?
Ten-year IRS collections deadlines may be extended if the taxpayer voluntarily agrees to do so. The IRS often asks taxpayers to voluntarily waive the ten-year limitations period when agreeing to an installment plan for partial payment of the owed taxes. The IRS will often offer an installment agreement with seemingly favorable terms as the collection deadline approaches in an attempt to get the taxpayer to voluntarily extend the collection deadline.
Like any other major tax decision, taxpayers should not agree to an extension without first carefully considering the potential consequences. In many cases, the best option is to refuse to extend the deadline and allow the collections process to play out until the deadline. You can learn more about tax deadline extensions and other aspects of the collection process by speaking with one of the seasoned Mississippi tax lawyers at Damiens Law.
The IRS collections process
When the Internal Revenue Service assesses a tax debt, they will begin the collections process, which includes several steps. Taxpayers should always attempt to cooperate with the IRS and reach an agreement regarding the taxes they owe. Ignoring the IRS collection process will most likely only lead to preventable complications.
First notice and demand of payment
Taxpayers who do not pay the full taxes they owe when they file a return will receive a bill for the amount due. This bill is the first step in the collections process, which will continue until the tax debt is satisfied or until the IRS no longer has a legal basis to collect the tax – such as the expiration of the statute of limitations period. This first notice will also include a letter explaining the balance due and a demand for the full payment of the tax amount plus interest and penalties accrued on the unpaid balance since the date the tax was due.
The unpaid tax balance is subject to daily compounding interest and monthly late payment penalties. Taxpayers with tax debts should do everything they can to settle the debt as soon as possible to limit the penalties and interest.
Taxpayers who are not immediately able to pay their tax debt in full should consider a payment plan. While not all taxpayers qualify, those who do may agree to a short-term payment plan that lasts up to 180 days. This is available for taxpayers who owe less than $100,000 in combined back taxes, interest, and penalties. Those who cannot pay within 180 days may qualify for a monthly installment agreement.
Offer in compromise
For those who cannot fulfill their tax debt through a payment plan, an offer in compromise may be an option. This is an agreement between the taxpayer and the IRS that allows the taxpayer to settle their tax debt for a fraction of their balance due. To qualify, the taxpayer must have filed all tax returns, made all required estimate tax payments for the current tax year, and made all required federal tax deposits for the present quarter if the taxpayer owns a business with employees. The IRS collections deadline will be extended while the agency is considering an offer in compromise request.
Request a delay in collection
If the taxpayer needs additional time to satisfy their debt, they may ask the IRS to delay the collection process and report the taxpayer account as “currently not collectible.” The IRS may temporarily delay the collection process if they determine that the taxpayer is unable to pay any of their tax debt because of financial hardship. The collection process will resume once the IRS determines that the taxpayer’s financial situation has significantly improved. Declaring an account “currently not collectible” does not dissolve the debt – rather, it officially recognizes that the taxpayer cannot afford to pay the debt at present.
Before approving a request to delay the collection process, the IRS will ask for a Collection Information Statement and proof of the taxpayer’s financial condition (such as their monthly income, expenses, and assets). If the delay is approved, the debt will continue to accrue interest and penalties until it is fully paid.
An IRS tax lien is a legal claim to a taxpayer’s property based on an owed tax debt, including property that the taxpayer obtains after the lien is assessed. The IRS may file a Notice of Federal Tax Lien as part of the public record, which notifies creditors of the tax debt. A lien may be assessed automatically if the IRS sends the first notice demanding payment of a tax debt and the taxpayer fails to pay the balance in full.
In most cases, the IRS will not release the lien until the full taxes, penalties, interest, and recording fees are paid or the IRS is no longer legally permitted to collect the tax due to an expiring statute of limitations.
An IRS tax levy allows the agency to seize assets from taxpayers who owe delinquent taxes. These assets may include physical properties like real estate and vehicles, along with wages, bank accounts, social security benefits, and retirement income. If the IRS seizes physical properties, these properties will be sold, and the proceeds will go toward the tax debt. Future federal and state tax refunds may also be seized and applied to the debt.
Contact our experienced Mississippi tax lawyers for legal guidance on IRS Collections Deadlines
If you are currently going through the IRS collections process, it is important to be very careful about how you handle the process. Each tax debt involves different circumstances, and the best course of action depends on the unique circumstances of the taxpayer who owes the debt. At Damiens Law, our team of experienced Mississippi tax lawyers is dedicated to helping our clients deal with the IRS and satisfy their tax debts based on their personal needs. If you have questions about IRS collections deadlines or any other tax-related questions, you can learn more by contacting Damiens Law at (601) 957-9672.