Does the IRS forgive tax debt after 10 years? You might have heard the rumors about the Collection Statute Expiration Date (CSED), but what does it really mean for your tax debt? The truth is that the IRS loses its legal right to collect a tax debt when the CSED for that debt expires. However, there are exceptions — such as tolling events — you need to know about.
In this article, we explain the nuances of the 10-year rule and look into what it means for your tax situation. We’ll cover when the clock starts ticking, what scenarios extend the time limit, and whether waiting for the CSED to expire to deal with an unpaid tax bill is a good idea. Ready to get help now? Then, contact us at Damiens Law today.
Key Takeaways
- The Collection Statute Expiration Date (CSED) – The IRS has 10 years from a tax assessment to collect that tax.
- After the CSED expires, the particular tax debt subject to the CSED becomes legally uncollectible, and the IRS must stop trying to collect that debt.
- Settle a tax debt for less than what you owe – If the CSED expires when your tax debt is in Currently Not Collectible status or you have a Partial Payment Installment Agreement, any remaining balance gets written off by the IRS.
- Tolling events can extend the CSED – Things like an Offer in Compromise (OIC), bankruptcy, or requesting appeals can extend the 10-year clock.
- Knowing your CSED is important – It can help you plan a smarter resolution strategy and avoid extending the statute unnecessarily.
The Myth of Automatic Tax Forgiveness
Many taxpayers believe that the IRS automatically forgives tax debts after 10 years, but this isn’t entirely true. The IRS doesn’t “forgive” your debt when the 10 years are up. Instead, the agency loses its legal right to collect the tax debt subject to the expired CSED. When this happens, the IRS effectively “writes off” the debt.
The date that the IRS completes the tax assessment is when the 10-year clock starts ticking, although there are events that will pause the clock or extend the CSED period. Understanding how this works is the smartest way to avoid triggering an extension.
How the 10-Year Rule Works
The statute of limitations clock starts from the day that they assess your taxes, not from when:
- Your original tax return was due.
- The date you filed your tax return.
- When you received notice of the assessment.
The IRS usually assesses your tax return within weeks of you filing it. If you fail to file your return, the agency can file a Substitute for Return (SFR) and use that to make the assessment themselves. Either way, once the assessment is complete, time starts ticking.
To find out your exact assessment date, you can request your tax records and transcripts. You can do so by going to the IRS website and signing in to your account. You can also request a transcript via mail or by phone by calling 800-908-9946.
If you notice a mistake on your transcript, you must take action as quickly as possible. Reaching out to a qualified tax attorney to talk about how to do this is usually recommended. Working with an expert means you can avoid any potential pitfalls and can overcome the discrepancy quickly.
When you have the transcript, look at the assessment date and then add 10 years to find your CSED. For example, if you filed your 2018 tax return on April 15th, 2019, and the IRS assessed it by May 6th, 2019, the CSED would be May 6th, 2029. This date could be extended if there are tolling events during that period.
Tolling Events That Pause or Extend the 10-Year Clock
Tolling events pause or extend the 10-year clock on your CSED, which means that the IRS may have longer to collect your taxes. The following scenarios and activities can add months or even years to the collection period.
Offer in Compromise (OIC)
You can submit an Offer in Compromise (OIC) to the IRS if you can’t afford to pay off your full amount of tax debt. An OIC request pauses the 10-year period while your offer is under review, plus another 30 days after that if the IRS rejects it.
Bankruptcy
If you file for bankruptcy, that immediately pauses the CSED. The clock will stay paused for the entirety of your bankruptcy case, plus an extra six months after the case closes.
Appeals or Installment Agreement Requests
Requesting an installment agreement or submitting an appeal also pauses the CSED clock. Your time will be frozen while the IRS reviews your case and makes a decision. It stays paused for an additional 30 days once the IRS has responded to your request.
Innocent Spouse Relief
Filing for Innocent Spouse Relief will stop the CSED clock until the IRS has reviewed your case.
Living abroad
If you live outside the US for six consecutive months or more, that time will not count towards your CSED period.
Knowing Your CSED Date Matters
As a taxpayer, it’s important to understand how the CSED dates work and any events that can change them. The reason is that this will change the way that you approach your tax debt.
The IRS May Become More Forceful
If your CSED expiration date is looming, the IRS may increase its collection activity. This could include more aggressive levy actions, rushed attempts to file liens before time runs out, and putting you under pressure to sign agreements that extend your CSED.
You Can Strategically Plan Ahead
When you know the date your CSED expires, you can make more informed decisions about your future. For example, you may want to maintain your Currently Not Collectible (CNC) status ahead of the CSED running out.
You Can Avoid Accidentally Extending It
The main reason you should know when your CSED expires is so that you can avoid accidentally extending it. For example, if you request an unnecessary CDP hearing in the lead-up to your CSED date, you will end up extending the period while the IRS reviews it.
What Happens When the 10 Years Run Out?
When the CSED expires, the following happens:
- The IRS no longer has the legal right to collect the tax debt that’s subject to the CSED.
- All levies and garnishments on your account for the expired tax debt must stop.
- Federal tax liens will stay on the public record for the next 30 days.
Keep in mind that you won’t receive any official notice of the CSED expiring from the IRS. Instead, the agency will simply cease any action on your account. For that reason, it’s worth keeping track of this time period so you know when the CSED is likely to run out.
How CNC or PPIA Taxpayers Commonly Reach Expiration
There are two IRS statuses that allow taxpayers to run out the clock while staying compliant. It’s worth investigating whether you’re eligible for these statuses if you have mounting debt.
Currently Not Collectible (CNC) Status
The Currently Not Collectible (CNC) status means that the IRS agrees you can’t afford to pay off any of your debt right now. While you hold this status, all collection activities stop, and the CSED clock continues to run as long as you remain compliant with the IRS.
If you’re eligible for CNC status, you may be able to avoid paying back debt that you simply can’t afford. Some taxpayers are able to remain in this status for years until their CSED expires, then they no longer have to repay the tax they owe.
Partial Payment Installment Agreements (PPIA)
Partial Payment Installment Agreements (PPIA) are pre-arranged plans in which you make monthly payments so low that you’ll never pay off your full tax balance before the CSED expires. The IRS will agree to this arrangement because the IRS would rather collect something than nothing.
Many Taxpayers Don’t Realize Their Debts Have Expired
The agency doesn’t want to draw attention to or celebrate this change. With that in mind, many people have no idea that the CSED expiration on their tax debt has already passed. They may find themselves worrying about debt from years ago that the IRS no longer has the legal right to collect. The main reasons that taxpayers don’t know their debt has expired are:
- They never requested their transcripts from the IRS.
- They wrongly believe that tax debt lasts a lifetime.
- Collection notices have stopped, and they don’t know why.
- They haven’t taken the time to calculate their CSED date.
Figuring out what your current status is could give you the peace of mind you need. CSED calculations can be complicated, especially if there are tolling events. Should you need expert help, reaching out to a qualified tax attorney is the first step.
Take Back Control of Your Debt Timeline
Use the 10-year tax debt rule to your advantage. Whether you’re closing in on the CSED or you have years remaining, a tax expert can help you find the right path. At Damien’s Law, our team can guide you. Get started with a free consultation by contacting us online or by calling 601-873-6510.
FAQs
Does the IRS really forgive tax debt after 10 years?
No, the IRS doesn’t “forgive” the tax debt. Rather, after the Collection Statute Expiration Date (CSED) expires, the agency no longer has the legal right to collect the debt subject to the CSED.
When does the 10-year period start?
It starts when the IRS completes your tax assessment. You can find out when that date is by requesting your tax records and transcript.
What happens when the 10 years are up?
The IRS doesn’t automatically forgive or write off the tax debt. Instead, the IRS no longer has the legal right to collect your tax debt.
