Statute of Limitations

Does the IRS have forever to collect back taxes?  Thankfully, no!  

The IRS* has 10 years to collect the tax, penalties and interest for that year’s return. There are specific circumstances that can “pause” the clock after a return has been filed.

For taxpayers who have filed their returns on time but the IRS has taken time to start their collection efforts, this can be a powerful solution.

The IRS automatically stops all collection efforts when the 10 year limit has been reached. Knowing when the statute of limitation is for each year you have tax debt is a significant factor in determining your best solution.

If your Collection Statute Expiration Date (CSED) date is approaching, the IRS may become more aggressive in collecting as much as possible from you. 

When Does the Statute of Limitations Period Start?

The 10 year period begins on the date the tax is "assessed" or billed to you by the IRS. This is the date the IRS completes their processing of your income tax return and determines that you owe them money.

For example, if you do not pay in full when you file your tax return, you will receive notice in the mail showing the amount you owe. The date of this notice is the start of the 10 year period.

If you did not file a tax return, the IRS can create a substitute return for you and make an assessment based on the return they prepared, which starts the ten year period.  But, not filing a return and hiding for 10 years accomplishes nothing.

What Stops or Pauses the Statute of Limitations Period?

The 10 year period can last for more than 10 years. Bummer, right?  There are specific circumstances that will pause the statute of limitations from continuing to run.

For example, if the IRS is legally barred from pursuing any collection activity from you.  This can happen under these situations:

Voluntary Extensions

The 10 year period can be extended if you voluntarily agree to do so. Yikes!  Who does that?  Well, the IRS used to aggressively pressure taxpayers to agree to extend the limitations period beyond 10 years. If the taxpayer refused to "voluntarily" agree to the extension, the IRS would make threats. Thankfully, the IRS is no longer allowed to do this!

But...if you enter into a payment plan with the IRS that is projected to only pay a part of the total amount due, you'll most likely will have to sign a form waiving the 10 year statute of limitations period. File that under the "this stinks" category. However, this extension can be no more than 6 years.

If your statute period is approaching the end and you still owe the IRS a large amount of money, the IRS may offer you a payment plan with attractive terms in order to get you to agree to extend the collection deadline. Consider this offer very carefully before agreeing to any such extension! You may be better off refusing to extend the deadline and let the IRS collect whatever it can before it runs out.

* The statute of limitations for state and city tax debt is typically longer, if any period is even defined.

Kelley Brubaker, CPA
 

Kelley is a CPA. Kelley is the founder and owner of Brubaker Tax Resolution Group, a division of JSSB ltd.

Kelley specializes in representing taxpayers, both individuals and businesses, before the Internal Revenue Service and all State Tax Agencies within the United States for a variety of tax issues.

Kelley’s resume and professional accomplishments can be found on LinkedIn.