Is there a statute of limitations on taxes?
Did you receive a large tax bill this year? You might be tempted to ignore it. After all, you don’t have the money to pay your federal taxes due without drastically affecting your lifestyle.
And by “affecting your lifestyle,” we mean that you can’t afford to pay your taxes, along with your rent or mortgage, car payments, gas, and insurance, and also buy groceries – which seem to increase in price with every shopping trip, lately.
It’s not as if you are going on extravagant trips or living in the lap of luxury. You want to be able to cover your necessities without giving all your hard-earned money to the federal government.
If you are like many people who call Alleviate Tax, desperate to resolve their tax debt but unsure how, you might be a middle-class, working individual who didn’t have their employer take out enough withholding taxes. Or you might be a 1099 contractor who didn’t know you had to pay quarterly taxes.
Maybe you inherited a large amount or sold a home or investments without understanding the tax ramifications.
Maybe you are newly retired and unsure how to handle investment distributions to manage tax liability. Or maybe you held a part-time job while collecting Social Security and didn’t realize you would owe taxes.
These scenarios are all too common. But we can tell you one thing. The worst action when you face tax debt is to take no action and hope it goes away.
Yes, there is a tax statute of limitations the IRS follows. But, in most cases, the Internal Revenue Service won’t let it get to that point without tax liens, levies, and even wage garnishment.
Statute of Limitations: Federal Tax Debt
Several different statutes of limitations apply to tax debt. In most cases, there is a ten year statute of limitations on IRS debt. The IRS calls this time period the Collection Statute Expiration Date (CSED).
That means that once 10 years have passed, the IRS can no longer pursue your unpaid tax debt. But don’t expect the federal agency to let that much time pass before they place tax liens or levies on your property or even garnish your wages. Penalties and interest may continue to accrue as you ignore your tax debt.
Plus, several circumstances allow the IRS to suspend or extend the CSED, meaning they can continue to try to collect your tax debt after 10 years.
Can the IRS Go Back More than 10 Years?
The IRS can try to collect past-due taxes after 10 years in certain circumstances.
Installment Agreement
If you request an installment agreement or payment plan with the IRS, your CSED will be suspended for the time the IRS reviews your request. If you withdraw the request or the IRS rejects it, the CSED will be extended an additional 30 days.
If you request an appeal, the IRS extends your CSED throughout the process.
That doesn’t mean requesting an installment agreement or partial pay installment agreement isn’t worth it. Ideally, you will achieve a settlement with the IRS long before the statute of limitations runs out, saving yourself time and stress, not to mention interest and penalties on your past-due taxes.
Bankruptcy Filings
IRS tax debt may be forgiven in a Chapter 7 bankruptcy. For that reason, if you file for bankruptcy, the CSED is suspended until the court discharges, dismisses, or closes the bankruptcy. When the bankruptcy concludes, if your tax debt was not forgiven, your CSED will be extended another six months.
Offer in Compromise
As with an installment agreement, if you file an offer in compromise, the IRS extends your CSED while it extends your application. If the OIC is rejected, the IRS tacks on another 30 days to your CSED, and if you appeal that rejection, the statute of limitations is suspended until the appeal concludes.
Collection Due Process Hearing
If you request a collection due process hearing because you feel the amount you owe is inaccurate, the IRS will suspend your CSED until you withdraw it or the IRS makes a final determination.
If you receive a final determination with less than 90 days left in your CSED, the IRS extends the CSED another 90 days after the final determination.
Innocent Spouse Relief
If you file a waiver or petition the Tax Court for Innocent Spouse Relief, the IRS suspends your CSED for 90 days. The Statute of Limitations may be further extended until the court makes a decision. At that time, the CSED is also extended another 60 days.
Military Service or Combat Zone
In some cases, if the IRS cannot collect tax debt because a member of the U.S. military is in active service, the CSED is suspended during that time plus an additional 270 days.
If you’re in the military in an active combat zone, the CSED is suspended during that time plus 180 days after you return.
Living Outside the U.S.
You can’t run off to another country to avoid paying your taxes and wait for the 10 year statute of limitations to expire. If you live outside the U.S. for six months or more, the IRS suspends your CSED, increasing the amount of time the IRS has to pursue collections when you return. Additionally, the IRS can suspend the statute of limitations for an additional six months or more when you return.
How to Find Your CSED
If you aren’t sure if you have reached your CSED for your unpaid taxes, you can check. The CSED countdown begins when the IRS assesses taxes on your account. You should receive a notice or letter in the mail, often by certified mail which requires a signature.
But it may be hard to keep track of your CSED if it has been suspended or extended.
You can check your CSED by requesting a transcript of your tax return. To do so, you’ll need an IRS online taxpayer account. Complete Form 4506-T, Request for Transcript of Tax Return.
Alternatively, you can call 800-908-9946 to request a copy of your transcript.
Look under the “Transactions” section of your transcript and find a 3-digit IRS transaction code with a date below it. This date should be the CSED, including any time added from the original 10-year mark.
Individuals can call 800-829-1040 if you have questions about your CSED. Businesses should call 800-829-4933, according to the IRS website.
Keep in mind that different penalties, interest, and other assessments will have different CSEDs. So the statute of limitations may apply to the principal tax debt owed, but the IRS may have months or years to collect additional interest and penalties.
Statute of Limitations for Tax Evasion
Tax evasion occurs when you knowingly under-report your income, submit a false tax return, knowingly take deductions you don’t deserve, or even fail to file taxes. You may also be charged with tax evasion if you intentionally conceal or transfer assets to get out of paying your tax bill.
Tax evasion is a federal crime and, in many cases, there is no statute of limitations for the IRS to press civil charges. There is a six-year statute of limitations for criminal charges of tax evasion or tax fraud.
IRS Statute of Limitations: 3 Years for Tax Returns
While the IRS has 10 years or more to collect unpaid tax debt, you only have three years to claim a tax refund. If you haven’t filed your taxes but don’t owe the IRS any money, you don’t need to file.
But if you fail to file a tax return, you might miss out on a tax refund. Make sure to file any back taxes before the three-year IRS statute of limitations on unfiled tax returns.
Need Help With Tax Debt Resolution?
Bottom line: Although the IRS may stop collections after 10 years, don’t let your tax debt get to that point.
The tax professionals at Alleviate Tax are standing by to help you find the best solution to legally resolve your tax debt, reduce your financial stress, and help you build a solid financial future.
FAQ
Find out what people are asking about the statute of limitations on back taxes and statute of limitations on tax returns.
Does the IRS forgive taxes after 10 years?
In general, the IRS Collection Statute Expiration Date, or the statute of limitations on tax debt, is 10 years from the date of the tax assessment. But several circumstances can suspend or extend the CSED, which means the IRS may have more than 10 years to collect unpaid taxes.
If you’re filing a claim for overpayment of taxes due to a bad debt deduction or loss from worthless securities, you have seven years from the date the return was due to file and collect your refund, according to the IRS website.
What is the IRS 6 year rule?
The IRS has six years to assess taxes on income that you failed to report if it’s more than 25% of the gross income on your tax return or more than $5,000 in foreign financial assets. There is also a six-year statute of limitations for the IRS to press criminal charges if they suspect you committed tax fraud. Additionally, the IRS generally doesn’t go back more than six years in a tax audit, although this isn’t an official rule.
How far back can the IRS go to collect taxes?
Typically, the statute of limitations on IRS debt is 10 years, but several factors can extend that collections date. It’s best to deal with your tax debt as soon as you receive a bill. You can reduce stress and save money with tax debt solutions like an installment agreement or offer-in-compromise.
When does tax debt expire?
Tax debt expires at the Collection Statute Expiration Date (CSED), which typically falls 10 years after the tax debt was assessed.
