Blog

Limits on IRS Collections

Dealing with IRS tax debt can be a very onerous task. If you have unpaid tax debt, this can lead to a variety of negative consequences. You can have your wages garnished, your bank account frozen, or have other valuables seized. To combat tax debt, we’ve discussed some of the resolution options which taxpayers can utilize. Taxpayers can submit a settlement offer to the IRS, an “offer-in-compromise” (OIC), for less than the full amount of their debt. Or, they can elect to pay back their debt over a period of time. This is referred to as an installment agreement or payment plan. In this post, we will go over in detail the IRS tax statute of limitations governing IRS tax debt collection.

IRS Tax Statute Expiration

When taxpayers review their IRS tax debt resolution options, one question which often comes up is whether tax debt is bound by a statute of limitations. In other words, they often wonder whether tax debt will ever “expire” or become uncollectible. For taxpayers, fortunately the answer is yes, although this may not be a viable strategy for resolving tax debt in most cases. 

As we will see, the IRS has a limited window within which it can collect back tax debt. However, this time window can expand. It can even be suspended indefinitely, depending on the circumstances of a given case. In the end, taxpayers should certainly be aware that a IRS tax statute of limitations for tax debt exists. But they should also refrain from counting on it as a resolution strategy. 

Ten Years

As a general rule, the IRS has 10 years to collect your tax debt. This means that when the 10 years pass, and no extensions apply, your tax debt “expires”. You are relieved of your tax obligation. Every year, the IRS tax statute of limitations expires for many taxpayers. This makes intuitive sense. The IRS can’t collect all the unpaid taxes owed to it by the American public. Rather, the IRS has to pick and choose which debts to try to collect. And this means that the IRS focuses more heavily on those with very large tax liabilities. The IRS may become more aggressive in its collection efforts as your 10 year time window approaches its end. This is something you need to be aware of and prepare for. 

Extensions and Suspensions of the IRS Tax Statute

The 10 year time window isn’t totally fixed, it can be extended in certain cases. Whenever the IRS is legally unable to collect your tax debt, its collection time window is extended. The extension equals by however long the IRS could not collect from you. For instance, if you file for bankruptcy, the IRS cannot pursue collection efforts during the “automatic stay” period provided by the bankruptcy laws. Sometimes, this automatic stay can last up to six months. The applicable statute of limitations increases for however long the automatic stay lasts . The IRS also cannot collect whenever it is reviewing an OIC or installment agreement proposal. Again, the statute of limitations increases by however long the IRS takes to review a case.  

Assessment

Importantly, the statute of limitations for IRS tax debts begins when your tax deficiency is first “assessed.” The assessment date is the date on the written notice which the IRS will send to you to notify you of your deficiency. If you decide to never file a return at all, then your clock will never start, unless the IRS files a return on your behalf. In some cases, the IRS will file a substitute return on your behalf and assess a deficiency in order to start the clock and being the collection process. The most important point, however, is that simply not filing a return will never help you evade the statute of limitations. Not filing at all actually hurts you because the 10 year time window will remain open. 

The Statute of Limitations Is Not a Viable Resolution Strategy 

Given all of this information, it should be clear that the statute of limitations for IRS tax debt should not be viewed as a realistic resolution option. In some cases, yes, a few rare taxpayers may end up slipping under the radar and end up having expired tax debt. But, realistically, this isn’t likely to happen in most cases, especially if you have a sizable tax debt. If your tax debt is of a significant amount, you can be sure that the IRS will try to compel payment well before the 10 year time clock runs out. They will pursue the collection avenues available, which include wage garnishment, property seizure, and so forth. The statute of limitations is an important deadline, but not something you should ever really rely on. 

IRS Tax Statute Isn’t Straightforward

As we can see, the IRS tax statute of limitations is simple on the surface, but once we dig deeper we can see that things are a bit more involved. Taxpayers should be happy to hear that there is in fact a statute of limitations for tax debt. But at the same time, this is not a realistic resolution option. Perhaps a few lucky individuals may be bailed out of their tax debt obligation by the statute of limitations, but they are rare cases.

Contact Us Today for Immediate Assistance! 

At Mackay, Caswell & Callahan, P.C., we’ve handled dozens and dozens of tax debt resolution cases and continue to take cases in this area on a regular basis. We help our clients resolve their tax debt and rebuild their financial lives. Tax debt can be rough, but it doesn’t need to permanently damage your financial well being. Get in touch with one of our top New York City tax attorneys for counsel in this area. 

Image credit: Patrick Feller