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The Statute of Limitations for Back Tax Debt

If you owe back taxes, one very important fact you should keep in mind is that the IRS does not have an unlimited amount of time to collect your debt. Just as a district attorney or federal prosecutor only has a limited time to prosecute certain crimes, the IRS is also bound by a statute of limitations which restricts its ability to pursue debts assessed in the remote past. In part, this statute is based on pragmatism: if the IRS were unable to collect a debt after many years, the odds are slim that the debt would ever be collected, and so it’s in the long-term interest of the IRS to cut losses and move forward.  

The statute of limitations for federal tax debt is 10 years. However, as this article will point out, this statute isn’t as straightforward as it may appear on the surface. As with most other areas of law, there are plenty of gray spots. Let’s explore the contours of this statute in greater detail. 

When Does the Time Period Begin? 

The time period begins on the date that the tax deficiency is assessed. If you know your assessment date, then it’s possible to pinpoint your exact tax due date (this date is officially known as the “collection statute expiration date” or CSED). If you file your tax return and you fail to pay the correct amount of tax, then the IRS will send you a formal written notice which specifies the amount of the discrepancy and also a date on which the notice was created. This date represents the starting point for the collection time period. 

Importantly, you should be aware that you will not place yourself in any kind of superior position by simply not filing your return at all. If you fail to file, the IRS will still issue you a written notice which includes the deficiency and the start date.  

Is the Statute of Limitations Always Rigidly Enforced? 

 The statute of limitations for collecting back taxes can be extended beyond the 10 year timeline for a variety of reasons. For instance, the time period can be increased if you file bankruptcy: the time which elapses during the bankruptcy’s “automatic stay” is added to the tax collection time period. Also, an extra six months is tacked on whenever a bankruptcy is filed. The collection time period is also temporarily suspended under other circumstances, such as when you request an installment payment arrangement, offer-in-compromise, or other type of debt relief. Whatever time passes while the IRS considers your proposal, that time isn’t included within the 10 year statutory period. Further, if you live outside the U.S. continuously for a period of at least 6 months or longer, this time out of the country is also added to the timeline.  

You have the option of voluntarily extending the deadline, should you choose to do so. This option may be desirable in situations where you’d like to develop an installment plan near the end of the statutory period. In these cases, you will most likely need to sign a waiver which removes the applicability of the statute. In any event, you cannot voluntarily extend your deadline more than 6 years in total. 

Although a decade is certainly not a short timeframe, this statutory time period is something which you, and other taxpayers, should be aware of. While you shouldn’t count on settling your debt with an expiration of the statute of limitations, it’s still a factor worth keeping in mind.   

It’s been our experience at Mackay, Caswell & Callahan that the issue of an expiring tax collection statute of limitations often crops up in conjunction with accounts that have previously qualified for “currently not collectible” status.

If you think the statute of limitations is running on your back tax debt, contact a NYC tax attorney at Mackay, Caswell & Callahan, P.C. to help you determine your true collection statute expiration date.

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