Is There a Statute of Limitations on Taxes Owed to the IRS?
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What Is The Statute Of Limitations On Taxes Owed To The IRS?
If you owe back taxes to the IRS, you may wonder if you’ll get harassing phone calls and letters for the rest of your life, or until you’re able to pay back the debt.
The good news is, no, you won’t.
There is a time limit on how long the IRS can pursue you for your debt, but tax professionals advise it’s best to explore your repayment options long before you reach that limit.
What Is The IRS Statute Of Limitations On Collections?
By law, the IRS can only collect on a debt for 10 years from the date the taxes were assessed.
There are some conditions that can extend or change this time limit, but for the most part, the IRS has 10 years to get your money before they have to stop attempting to collect.
When Does The Time Limit Start?
The 10-year statute of limitations starts as soon as your tax bill is assessed.
So, if you filed your taxes but didn’t pay and the IRS sent you notice of that bill in the mail, your statute of limitations start date is the date on that letter.
If you didn’t file your taxes and the IRS created a return for you - called a substitute for return - and determined you owe money, then the date on that return and assessment begins your 10-year statute of limitations.
Is There Anything That Impacts The Statute Of Limitations?
Yes, your 10-year statute of limitations can run longer than 10 years if your situation meets certain criteria.
The statute of limitations can be paused or tolled if you:
- Have filed bankruptcy
- Are applying for an Offer in Compromise with the IRS
- Are filing an appeal on your tax bill
- Have filed a lawsuit against the IRS
- Have been out of the country for at least 6 months
- Have signed a waiver to extend the statute of limitations
- Have a military deferment
It’s not uncommon for taxpayers and the IRS to disagree on the official start date of the statute of limitations.
Often, this results in the IRS saying that there is more time in the statute of limitations than the taxpayer thought, meaning the IRS can continue to pursue collection efforts.
Once the condition that tolled the statute of limitations is over, such as your bankruptcy proceedings have concluded or you’ve been back in the country for a sufficient amount of time, the clock begins moving again.
Can You Extend The Statute Of Limitations?
Yes, you can voluntarily extend the statute of limitations.
If you enter into an installment agreement with the IRS, where you pay back your tax debt in monthly payments, you agree to extend the statute of limitations by up to six years.
Prior to 1998, the IRS could extend the statute of limitations 10 or even 20 years if you hadn’t paid. And if you didn’t agree to the extension, the IRS might make threats to convince you to extend.
However, that doesn’t happen anymore and the IRS is locked into the maximum six-year extension if you have a current repayment agreement.
Do I Have Options For Paying My Back Taxes Within The IRS Statute Of Limitations?
Yes, you have a variety of options to deal with your unpaid tax bills with the IRS.
Here are some options you can choose to pursue:
Currently Not Collectible Status
If you have a tax bill that you don’t think you can cover with your current income or assets, Currently Not Collectible status may be for you.
This option is meant for people whose income and assets are so low that paying back the money owed to the IRS would pose a serious financial hardship.
The IRS uses a calculation that takes into account the amount you owe, your current income, any assets that you may have that could be sold to put toward the debt, and your monthly basic living expenses (food, shelter, etc.). If the gap between what you have and what you owe is small enough, you may qualify to have your account marked Currently Not Collectible.
In this case, the IRS does not pursue active collections activity against you - phone calls, letters, bank levies - until your income increases enough to repay your debt.
If your income does not increase enough to repay the debt after 10 years, the statute of limitations kicks in and the IRS can no longer pursue collections. If it does increase within that time, you can work with the IRS to find another repayment option.
Offer In Compromise
For those who can pay some of their tax bill, but for whom paying all of it would cause financial hardship, there’s an Offer in Compromise.
When applying for an Offer in Compromise, you propose repaying an amount less than what you owe. If the IRS agrees and you make your payments, then your tax debt is discharged.
Similar to Currently Not Collectible status, you must show how paying your full tax debt would be a severe financial hardship and that your income and asset level is low enough to not support full repayment.
If you can eventually pay your full tax debt, but cannot pay it in one lump sum, an installment agreement may be right for you.
With an installment agreement, you agree to pay the IRS the same amount each month until your total tax bill is repaid.
This option is for those who may have a fairly steady income but whose total tax bill is higher than the amount of money they have on hand when negotiating with the IRS.
What Happens If I Don’t Pay By The End Of The Statute Of Limitations?
If you do not pay your tax bill within the 10-year statute of limitations, the IRS cannot actively attempt to collect on the debt.
All phone calls, levies, letters, and other efforts will cease.
While this doesn’t technically make your debt disappear, the IRS just can no longer ask for your money.
However, this isn’t recommended.
If you don’t pay your taxes, several things can happen. Some of the potential consequences include:
- Extra fees and penalties
- Non-renewal or complete revocation of your passport
- Bad marks on your credit report
- Inability to qualify for a mortgage, student loans, or other loans
- Difficulty finding a job
- Levies on your bank accounts or property
You also will receive frequent letters from the IRS, as well as phone calls from private debt collectors, for 10 years.
If you owe money to the IRS, it’s best to work with them or with a tax debt relief professional as soon as possible to get your balance taken care of and get the IRS off your back.
Find Your Tax Debt Relief Match
Finding a great tax relief professional can be like finding a needle in a haystack. You want someone who’s going to go to bat for you with the IRS but isn’t going to charge you an arm and a leg.
At the Credit Review, we’ve researched and collected the highest-rated tax debt relief professionals so you can compare and contrast to find the best one for your situation.
Is there a statute of limitations for the IRS to collect debt?
In most cases, the IRS only has 10 years from the start of the tax debt to collect on it. However, there are some extenuating circumstances in which they can extend or change the time limit.
When exactly does the statute of limitations begin?
The 10-year statute of limitations begins once your tax bill is assessed. This means that if you filed your taxes, didn't pay, and the IRS sent you notice of the bill, the date listed on the notice will be the start date.
If the IRS created a return for you because you didn't file your taxes, the date on that return is the start of the statute of limitations.
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