As hard as it may seem, the IRS has limited time to collect back taxes. Once that period passes, the debt is typically forgiven.
However, attempting to wait out this ten-year window isn’t a strategy worth pursuing. This is because the IRS is in the business of collecting and will use every tactic available to its advantage.
Statute of Limitations
The IRS only has about ten years from the date of assessment (the date that the IRS determines you owe tax) to collect back taxes. This is called the Collection Statute Expiration Date, or CSED. The closer you get to your CSED, the more aggressively the IRS collects the debt.This is especially true if you are receiving a flurry of IRS notices. This is because the agency knows that its time to collect is approaching. Normally, it will ignore the debt for years and ramp up collection actions before the statute expires. This can be very stressful for taxpayers.
However, there are ways to pause the 10-year collection statute. This includes filing an extension, applying for an Offer in Compromise, or asking for a Partial Payment Installment Agreement (PPIA). All of these things will delay the day that the IRS can no longer collect the debt from you.
The collection statute clock can also be shifted if the IRS reassesses your debt. For example, the IRS might reassess your tax liability after discovering that you have unreported income or made a mistake on your return. In this case, the new tax liability will start a new 10-year collection period.
Other circumstances can reactivate the IRS’s ability to collect your tax debt, including if you pay someone else’s taxes or fail to file an IRS return. Also, the IRS can reactivate its collection activities in the event of fraud. If you are worried that the 10-year collection statute may run out before you can resolve your tax debt, a qualified Certified Tax Resolution Specialist (CTRS) can help you find an effective strategy.
While it is technically possible to fly under the radar and wait out the ten-year collection statute, it isn’t recommended. If you have a job or bank account that reports your wages or deposits to the IRS, they will know your name and address and can locate you. In addition, the IRS has access to information about your financial status and will know if you have assets that could be liquidated to pay off your debt.
The taxpayer's and the IRS's mutual consent can extend the ten-year collection statute. This was common practice in the past, but lawmakers now prohibit it. However, the IRS can still try to trick taxpayers into extending their CSED by offering them an appealing installment agreement. This is why it’s always important to carefully review any IRS offers, especially if you are nearing the end of your CSED. If you are unable to reach an acceptable agreement with the IRS, it’s a good idea to seek the advice of a CTRS who can help you file for bankruptcy. This can help you avoid a costly tax lien or levy and get the relief you need from your tax debt.
Collection Statute Expiration Date
When you owe the IRS money, a statute of limitations sets how long the agency can collect on your debt. This timeframe is known as the Collection Statute Expiration Date, or CSED. Under this rule, the IRS has ten years from the date your tax debt was assessed to collect on it. After that period, the debt is written off. It sounds simple enough, but many taxpayers don’t know that this rule exists.As a result, they may have no idea that their debt is getting closer to expiration every day. In fact, the IRS will often ramp up collection efforts as the CSED gets close. This can make taxpayers feel panicked and stressed.
This is the point when you need a tax professional who understands the statute of limitations and collections process. A professional can help you create a plan to reduce your tax debt and avoid the hassles that come with late fees, disruptions, and penalties.
Even if you don’t do anything to stall the CSED, the IRS can still take action on your account, like filing a federal tax lien or seizing your assets, and they will continue doing so until the CSED expires. The good news is that there are a few situations where the CSED clock can be stopped or “tolled” temporarily.
The CSED will pause when you file for bankruptcy, apply for innocent spouse relief, or request a collection due process hearing. It will also pause if you agree to a payment agreement with the IRS or when you agree to an offer in compromise (OIC).
Another way the CSED can be halted is when you contact the IRS to request assistance. You can call the IRS’s Taxpayer Advocate service, for example. However, be warned that this can start the clock all over again.
Regardless of the reason, you should never assume that your debt will just go away on its own. The IRS is not going to forget that you owe them money, and they will do everything they can to get their money, including harassing you. The best thing you can do to protect yourself is to act quickly with a professional tax advocate.
If you are dealing with a large amount of back taxes, the sooner you take action, the better. Getting your debt under control is essential, as interest compounds daily and can quickly add up. A qualified tax professional can help you create a strategy to get your debt under control and protect your assets. They can also help you qualify for a first-time penalty abatement. This is a great way to reduce the amount you owe before the CSED runs out.
