What is the IRS statute of limitations and will your tax debt be forgiven after 10 years?

“Does IRS debt ever go away?” is a common question for many people who are worried if they can ever get rid of their tax debts. What many taxpayers don’t know is that the IRS has a limit on when they can collect taxes and after this time, the debt cannot be legally collected anymore.

In this article, we’ll talk about how long the IRS has to collect a tax debt. You’ll learn if your debt will be forgiven once the statute of limitation has passed. We will also discuss the different situations that could extend this period and why it may be possible for the IRS to collect from you even if the time limit has passed.

How Long Can the IRS Collect Back Taxes?

The cliché “nothing lasts forever” can also be applied to the collection of IRS debt – as long as those tax debts were assessed. What does this mean?

By law, the IRS only has ten years to collect the unpaid taxes from the time of the initial tax assessment. This 10-year period is called the statute of limitations on collections, which is also more commonly referred to as Collections Statute Expiration Date (CSED).

When Does the Statute of Limitations Start?

The CSED starts from the initial tax assessment. For example, if you filed your 2010 taxes on the filing deadline of April 15, 2011, that will be the date of your initial assessment. So, the CSED date will be April 15, 2021, meaning that your 2010 tax debts will only expire in 2021.

Will Your Tax Debt Be Forgiven After 10 Years?

Yes, your IRS debt will be forgiven after ten years. If you owe money to the IRS due to unpaid taxes, you won’t have to pay it after the collection period has passed. As previously mentioned, the statute of limitations on a tax debt is ten years. After that, the IRS should forgive your debt. 

What Happens After the 10-year Statute of Limitation?

The first thing you have to ask yourself is if you’ve actually filed your taxes years before. As defined in the earlier section, the CSED only applies if the taxes were filed. The time leading to the CSED will start from the time the taxes were assessed. That means the CSED only applies if the taxes were filed in the first place.

For example, you have been avoiding the IRS and have not filed your taxes for years, then the 10-year clock will not start and the CSED will not apply. Even if 20 years have passed, the IRS can still chase after you and try to collect from you endlessly.

So, if you want a chance at total tax debt forgiveness after 10 years, you have to at least have them assessed. Otherwise, the collection period the IRS will have to chase after you will have no time limit.

Can the Statute of Limitations Period Be Suspended?

There are other factors that could extend the 10-year window. This extension is due to some events or actions that could suspend the counting. The term used for this suspension is “toll.”

Tolling the CSED means the counting toward the CSED on your debt will be tolled or paused. Depending on how long the suspension was, this time will be added to the 10 years. It’s like having the clock stopped and adding the suspended time after the 10-year period. In some cases, more time will also be added by the IRS aside from the time that was suspended.

When Can the Limitations Period Be Extended?

The extension of the IRS statute of limitations for debt collection is caused by different factors. The exact reason or time of the suspension will depend on your situation but usually, it is when the counting towards the CSED is tolled. 

The list below shows the tolling events that cause the 10-year window to be extended. Take note that there may be other factors not included in this list that could cause the tolling or extension.

1. When You File For Bankruptcy

Bankruptcy is one of the most common tolling events. The IRS adds at least six months to the time it took for the Chapter 7 bankruptcy to be completed.

2. When You Request Additional Tax Assessment After The Initial Assessment

The IRS typically has 3 years after the initial assessment to tax audit whether you owe additional taxes for a particular tax year. For example, after filing your 2010 taxes in 2011, the IRS found out in 2012 that you owe more than you declared for the 2010 tax year. 

If these additional taxes were assessed in 2012, then the debt will have a separate CSED. So, while the first 2010 taxes filed and assessed in 2011 will have a CSED of 2021, the debt assessed in 2012 will have a CSED of 2022.

3. When You’re Out of the Country 

If you decide to leave the United States to wait out the 10-year period for a consecutive period of six months or more is another tolling event. The period that you are out of the country is also the period the time towards the CSED is suspended, which will then be added on top of the 10-year statute of limitations.

4. When You File an Offer In Compromise

If you can’t pay your tax returns in full, one option is to file an offer in compromise so you can settle your debts with the Internal Revenue Service for less than the full amount that you owe. However, when your offer gets rejected, the time between the filing and the decision will be added to the CSED.

5. When You File False, Fraudulent, or Missing Tax Return

You will not be able to use the statute of limitations to defend a debt collection suit if you committed any false fraudulent action or missing tax returns that prevented the IRS from collecting your tax debts before the CSED

6. When You Request For Collection Due Process (CDP) Hearing

A Collection Due Process hearing or CDP hearing allows you to stop collection activities if you disagree with the amount of tax the IRS claims. If you receive an IRS notice, you have 30 days to respond to request a CDP hearing. This could extend the CSED for up to two years.

7. When You Request For Installment Agreement

It is not uncommon for people to ask the IRS for installment agreements so they can manage to pay the debts. Unfortunately, this is another tolling event that extends the CSED.

8. When You Have Wrongly Seized Assets

If your assets have been wrongfully seized by the Internal Revenue Service, the time towards the CSED will be suspended from when the assets were seized up to the date the assets were returned or when a judgment becomes final. The IRS may add an additional 30 days in this case.

9. When You Ask For an Extension 

If you are negotiating with the IRS regarding an installment agreement, the IRS may ask you to extend the CSED. In this scenario, you yourself are agreeing to the extension.

Using Time Limits to Plan Your Taxes

Not paying your taxes can result in grave consequences. The IRS can be aggressive, especially if you’re nearing the collection statute expiration date. 

There are IRS debt forgiveness programs and you could qualify, but it’s very rare that the IRS will forgive your debts fully. Some programs include Innocent Spouse Relief (if you know nothing about the tax inaccuracies of your spouse), Currently Not Collectible (If you can prove you are really unable to pay), Offer In Compromise, and Installment Agreements. As discussed in the earlier sections, two of these programs (Offer in Compromise and Installment Agreements) will extend your CSED so you have to be careful especially if you are already nearing the 10-year mark.

While reading and researching online can give you some basic information about how the IRS collects taxes, the process can be more complicated than you think. It’s not as simple as waiting out the 10-year statute of limitations and hoping that the tax debts will go away on their own.

If you’re overwhelmed about how to deal with your tax debts, you should consult a tax attorney. A tax attorney will be able to give you the most accurate information depending on the state that you live in. While a tax lawyer will cost more, you can have the peace of mind that you’re getting proper advice.

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