As a U.S. citizen, it’s your responsibility to pay taxes on time. Failing to file your return and pay your taxes will cause you to accrue interest and penalties on the outstanding amount. Once the authorities notice that you have missing or unpaid returns, it will trigger the Internal Revenue Service (IRS) to perform collection activities.
The general idea is that if you owe the IRS money, you need to pay your tax debt until it’s fully resolved, no matter how long it takes. Fortunately, that’s not always the case. The IRS can’t chase you forever based on the 10-Year Statute of Limitations in collecting delinquent taxes and tax-related fees. Learn more about this rule below.
What is the IRS Statute of Limitations?
The 10-year Statute of Limitations settles the question as to how long the IRS can collect back taxes. In particular, the Internal Revenue Code (IRC) section 6502: Collection After Assessment states that the IRS has up to 10 years after a tax liability assessment to pursue the collection of unpaid tax dues. During this period, the IRS can leverage all legal tactics to collect tax debts. And they have a lot of legal tactics at their disposal as the most powerful Collection Agency in the world…
As the Collection Statute Expiration Date (CSED) draws nearer, the agency can be more aggressive with its collection efforts. IRS agents will step up their actions to convince taxpayers to pay their debts or ask for an extension.
After the CSED, the government’s right to pursue the collection of tax liabilities ends. The IRS doesn’t usually exhibit this statute since it does not typically favor the agency’s financial interest, which is why many taxpayers are unaware of this rule.
When Does the Period of Limitations Begin?
The statute of limitations period begins on the date of assessment. Usually, the assessment only happens when the assessment officer signs the summary records—which may be weeks or months after the filing of the return. The IRS must assess your taxes within three years from when you filed your return. During the assessment, the Secretary of the Treasury’s office records and signs the taxpayer’s liability. The IRS may extend the assessment statute under certain circumstances.
For example, the IRS may extend the assessment statute to six years if you omitted more than 25% of your gross income from your filed return. Moreover, if you file a false or fraudulent return to evade tax, the IRS has unlimited time to assess tax.
What Can Affect the Timeframe of the Statute of Limitation?
Due to different taxpayer actions, the IRS may suspend or extend the collection statute of limitations. During this process, the agency can’t continue collection enforcement actions. There may be situations in which more than one taxpayer action suspends or extends the CSED simultaneously.
What are the actions that can suspend the CSED? Check out some of them out below.
Installment Agreement (IA)
An IA is a payment plan with the IRS to help you pay your debt on an agreed schedule. Requesting an IA suspends the initial 10-year collection period. The suspension for this action will run up to 30 days. When you file this request, it’ll often be on pending status until the IRS reviews, establishes, or rejects it.
If you run or default from your IA payments, the IRS will propose terminating your IA and suspending the collection period for 30 days. If you appeal the rejection of your IA, the running collection period is suspended from the date of the appeal until a final decision is out.
Filing for bankruptcy
Your CSED is suspended if you have pending bankruptcy proceedings. The IRS considers the pending bankruptcy from the time you filed the petition up to the time the bankruptcy case is closed. Upon the conclusion of proceedings, the running collection is extended for an extra six months.
Offer in Compromise (OIC)
The IRS suspends the CSED while the OIC is pending. This buys you an additional 30 days to file an appeal. If the IRS rejects the offer and you file a timely request during the appeals process, the statute of limitations is also suspended.
Collection Due Process (CDP) hearing
The IRS suspends the collection period from the date they receive the CDP request up to the time that you withdraw it or the CDP determination date is final. Suppose there are less than 90 days left on the statute of limitations when the determination becomes final. In that case, the collection period is extended to 90 days from the last determination date.
Resolve Your Tax Problems with Experts
The IRS Statute of Limitations can be complicated, overwhelming, and intimidating to regular taxpayers. If you’re dealing with multiple assessments, you may end up with different CSEDs on your account, confusing the process even more. You’ll need experts from tax negotiation services to help you organize and settle the issue.
Get counsel to find your best option by reaching out to us at Peace of Mind Tax Help. Our team is composed of leading experts in tax negotiation and mediation, and we can help you minimize your tax liabilities.