How long can the IRS collect back taxes?
Generally, the Internal Revenue Service (IRS) has 10 years to collect unpaid tax debt. After that, the debt is erased from your books and canceled by the IRS. This is called the 10-year statute of limitations. It is not in the financial interest of the IRS to make this statute widely known. Therefore, many taxpayers with unpaid tax bills are unaware that this statute of limitations exists.
Also, like most IRS rules, the nuances of the statute can be complex and difficult to understand. This article explains what tax debtors need to know to decide whether it is financially advantageous for them to “wait for the IRS.” This option should be set up for the IRS to take advantage of all its legal tactics to collect during that period. Towards the end of the Collection Statute Expiration Date (CSED), the agency is likely to become even more aggressive in its collection actions. IRS agents could take on the role of both “bad cop” and “good cop.” The latter could include offering “deals.”
A typical one is to create an installment payment plan:
At first glance it may seem attractive. In return, tax debtors will sometimes have to agree to expand the CSED. Before making any arrangements provided by the IRS, those with unpaid taxes should consult a tax professional who specializes in IRS back taxes and collection statutes. The 10-year period is assumed to start when the tax is assessed. However, there are often disputes about that time between tax debtors and the IRS.
The agency is known to calculate CSED differently than debtors. Sometimes this occurs when the debtor did not pay taxes in full or only in part for several years. There may be questions about what year the debt assessment began. Fortunately, there are ways debtors can get the IRS to agree, up front, on the CSED. One is to present your situation to a tax expert before approaching the IRS; see more below.
Additionally, the clock could temporarily stop (known as “charging the statute of limitations”) for a variety of reasons:
Filing of appeals
Offer in compromise filing
Filing a lawsuit against the IRS
Signing a waiver to extend the CSED
Be out of the country for at least 6 months.
Later, the clock will start again, but not always immediately. For bankruptcy, an additional 6 months will be needed after liquidation. Of course, when the clock is not running, the CSED is delayed and therefore extended.
When the statute of limitations expires, the IRS cannot notify taxpayers. That should be monitored by the taxpayers themselves or their tax relief professional. Also, it is your own responsibility to obtain documentation from the IRS indicating that the tax debt no longer exists.
Once confirmed, a tax relief professional can assist the taxpayer in having the IRS issue an official Certificate of Federal Tax Lien Release or Lien Withdrawal. Generally, proof of release or withdrawal of a lien is needed to present to institutions that determine credit worthiness. It is a first step that taxpayers can take to repair their financial profiles.
However, the “wait” strategy is not recommended for all tax debtors. The 10-year period is a long time. Some, for example, may not be able to continue operating their business with the standard measures imposed by the IRS to collect. Attempting to use an impending CSED as an IRS tax debt strategy should only be considered under the guidance of a licensed tax relief specialist like Landmark Tax Group.
What other options are there?
There are many. One is for a tax relief professional to negotiate with the IRS for a possible reduction in total tax debt. Another is for the tax expert to establish a financially viable installment payment plan with the IRS that takes advantage of the CSED. A third is for the tax relief professional to file a hardship case with the IRS.
During that process, a tax professional can request that the IRS stop collection procedures ranging from property liens to wage garnishments. Being in debt to the IRS does not mean being in continuous financial distress. There are proven ways to manage IRS tax debt. However, a common mistake of those who cannot or do not want to pay their taxes is to simply do nothing.
Both research and experience show that people who consult with a tax relief expert from the beginning have less financial, business and personal repercussions. Fortunately, most tax relief professionals like KB CPA Services P.A. provide confidential consultations prior to full representation. During the consultation, a tax debtor and a tax professional can together understand the scope of the tax problem, discuss the precise options available, and determine the best way to resolve the matter together.