When taxpayers owe a debt to the Internal Revenue Service (IRS), many want to know about the IRS statute of limitations on tax debt. While this deadline can prevent the IRS from assessing or collecting a tax debt, it is unlikely to provide the relief taxpayers are looking for. There are many reasons these deadlines can be extended, and the IRS may be more aggressive when trying to recover the debt. It’s important to consider your other options.
Tax Debt and Collection Actions
This IRS takes its responsibilities seriously. In 2024, the IRS collected over $5.1 trillion in gross taxes and assessed $84 billion in civil penalties. If you owe the IRS tax debt and have failed to respond to a notice or provide payment, then the IRS is likely to take other actions to repay the debt. The IRS took several collection actions in 2024, including:
These collection actions can severely impact your financial situation, impacting your credit, your income, and more.
Statute of Limitations on Tax Assessment
First, the IRS has a limit on how long it can assess a tax, or value the income or property, and the correct tax owed if it was underpaid. The IRS can assess a tax it is owed by whichever date is later:
- Within three years after your tax return was due, including the time it was due by an extension
- Within three years after the IRS received your return, if it was filed late
This statute of limitations is called the Assessment Statute Expiration Date (ASED). The ASED can be extended beyond three years in some of the following circumstances:
- You did not voluntarily file your tax return, and instead, the IRS filed a substitute return for you.
- You sign an agreement with the IRS to extend the ASED.
- Your tax return was filed, and you reported 25% or less of the income you made, making the ASED increase to six years.
- The IRS believes you committed tax fraud, at which point there is no ASED.
The ASED can be suspended in several other circumstances, such as if you filed for bankruptcy or if the IRS issues you a notice of deficiency.
Statute of Limitations on Tax Debt Collection
The IRS can collect a tax debt within 10 years of the date the tax was assessed. This tax debt includes the tax that was owed, any penalties, and any interest. This is the Collection Statute Expiration Date (CSED). There are numerous circumstances where the CSED might be extended or suspended, meaning the IRS has more time to collect the tax. These include:
- You request an installation agreement or an offer in compromise, which extends the SCED during the review by 30 days after a decision is reached, and during any appeals process.
- You file for bankruptcy, which extends the CSED during the process and for another six months after the resolution of the proceedings.
- You request a collection due process hearing, which suspends the CSED during deliberation and for 90 days after the final decision.
- You file for innocent spouse relief.
- You are in a combat zone or are in the military for certain kinds of service.
- You live outside the United States for six months continuously or longer.
What You Can Do to Address Your Tax Debt
It is often not in your interests to try to wait out the IRS statute of limitations. Because of the many exceptions to the deadline and the aggressive collection actions of the agency, it can put you in a bad financial situation for a long period of time. Instead, you should find an experienced Miami IRS tax attorney who can help you resolve your tax debt in another way.
The easiest way to resolve your tax debt and stop collection actions is to pay back your tax debt. Most taxpayers are in a difficult situation solely because they cannot pay back the debt. When this is the case, the IRS can be willing to negotiate with taxpayers.
You may have several options for negotiating your tax debt, such as:
- Currently Not Collectible: When your financial difficulties are temporary, you can request Currently Not Collectible status to pause collection actions on your debt. During the pause, penalties and interest still accrue, and you still owe the IRS the full debt. However, it can give you the needed time to financially recover without worrying about levies or garnishment.
- Penalty abatement: You can file to remove specific penalties and interest from your tax liability under first-time penalty abatement, or abate them for reasonable cause. This can significantly limit your overall debt and make it more manageable to repay.
- Installment agreement: You can enter into a payment plan with the IRS to pay back your full tax liability each month until it is paid off.
- Offer in compromise: An offer in compromise is a traditional tax debt settlement, where you settle your entire IRS tax debt for one lesser amount. These are incredibly useful tools, but very hard to get for most taxpayers.
It is much easier to review these and other options with a tax attorney. They can determine what options you qualify for and help you request them from the IRS.
FAQs About IRS Statute of Limitations on Tax Debt
How Does the IRS 10-Year Rule Work?
The IRS 10-year rule refers to the amount of time the IRS has to collect on taxes it is owed after assessing those taxes. Taxes can be assessed for a set period of time after a return is filed, which means the deadline is not 10 years from the date it was due. There are also several things that can suspend or extend the 10-year deadline, which means it can be much longer before collection is no longer allowed.
Does IRS Tax Debt Expire After 10 Years?
There is a deadline on when the IRS can collect tax debt, called the Collection Statute Expiration Date, and it is 10 years. However, this does not always mean that the tax debt expires at that point. This 10-year countdown begins from the date the debt is assessed, and the assessment has its own expiration date. Taking actions can suspend or extend the 10-year deadline.
What Is the Statute of Limitations on Taxes Owed by the IRS?
If the IRS owes you a refund or credit, you have to act to recover the payment the agency owes you by the later of either 1) three years from when you filed your income tax return, or 2) two years from when you paid the tax. If you miss this statute of limitations, called the Refund Statute Expiration Date, you will likely be unable to recover the credit or refund the IRS owes you.
Why Should You Hire a Tax Debt Settlement Lawyer?
You should hire a tax debt settlement lawyer if paying your debt to the IRS would put you in financial hardship. A debt settlement lawyer can review your options, like setting up an installment agreement. An attorney determines the ideal method and negotiates with the IRS for you. Working with an attorney for debt settlement can ease a lot of stress.
Find the Right Tax Attorney at TaxSmith, LLC
At TaxSmith, LLC, we have over a decade of experience in tax law. Waiting out an ASED or CSED is more likely to cause you greater financial hardship in the long term. Contact our firm and let us help you find better solutions to your tax debt.
