If you’re reading this article, you probably owe the IRS money for unpaid tax debt. And you might be wondering, “How long can the IRS collect back taxes?”
While there is a ten-year statute of limitations on the IRS tax collection process, there are some details you need to understand. This article breaks down the IRS collections process, discusses the 10-year statute of limitations in great detail, and answers some frequently asked questions about the IRS tax collection process.
Let’s get started with an overview of the IRS collections process, and how it works.
How the IRS Collections Process Works
The Internal Revenue Service (IRS) has a defined process that governs its collection actions. This process is governed by tax law, also known as the Internal Revenue Code. In other words, the IRS collection activities have to be lawful.
IRS Publication 594-The IRS Collections Process, does a fairly good job of outlining the IRS process for collecting unpaid income taxes.
Filing the tax return
The first part of the collections process actually starts with filing the tax return for the year in question. Technically, the most important date is the latter of:
- That tax year’s tax filing deadline (usually April 15), or
- The date that the tax return is actually filed with the IRS
The reason that date is so important is because that date is the frame of reference for the IRS collection efforts. Not only is it the frame of reference for the statute of limitations on collections, but also for assessments.
Statute of limitations on assessments
There are two statutes of limitations that impact the IRS’ ability to get taxpayers to pay up. There is the statute of limitations on collections, which we’ll discuss in a bit. But first, there is the statute assessments on assessments.
From the date a tax return is filed or that year’s tax filing deadline (whichever is later), the IRS has a 3 year statute of limitations on assessing the tax liability for the given tax year. Most of the time, the IRS will defer to the taxpayer’s filed tax return as the proper statement of tax liability.
But if the IRS receives conflicting information from other reporting sources, your tax return might be audited. For example, if the earnings you reported on your tax return do not match the earnings that your employer listed on your Form W-2, this might trigger an audit.
Generally speaking, the IRS only has 3 years from the time you file your tax return to conduct an audit. There are exceptions. The IRS statute of limitations does not apply to:
- Fraudulent or false tax returns
- Willful attempts to evade paying taxes
- Tax returns that are never filed, or are missing
Regardless, most taxpayers usually pay their taxes when they file their tax return, or shortly afterwards. If not, the IRS does send at least two bills before beginning collection actions.
Methods of collection
There are several methods of collection the IRS will use in order to encourage taxpayers to pay their IRS debt.
If a taxpayer does not promptly pay their tax bill when filing their tax return, the IRS prefers that the taxpayer makes the tax payments on their own. This can be done through a payment plan known as an installment agreement.
The taxpayer can submit an installment agreement request, IRS Form 9465, through the IRS website. Any agreement over 120 days incurs a setup fee, which varies based upon the taxpayer’s economic situation.
Before accepting a taxpayer’s installment agreement request, the IRS will require:
- The taxpayer to properly file all tax returns
- A taxpayer be willing to fill out paperwork about their financial assets (known as a Collection Information Statement). This may be required for larger tax balances, but not for smaller balances.
- Taxpayer to pay all penalties and interest on unpaid taxes until the balance is paid in full.
Offer in Compromise
If the taxpayer cannot pay the balance due, or agree to a plan, the IRS might be willing to accept an Offer In Compromise.
An Offer In Compromise is the IRS’ acceptance that a taxpayer has a financial hardship that does not allow the taxpayer to pay their tax bill, or that the IRS’ tax assessment might not be accurate.
More information about Offers In Compromise can be found in the IRS’ Offer In Compromise booklet. As a general rule, IRS agents won’t accept an offer in compromise if they believe the taxpayer is capable of paying their unpaid debt. More details about what IRS agents can and cannot accept are located in the Internal Revenue Manual.
If the tax still cannot be resolved by either an installment agreement or offer in compromise, then the federal government can place a federal tax lien on your property.
What is a federal tax lien?
A federal tax lien is the U.S. Government’s claim to either future or current taxpayer property until the IRS tax debt is paid in full. Having a tax lien doesn’t necessarily mean that the federal government will start seizing property.
The notice of federal tax lien simply tells the taxpayer and other lienholders (such as banks or lenders) that the United States government has a claim to taxpayer property as long as taxes remain unpaid.
Having a tax lien does impact a taxpayer’s credit rating, and their ability to obtain credit in the future. Since it can take a long time to repair damaged credit, it is usually in the taxpayer’s best interest to pay their federal taxes before a lien is filed.
But if a tax lien does not work, the IRS can escalate their collections process by actually seizing taxpayer property. This is done through a federal tax levy.
What is a federal tax levy?
A federal tax levy is the federal government’s attempt to seize taxpayer assets to satisfy or reduce the unpaid balance. According to the IRS website, the IRS can seize any, some, or all of the following assets:
- Wage garnishments on earned income
- Money located in a taxpayer’s bank account
- Social Security benefits
- Retirement benefits
The IRS can also seize and liquidate (sell) taxpayer property to pay down the debt. This would include the following:
Statute of Limitations on Collections
Now that we understand how the IRS collections process works, let’s talk about how the statute of limitations works for the collections process.
Collection statute expiration date
Section 6502 of the Internal Revenue Code outlines the rules and procedures for the collection statute expiration date (CSED). This was a result of the Restructuring and Reform Act of 1998 (RRA 98). Prior to RRA 98, the IRS had much wider authority and virtually no time limit for collections activities.
IRC Section 6502 provides that “the length of the period for collection after assessment of a tax liability is 10 years. The collection statute expiration ends the government’s right to pursue collection of a liability.” In other words, the IRS has 10 years from the date of assessment to collect back taxes.
Suspension of IRS collection efforts
However, there may be certain circumstances that suspend the 10-year period. These circumstances include situations in which the taxpayer might:
- File for bankruptcy. The IRS will suspend the collections process for the period they cannot collect, plus 6 months.
- Submit an offer in compromise or installment agreement request. If the request is rejected, the IRS will suspend the collections process for an additional 30 days, plus any period the Appeals Office is considering a taxpayer appeal.
- Reside outside of the United States for a continuous period of at least 6 consecutive months
- Apply for a taxpayer assistance order from the Taxpayer Advocate Service
- Request a collection due process hearing
- Request innocent spouse relief. The IRS will suspend collections for up to 90 days after a notice of determination has been issued, or if appealed, up to 60 days after the tax court issues a final decision.
Frequently Asked Questions
Below are some commonly asked questions from taxpayers concerning the IRS tax collection process.
Does the IRS forgive tax debt after 10 years?
According to the Internal Revenue Code, any unpaid tax not collected after 10 years from the assessment date is forgiven. However, there may be periods of time in which this 10 year collection period is suspended. For detailed advice on your situation, you should consult with an experienced tax attorney.
How should I decide whether to pay my back taxes or wait until the statute of limitations runs out?
Each taxpayer’s situation is unique. As a general rule of thumb, the IRS will aggressively use every legal tactic to compel a taxpayer to pay their unpaid taxes. The Taxpayer Advocate Service can help you evaluate your situation so you can decide what course of action is best for you.
What is the IRS 6-year rule?
The 6-year rule applies to the IRS statute of limitations for tax assessments. Normally, there is a 3-year statute of limitations on tax assessments, from the tax return’s due date or the filing date, whichever is later. However, IRC Section 6501(e) states that this limit can be extended to 6 years in cases where there is an omission of more than 25% of the gross income on the taxpayer’s return.
How many years can the IRS go back on unfiled tax returns?
According to the Internal Revenue Code, there is no statute of limitations for tax assessments on unfiled tax returns. As a general rule of thumb, most tax assessments are done within 3 years of the tax return’s due date.
Can an accountant or attorney help me with my tax debt?
There are tax professionals that hold themselves out as experts in certain tax problems. They might offer to help taxpayers file offers in compromise or installment agreement requests. In many cases, a taxpayer can achieve the same goals with the assistance of the Taxpayer Advocate Service.
Moreover, their ability to help may be limited. For example, a taxpayer who has filed a fraudulent return or is being charged with tax evasion will probably need a criminal attorney to evaluate possible criminal penalties.