IRS Statute of Limitations For Collection of Tax Debt

irs statute of limitationsIndividuals or businesses who have unpaid taxes to the IRS may wonder how long the government can continue to collect on this debt. The length of time allowed by law to file legal proceedings against a person is known as the Statute of Limitations (SOL). While this definition applies to all types of legal proceedings, in the case of back taxes and the IRS it refers to Collection Statute Expiration Date (CSED) or the length of time the IRS can legally collect outstanding tax balances. The SOL varies for different types of debt and may also vary based on the state in which you live. Here we look at the CSED for tax liabilities owed to the IRS.

IRS Collections

As a general rule, the IRS is restricted by a 10 year Collection Statute of Limitations. This means individuals or businesses who owe back taxes that are ten years or older may not legally be sued in a court of law for those tax obligations. It is important for all taxpayers to understand how the statute of limitations works in order to properly understand and assert their rights.

Exceptions and extensions

The ten year rule for IRS collections is not one that is set in stone. There are several circumstances or situations which may result in a longer period of time in which the IRS can legally go after a taxpayer who owes back taxes. The ten year CSED begins when the tax liabilities have been assessed. This is a very important part of the CSED to understand as many people assume the CSED begins the year the taxes are filed. If an individual files a tax return for 2007 in 2010 and the outstanding tax balance is not assessed until 2011- the CSED begins in 2011. Under this rule, the SOL for tax liabilities owed for 2007 does not expire until 2021. Other scenarios which may result in the extension of the CSED is the filing of an Offer in Compromise or bankruptcy (for taxes not discharged). In both cases, the IRS may extend the CSED effectively increasing the amount of time in which they can legally collect tax debt. Additional causes of an extension include: military deferment, leaving the country for at least 6 months, certain collection due process hearings, filing for Innocent Spouse Relief, requesting a taxpayer assistance order and other reasons. 

Considerations regarding the CSED

Taxpayers who have filed a fraudulent or false tax return with the intent to avoid paying taxes are not protected by the 10 year CSED. Some filers are under the false impression that the SOL effectively erases your debt. If the IRS has placed a lien on your assets and the SOL passes, they may choose to erase your debt or reduce the lien to judgment and continue collection for an extended period of time. As with all other debt collections, the expiration of the Statue of Limitations does not mean you no longer owe the money. It simply means if a lawsuit is brought against you to collect that debt, you may use the expiration of the SOL as a defense. This generally results in the dismissal of the case. Finally, tax debt may continue to appear on your credit report after the CSED has expired, therefore affecting your credit for a longer period of time.