Can the IRS Collect on a Debt Forever?
The simple answer is no. The IRS has a period of 10 years to collect a debt and once that 10 year period has expired they are out of luck. There are a few exceptions to this rule that apply in specific circumstances. The date that a given debt expires is called the Collection Statute Expiration Date or (CSED).
When Does The Clock Start Counting For The Statute Of Limitations?
The 10 year period starts when you receive the tax assessment from the IRS. For example if you file your return and it turns out you owe money and are un able to pay in full at the time you file, the IRS will send a letter or bill stating the amount your owe. The date on that letter is the start date for the statute of limitations.
What if I never filed a return? This is the worst idea, in addition to fact that not filing can become a criminal tax issue, the IRS will eventually file a return for you. The return the IRS files is called a substitute return and in addition to leading to other problems it would draw out the process further making the 10 year period begin a later date.
What exceptions are there for the statute of limitations?
In certain situations the 10 year period can be suspended having the effect of making the collection period longer than 10 years. These circumstances include, filing for bankruptcy. If you at some time file for bankruptcy protection and the judge issues an automatic stay which will stop the IRS from pursuing collections. The 10 year period is suspended during the time you are under bankruptcy plus an additional 6 months time. The 10 year period is also suspended while you have entered into negotiations to one of the many tax settlement programs such as he offer in compromise, installment agreement or innocent spouse relief. After the agreement has been settled or denied the 10 year period resumes. The 10 year period will also be suspended if you live outside the United States for six months or longer. There are a few other ways the 10 year period can be extended chief among them is for the taxpayer to voluntarily agree to extend it. Many times if a tax payer is getting close to the statute of limitations the IRS will get very aggressive in collections efforts. If the taxpayer enters into an installment agreement, the IRS may require that the taxpayer agrees to extend the statute of limitations for an additional 6 years. The IRS can also add time to the 10 year period by bringing a law suit against you in federal court but this tactic is not common.
Who Can The Statute Of Limitations Help?
A narrow percentage of taxpayers will be close the statute of limitations and in a position that may favor them to run the clock out. However once the IRS is aware that the taxpayer's 10 year period is nearly expired they often get very aggressive in their collections efforts. During this time it is highly advisable to work with an attorney who can review your unique situation to help decide on the best course of action.
For some individuals the statute of limitations will be their ticket out of paying a large tax debt, for most taxpayers however it will not be useful in providing a path to tax relief.