Does the IRS forgive tax debt after 10 years? Legally speaking, debt usually does not last forever. There are state-specific statutes of limitations on things like commercial debt, which prevent creditors from suing you for an old debt if the clock has run out.
There are a few reasons why debt can expire: first, to limit the potential for interest-based growth on the debt, and second, to encourage creditors to pressure their debtors into paying up debt, rather than letting it linger for years to collect a bigger paycheck down the line. A creditor can try to collect money from you, but they won’t be able to take you to court over your late payments if a certain period has lapsed without being restarted.
Aside from things like credit card debt or loans, the federal tax debt can expire as well. But like all debts, the timer on tax debt is malleable. To understand what this means, we need to understand tolling periods or debt time extensions.
What is the Collection Statute Expiration Date?
When the IRS determines that you owe the federal government money – usually because of a late tax return, missed payments, unpaid taxes, unforeseen hikes, or a miscalculation – they will send you a notice of tax debt, including an important tax assessment date. Internally, this is the date the IRS determined that you owe them money, and it is the date that starts the clock on your tax debt.
Another important tax debt date is the Collection Statute Expiration Date (CSED). This is a variable date, starting ten years after your assessment date, but with the potential to be extended or added onto with so-called tolling periods.
To keep things short, whenever the IRS cannot collect your tax debt due to current circumstances, the timer on your debt is either stopped or extended. A few examples of when your tax debt expiration date might be pushed back include:
- Agreeing to make a payment on your tax debt.
- Agreeing to a longer payment plan.
- The time the IRS spends reviewing a payment plan for you.
- Leaving the country for more than six months.
- Being on active military duty.
- Entering a bankruptcy process.
- Requesting a Collection Due Process hearing (or an appeal for your tax debt).
- Any period during which the IRS is prohibited from taking action against you due to an ongoing process, pending claim, or request for relief.
The extent to which the tolling period may extend or stop the timer on your debt differs from case to case. In the example of bankruptcy, the debt clock is frozen from the moment the bankruptcy process starts, to six months after it ends.
But does the IRS forgive tax debt after 10 years? In effect, this means that while tax debt may technically expire after ten years, depending on your personal and financial circumstances, the IRS may be legally able to go after your tax account for a debt that is well over a decade old.
Does the IRS Always Forgive Debt after the CSED?
There is no blanket policy that forces the IRS to stop collecting on a tax debt after ten years, or after the CSED. However, the IRS’ ability to pursue your debt may become strongly limited, to the point that they cannot take you to court.
This is one of the reasons the IRS will usually greatly intensify its collection actions if a CSED draws near. They will be act more zealously with regards to convincing taxpayers to consider a payment plan or may try and negotiate a partial payment plan to match the taxpayer’s current financial abilities and ensure that at least a portion of the tax debt can be paid.
Your options for resolving your tax debt become limited with time. If you are unable to realistically pay the remainder of what you owe before your debt expires, the IRS may agree to a partial plan in exchange for an extension on the timer or may allow you to pay via an offer in compromise, paying off a lower total sum but over a longer period than the original debt clock.
Determining Your CSED
If you are unsure how much time is left on your tax debt, the easiest thing to do is ask the IRS itself. Use the IRS’ official website or their official hotline to request a tax account transcript, which will detail the exact assessment date on any ongoing due balances or tax debts, and help you figure out your current CSED.
Knowing when your tax debt is likely to expire can help you plan your next move. Generally speaking, the closer your debt is to expiration, the harder the IRS will push for an extension. Consider contacting a tax professional to figure out swift tax resolution, instead, and determine your best bet for a mitigated total.
Exploring Your Payment Options
Does the IRS forgive tax debt after 10 years? If you cannot pay your debt with a single check, then your options to the IRS are limited to a short-term payment plan and a long-term payment plan. Short-term payment plans require the least amount of setup and documentation, provided the debt can be paid within 180 days. Long-term payment plans may require more financial information depending on the amount of debt you owe, or how much you plan to pay.
If you fail or refuse to work with the IRS to resolve your debt, then their collection actions will become more aggressive over the last few years of your debt. This includes deploying a tax lien to limit your financial mobility and utilizing levies to garnish your wages and claim your property. If the IRS suspects that you are intentionally avoiding payments, they can threaten jail time.
The IRS is not a wholly inflexible agency, but its willingness to negotiate differs on a case-by-case basis, and familiarity helps. It may be in your best interest to work with a tax professional to speed things along and minimize your tax debt.
Take control of your tax debt and financial future by seeking the help of professional tax preparation and tax resolution services. Don’t wait until it’s too late – contact the professionals at Rush Tax Resolution today to explore your options and find a solution that works for you.