How Long Can the IRS Collect Back Taxes? If you owe the IRS money, then it may help to know that you are far from alone. Every year, millions of taxpayers miss the mark on their tax return, forget to file, or otherwise incur a debt with the Internal Revenue Service. While the IRS does have the ability to claim nearly everything you own, save for the shirt off your back, there are multiple steps and levels of escalation before the federal government resorts to levies and wage garnishment.
Until then, it’s important to establish where you are on the collection action timeline. Once the IRS assesses a tax debt – based on the assessment date on your first Notice of Due Payment – a timer begins. That timer determines how long the IRS can collect back taxes from you. In general, your tax debt lasts until ten years from the assessment date. However, those ten years are affected by tolling periods, which can stop and extend the clock.
As the timer ticks down, and as your debt accumulates penalties and interest, the IRS may become more aggressive with its collection actions. It is in your best interest to resolve your back taxes as quickly as possible, rather than wait for the time to run out and risk facing a much larger debt.
How Serious Are IRS Back Taxes?
Federal tax debt is a non-dischargeable priority debt, save for certain key circumstances. This means that, unless you come to an agreement with the IRS, they can continue to enforce collection actions against you even after bankruptcy.
The severity with which the IRS pursues your tax account depends on the amount you owe, and the nature of your interactions with the IRS. The closer your debt is to expiring, the harder they push.
Among the first actions the IRS may take against a taxpayer with an overdue balance is a federal tax lien.
Whereas a tax levy is a physical claim of your property or accounts, a tax lien is a legal equivalent of calling dibs on an asset. When the IRS issues a tax lien, they are telling other creditors and would-be creditors that, should you liquidate your assets or default on a loan, the IRS’ debt must be paid first.
In addition to making it difficult to seek financing, and impossible to use your existing assets to secure a loan, a tax lien can complicate your ability to pay off other debts. The IRS only discharges liens once your back taxes are paid, but they may be convinced to subordinate the lien if it helps put you in a position to be better able to pay back your taxes.
Until recently, a tax lien would also do a number on your credit score, similar to a bankruptcy, while also limiting your financial mobility and access to credit. However, the credit reporting agencies have stopped taking account of existing federal tax liens for credit scores since 2018.
If a tax lien is not enough to pressure a taxpayer into paying their back taxes or coming to an agreement with the IRS, the next step would be to collect via a levy. A tax levy allows the IRS to claim an asset and sell it at its quick sale value and use the proceeds to pay the debt. If no assets exist, the IRS may empty one of your bank accounts, or attempt to garnish your wages by claiming a portion of every paycheck.
While a federal tax lien is a public notice applied to the entirety of a taxpayer’s property, a levy is issued per asset or account claimed. If the item claimed did not satisfy the debt, the IRS will issue another levy.
The IRS can take your home. However, they cannot take every dime of what you earn. There are limits to the IRS’ ability to garnish wages, determined by the number of dependents you support.
Generally speaking, the IRS must leave you with enough money to pay for your immediate necessities – primarily your taxes. However, if the IRS’ collection actions are driving you to the edge of poverty, you may be able to seek a reprieve by becoming non-collectible due to financial hardship. This will give you time to improve your finances before the IRS resumes its collection actions.
What Are IRS Tolling Periods
The IRS will pursue your back taxes for ten years from your assessment date, plus the effects of any applicable tolling periods. Tolling periods are periods that stop the clock on your debt or extend the timer. Here are some common tolling periods that you should beware of.
- Collection Due Process Request: If you request a CDP hearing to dispute the IRS’ decision, your timer is stopped for the duration of the process plus 90 days.
- Offer in Compromise Request: If you submit a request for an offer in compromise (a reduced payment plan), the timer is stopped for the period during which the IRS considers your offer, plus 30 days.
- Filing for Bankruptcy: If you file for bankruptcy, the timer is stopped for the duration of the process, plus 6 months.
- Installment Agreement Request: If you enter an installment agreement with the IRS, the timer is stopped for the duration of the agreement.
- Living Abroad: If you live abroad for more than six months, the IRS can stop the timer from the date of your departure, plus an additional six months upon your return.
- Negotiating with the IRS: If you are negotiating a payment plan with the IRS, they may ask you to sign a waiver extending your statute of limitations.
What if I Stop Paying Taxes?
If you’re behind on taxes for a single year, then your tax assessment date will be tied to that year. But if you continue to ignore your taxes and tax returns for subsequent years, the IRS can tally new debts and extend the timer.
When the time comes to collect, your debts are consolidated, and you must pay the full sum (and catch up on your missing tax returns).
Once the IRS determines that you owe them money, the last thing you should do is stop paying taxes. In addition to causing more debt, this also entices the IRS to pursue you criminally for tax evasion.
Resolving Your Back Taxes with the IRS
Ten years can be a long time, especially with the way the IRS can extend the clock. Seeking swift tax debt resolution is usually your best bet.
For starters, you will want to file your back taxes to ensure that you are up-to-speed with each of your tax returns for the years you’ve missed. From there, consider working with tax resolution specialists to begin negotiating with the IRS for a payment solution. Still asking yourself “How Long Can the IRS Collect Back Taxes?” Contact Rush Tax Resolution today to learn more about how we can help you resolve your back taxes!
