IRS STATUTE OF LIMITATIONS ON COLLECTIONS

 

The IRS cannot haunt you for your tax debts indefinitely. In some cases, allowing the collection period to expire on the collection of tax is an effective method for obtaining tax relief.

Tax debts are collectible for up to ten years from the date of assessment of the tax, minus suspensions (tolling periods). The “date of assessment” is the date on your Notice of Deficiency, a tax debt bill sent by the IRS informing you of your owed amount. It is not the date on your tax return.

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What is the Statute of Limitations on IRS Debt?

After ten years, you reach the Collection Statute Expiration Date (CSED) on your tax debt. However, that ten-year period is subject to certain tolling periods, wherein the clock stops. The IRS technically can’t collect whenever a taxpayer is going through a bankruptcy proceeding, for example, so they stop the clock on the IRS statute of limitations, thus extending the period by however long the bankruptcy took, plus an additional six months.

There are other similar tolling periods and specific dates that must be accounted for if you want to accurately determine when your tax debt can no longer be collected. Situations that trigger the IRS to stop the clock include:

    • – Being abroad for more than six months.
    • – Filing a lawsuit against the IRS.
    • – Military deferment.
    • – Having sent in an Offer in Compromise.
    • – Having your assets held by a court for one reason or another.
    • – Filing for bankruptcy.
    • – Filing an IRS appeal.
    • Pending installment agreement.

Certain things make the clock run, and certain things make the clock stop. Determining the total time the clock has run can be tricky, yet it is essential in knowing whether this type of tax relief is a viable alternative.

 

IRS Statute of Limitations and Resolutions

 

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Most tax resolution firms that push “Offers in Compromise, Pennies on the Dollar” will not necessarily explain this option to a taxpayer. We believe the way we can best serve our clients is to give them all of the available options for dealing with a tax debt and give guidance on the likely outcomes of pursuing those options. The best option then materializes for the taxpayer to pursue.

However, it is an extremely delicate solution. If you wish to let your tax debt run out, you must meticulously monitor and keep track of your interactions with the IRS, keep certain information at hand, and consult with tax professionals to accurately determine your CSED.

The IRS may try to pressure a taxpayer into signing a waiver of the 10-year statute of limitations on collections. They may try to garnish your paycheck or bank account and use that as leverage to try to get you to sign. While the IRS isn’t as aggressive in pursuing taxes as it once was, and has several checks and balances in place against it – such as the National Taxpayer Advocate – it is still in their best interest to collect as much as they can before a taxpayer’s debt runs out.

Depending upon your circumstances, and how much time you have left before your CSED, pursuing the statute of limitations on IRS debt as a tax relief option may or may not be in your best interest.

 

What About State Tax Limitations?

States have their own statutes of limitations. While some follow the IRS’s statute of limitations, others have their own rules. California, for example, can pursue a person’s state tax debt for up to 20 years. In Texas, the statute of limitations for collecting state taxes is just three years.

Knowing all your options for both state and federal tax collection laws is usually the best method for determining which way to go. If you decide to pursue the expiration period, working with a tax professional is critical. It’s easy to oversee a potential tolling period or extension and be forced to deal with a substantial tax debt.

 

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