IRS Statute of Limitations 101: What You Need to Know

If you find yourself owing money to the IRS, it can be a very stressful situation. One thing to note and understand is that there are IRS statute of limitations on your debt - here is what to know.

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Tax debt is not forever. There are limits to what the IRS can do – and while they can practically pursue you to the ends of the earth, every instance of tax debt has an expiration date.

However, that doesn’t mean that dealing with your tax debt is as simple as letting the clock run out, and just biding your time. The IRS has a number of powerful and coercive collection tools at its disposal – and unless your tax debt simply happened to go uncollected for years, your chances of waiting it out successfully (or at least, without dire consequences) are generally very low.

 

Your Tax Debt Has an Expiration Date

The collection statute expiration date (or CSED, for short) is ten years from the date written on your tax assessment letter or notice. However, the IRS has ways to extend the CSED on your tax debt, without necessarily telling you that it has done so.

Your tax assessment date can be determined on the notice the IRS sent you when it first explained your due tax balance. When the IRS notifies you of a due balance, it’s because they’ve had a look at your account and realized that you owe them money – whether due to an old penalty for filing late, or including a deduction that you actually didn’t end up qualifying for, or some other information that meant that the amount of tax you paid over the year isn’t enough to cover the amount of tax you owe.

Furthermore, it isn’t in the IRS’s interest to tell you how close your debt is to expiring – nor do they try to warn you if you’re nearing your expiration date. The IRS will try its best to extend the CSED in its final days, however, which is why it is critical that you talk to a tax professional if you believe your debt may be close to expiring.

 

The IRS Statute of Limitations Expiration Date Can Be Extended

For all intents and purposes, the CSED means that the IRS has ten years to collect money from you for an instance of tax debt.

If you are nearing your CSED, the IRS may indirectly ask you to extend the expiration date. It might do so through a more favorable payment plan, for example. Under this circumstance, you might pay less every month than you would otherwise, but you’d be obligated to continue paying for an extended period past the 10-year limit, as per the terms of the plan.

However, the IRS cannot always successfully or legally coerce payment. There are multiple circumstances under which the IRS’s authority and ability to collect is temporarily limited. Whenever these circumstances arise, the IRS’s CSED is delayed. Because the IRS cannot freely pursue collection actions against your account at a certain time, the CSED is frozen for that time.

This is what is called a tolling period.

 

Types of Tolling Periods

Whenever the IRS cannot enforce a collection action, your CSED is effectively frozen. A few key tolling periods that can drastically affect when the IRS statute of limitations expires include:

If you’re unsure how long you’ve had your debt and would like to know how close (or far) you are to your potential tax debt expiration date, consider speaking to a tax professional.

 

The IRS May Not Inform You of An Upcoming Expiration

Again, it isn’t the IRS’s job to help you keep track of your debt’s CSED. If it’s been nearly a decade, then going over your financial and tax history with a tax professional may be your best bet for figuring out whether waiting it out is a viable option – or whether you should settle a payment plan with the IRS as soon as possible.

 

What If Your Debt is Young?

The thing about tax debt is that it can grow rapidly. The IRS levies certain penalties and steep interest rates on taxpayer debt, meaning a debt that goes ignored can become a financial behemoth over the years.

Settling your debt as early as possible – even if that means taking out a loan or seeking some other form of financing – is heavily advised. Most creditors offer much better terms, conditions, and interest rates than the IRS does.

For the majority of people, waiting out your tax debt simply isn’t a viable or smart option. Not only will your debt grow substantially the longer you wait, but the IRS’s collection tools can have a massive impact on your quality of life.

The first thing the IRS does when coercing payment is to file a public notice of federal tax lien. This is a legal claim on all of your assets and property, meaning you are heavily restricted when it comes to seeking refinancing, liquidating assets to cover other debts, or taking out a loan. A lien means the IRS takes priority over every other creditor – you need to pay them off before you can pay off your other obligations. If you have received a lien, the first thing to do is contact a professional for tax lien release.

Liens turn to levies, which are a physical claim of your assets and property. When initiating a levy, the IRS has the right to take a portion of your wages, empty out a bank account, or sell a non-exempt piece of property to cover your debt.

 

Settle ASAP or Wait It Out?

Under most circumstances, waiting for the IRS statute of limitations only makes things worse. Federal tax debt can persist after bankruptcy, and even financial hardship only causes the government to put its collection actions on hold (which extends the CSED), but not remove the debt.

Consult the tax professionals at Rush Tax Resolution if you aren’t sure how best to proceed. Not only can they help you navigate the IRS’s rules and collection actions, but they’d be able to help you settle for less, if you can’t fully pay off your debt.

Unfiled Taxes? Here's What You Should Do

If you have unfiled taxes, don't stress. There are steps you can take to get back into good standing with the IRS.

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One of the things the IRS cannot be criticized for is their memory – if you have unpaid taxes or unfiled taxes, the IRS will file your returns for you, and penalize you. Those penalties only stand to grow the longer you ignore your taxes, eventually leading to collection actions against you and your assets.

Thankfully, the IRS provides plenty of help for taxpayers looking to file their unfiled tax returns, tackle their debts, and get back in good standing with the government. If you have unfiled taxes, the last thing you should do is dally – but you shouldn’t panic, either. Let’s take a deep breath together and go through the process one step at a time.

 

The Basics on Back Tax Returns

The IRS takes taxes seriously – and attempts to avoid taxation through illegal means, even if it’s as simple as deliberately ignoring your duty as a taxpayer to file your taxes, it can mean hefty fines and even jail time.

If your tardiness was not out of maliciousness, but other reasons (getting caught up in financial trouble, a personal loss, sudden trauma, or simply forgetting it for that one year), the worst thing you’ll face is a higher tax bill. But waiting too long to act can turn that bill into a bank levy.

In general, outside of criminal intentions and subsequent jail time, the major consequences of forgetting to file your taxes include:

Refundable tax credit is generally first used to pay off your existing liabilities to the IRS, and anything left over is sent out as a tax refund – forgetting to file your taxes will eat into your refund due to penalties and interest.

Furthermore, the IRS will file a substitute return for you based on your previous returns, as well as any W-2s and 1099 forms with information on your income. This can mean owing more in taxes than you really do due to the fact that the IRS does not take itemized deductions into account in a substitute return. 

Once this substitute return is out, the IRS gives you a month’s notice before levying penalties and other consequences. During these 30 days, you must explain your tardiness and send in a completed tax return. In the months following your late filing, the IRS will send you multiple notices, including

      1. Notice CP515
      2. CP516, and
      3. CP518

Willfully ignoring these can be a fineable offense and may even lead to jail time.

Older unfiled taxes generally won’t let you waive your penalties – but they become necessary if you want to negotiate a payment plan for your tax debt. One of the prerequisites for getting back on the government’s good side is being up to date with your tax returns.

 

Talk to the IRS (and a Tax Attorney)

The first step to dealing with your unfiled taxes is to figure out where you currently stand with the IRS.

This means calling them and figuring out how what steps they’ve taken against you and your account:

Find out what information the IRS needs from you to avoid facing harsher consequences.

If you have gone multiple months, or even years without filing a tax return, your best bet may be to start by contacting a tax attorney. Rush Tax Resolution can help you get back on track with your taxes, and help you negotiate an amicable resolution with the IRS.

You will also need to talk to the IRS to retrieve all the information you might need to begin filing your back taxes. These include information returns relevant to the years missing a return. Alternatively, you can ask your employer for your respective W-2s and 1099s.

If you are self-employed, it is up to you to dig through your income statements and books to create an accurate return. Consider getting professional help to make sure your return is as thorough as possible, to avoid further scrutiny from the IRS.

If you’ve been late on filing your taxes for multiple years, then you should figure out just how far back you need to go to get into good standing with the IRS.

In general, the IRS can only demand returns from the last six years. In practice, you might only need to file your back returns for the last three. However, if you have somehow never filed a tax return, the IRS may require you to file one for every year that you were eligible for filing a return. In general, you must communicate with the IRS to figure out exactly what they want and need from you.

If you have questions regarding what returns you may or may not need to file to get back into good standing with the IRS, consider getting professional help from a tax advocate or attorney.

 

Prepare Your Unfiled Taxes and File Them Properly

Once you’re done preparing your returns, either by yourself or with the help of a qualified tax preparer, you can physically mail these to your local IRS field office and get in touch with them to keep an eye on your return processing.

The last thing you want is to go through all the effort of accurately preparing your returns and taking the steps needed to start dealing with your tax debt, only to find out that the returns never made it to the IRS.

 

Address Your Tax Balance

There are monthly failure-to-file and failure-to-pay penalties (each capping out at 25 percent of your original debt), as well as monthly interest (based on an annual rate). Depending on your total tax debt, the IRS may begin levying certain collection actions against you to protect their interest.

Addressing your outstanding balance from unfiled taxes as soon as possible is critical, as the IRS’s rates are typically less forgiving than your average credit, and letting your debt drag on can be massively detrimental to your ability to seek refinancing and loans, as well as do business. Eventually, the IRS will levy your assets and accounts, or even threaten jail time if you’re purposefully avoiding taxes.

Thankfully, first-time debtors to the IRS can work with a professional tax attorney to consider seeking IRS amnesty, or penalty relief due to Reasonable Cause. You will have to be completely open and transparent about your personal and financial situation in the last few years and prove that your circumstances massively hindered your ability to pay and file taxes.

Get Rid of IRS Penalties

IRS penalties

IRS penalties

The long unbearable wait is finally over; football season is back!

While watching some games this past Sunday, I couldn’t help but notice all of the penalty flags being thrown.  It seems like they were being thrown on just about every other play.

For example, it has become virtually impossible for the defense to even touch the quarterback, without a penalty being thrown.  It is almost like you can only hit the quarterback within about a 6-inch area of his body. And, you better not hit him too hard – or else.  Soon, the defensive lineman will be required to bring the quarterback milk and cupcakes, I guess.

Well, to many folks, it seems to be the exact same thing with the IRS.  The IRS has so many different types of penalties.  And, most are far worse than the 15 yards and automatic first down.

If you complain too harshly to the referees, you may get further penalized or thrown out of the game.  So, what can you do with the IRS penalties?  Is there any hope to get the IRS to remove or at least lower your penalties, once they have assessed them?

The short answer is, YES.

However, you must know the rules and the procedures to be successful at this game, or at least make sure that you hire somebody to represent you that does.

The IRS Penalty Handbook has over 100 penalties listed in it.  If you like horror movies or enjoy root canals, you can check it out yourself at  www.irs.gov/irm/part20/.

 The most common penalties are:

Some of the listed reasons that IRS will consider in deciding whether or not to eliminate or decrease your penalties are the following:

Know the IRS Penalty Rules and Procedures First

Before you go asking the IRS to remove the penalties for you, know what the rules and procedures are by reading their exciting book.  Better yet, make sure that you hire somebody that knows how to succeed in their crazy world of penalties.

Believe it or not, IRS employees rely on a computer program (artificial intelligence) to often determine if you are eligible for a reduction.  The IRS employee may not properly understand the huge number of rules themselves and all of their nuances.  Who can blame them, it makes War and Peace seem like a Cat in the Hat book.

You have a much better chance of succeeding if you know the exact reference section in their handbook.  Specifically make your claim citing it.  Again, you can read their book, or hire a pro.   However, do not just ask blindly, and hope that the IRS just has a kind and forgiving heart...too many punchlines here.

We offer a free consultation up front to discuss your qualifications and realistic chances of getting IRS penalties removed, or at least reduced.     Call us at (877) 554-7874 - find out if you are a good candidate for penalty abatement up front at no cost to you.