IRS Collection Statute of Limitations

The Tax Debt Statute of Limitations

There are several statutes of limitations related to the IRS and taxes. The IRS collection statute of limitations is the amount of time the IRS has to collect unpaid taxes from taxpayers. This statute is 10 years from the tax assessment date, while others are shorter.

During this 10-year period, the IRS can legally pursue collection actions against you. If you don’t pay what you owe, the agency will start by sending notices and charging penalties and interest in addition to your outstanding tax balance. 

If you continue to fail to pay what’s owed and don’t take any action like setting up a payment plan or filing an appeal, the IRS could then attempt to levy (or seize) your assets including your bank accounts, wages, or property. Needless to say, you don’t want it to get to this point and put your assets at risk.

When the Statute of Limitation Starts

The 10-year timeline begins when the tax is assessed. After 10 years (or longer, if there is tolling), the IRS can no longer legally take collections actions against you regarding the unpaid tax. The last day of the collection period is referred to as the collection statute expiration date (CSED). 

So, for example, if you fail to pay your taxes on time, the clock starts ticking on the date that tax is assessed, which is April 15 (when taxes are due) or the date you file your return, whichever is later. 

The IRS will start sending you notices about penalties when you miss a deadline. If you do nothing and continue to fail to pay, the IRS can continue its collections actions until the CSED arrives.

Ways to Extend the Statute of Limitations (Tolling)

There are a few ways to extend the statute of limitations, which actually means that it’s temporarily paused. These are referred to as tolling events. Here are a few reasons the IRS may stop the clock:

• You request an offer in compromise
• You file for bankruptcy
• You file an appeal with the agency
• You are seeking innocent spouse relief
• You request an installment agreement
• You’re out of the country for at least six months
• You sue the IRS
• You are on military deferment
• You sign a waiver that extends the statute of limitations (which the IRS may ask you to do in some situations)

The connecting theme of these events is that they are all examples of scenarios in which the IRS is paused from being able to collect the tax due. The law says they get 10 years to collect, so when they are forced to pause, their 10-year collection period is paused too. Note that in most cases, pauses are only temporary, and the statute of limitations will resume where it left off if a matter is resolved and you still have an outstanding tax balance.

Currently Not Collectible Status and the Statute of Limitations

So, what if you have currently not collectible (CNC) status? This is a status the IRS may agree to put on your account when you’re dealing with a financial hardship. CNC status temporarily pauses collection actions until your financial situation improves. 

But another benefit of CNC status is that the clock on the IRS collection statute of limitations doesn’t stop while your account is in CNC status. This means that if you continue to experience hardship throughout the 10-year period, and the IRS keeps your account in CNC status during that time, the statute will expire. The IRS will no longer try to collect the applicable taxes from you.

Talk to a tax attorney about your tax situation to learn how the CSED impacts you. An expert will talk to you about your options to get your tax debt resolved as soon as possible.

Will the IRS Get More Aggressive at the End of the Statute of Limitations?

10 years is a long time. Throughout this period, the IRS will likely take many actions to try to get you to pay the taxes you owe. These include:

• Sending notices of missed deadlines or payments
• Assessing penalties on your account
• Adding interest to your accruing balance
• Filing a federal tax lien against you
• Sending you a notice of intent to levy your assets
• Actual property seizure

Some taxpayers with an unpaid balance may wonder if the IRS will level up its tactics as those 10 years come to a close. The IRS often does become more aggressive in its collections actions, especially because collections are done in phases, and the more you try to wait out the IRS, the more severe the consequences become (i.e., asset seizure or legal charges).

But the IRS may also try to negotiate with you or get you to apply for a payment plan to pay off your debt over time. Anytime you have questions about the statute of limitations, talk to a tax professional. It’s important to have a plan for how you will safely reach your CSED, rather than just try to “wait out” the IRS and face the risks of extreme penalties and legal actions against you.

IRS Statute of Limitations vs State Laws

For state taxes, the statute of limitations varies. It may just be a few years from the tax assessment, up to decades. In New York State, for instance, the state tax agency has 20 years to collect taxes, so even if the statute for your federal tax debt expires with the IRS, you will still have that longer statute for your unpaid state taxes.

State tax agencies in California and Illinois also have 20 years, but Colorado’s statute of limitations is six years, and Ohio’s is seven. As you can see, these periods vary widely across the nation for states that collect state income tax. 

Other Statutes of Limitations to Know

Collections aren’t the only aspect of taxes with a statute of limitations under the law. Here are a few additional statutes that may impact your tax situation:

• Auditing: The IRS generally has three years from when you filed your tax return to audit that return. However, the agency can go back a few additional years if the agency identifies “a substantial error,” but usually won’t go back more than six years.
• Tax fraud: The IRS can audit your tax returns for civil tax fraud with an unlimited timeline. There is no statute of limitations for civil tax fraud, but there is a six-year statute of limitations for most federal criminal tax fraud.
• Assessing taxes: The IRS only has three years from when your tax return was due or from when you filed a late return, whichever is later, to assess taxes for that year.
• Claiming a credit or refund: If you want to claim a credit or a tax refund, you only have three years from when you filed your return or two years from when you paid the tax, whichever is later. If using the two year statute, you can only claim a refund of taxes paid during the last two years.

For example, if you filed your 2023 income tax return on time on April 15, 2024, your assessment statute expiration date would be April 15, 2027, and you would have until that same date to amend the return to claim a refund or credit for 2023 taxes. If you didn’t file at all, you would also have until April 15, 2027, to file a 2023 return showing a refund due.

Talk to an Expert About Your Tax Debt Statute of Limitations

Depending on your tax situation and how much you owe, you may have additional questions about the statute of limitations and what your rights are. One of the most effective steps you can take is to talk to a tax professional, such as a tax attorney or other tax resolution professional, who can explain the statute of limitations for your specific case.

The legal team at McLaud Law P.C. can also ensure you’re taking the right steps to get your tax debt issue resolved, whether you need to apply for an installment agreement, request an offer in compromise, request hardship status, or take some other action with the IRS or your state tax agency. 

Contact McLaud Law now to set up a consultation with our experienced team.

FAQs About Statute of Limitations

What Is a Statute of Limitations?

A statute of limitations is a period of time after which no legal action can be taken concerning the rights or consequences of certain situations. When it comes to the IRS, there are different statutes of limitations for tax collection, tax assessment, tax audits, and claiming credits or refunds.

How Long Can the IRS Collect Back Taxes?

You may have heard of the “10-year-rule,” which basically represents that the IRS has a statute of limitations of 10 years to collect taxes after the tax was assessed. The collection period ends on the federal collection statute expiration date, or CSED.

Does the IRS Forgive Taxes After 10 Years?

The IRS doesn’t really “forgive” your taxes. The agency has 10 years from when the tax was assessed to collect, and if they don’t collect in that time period, they can no longer legally take collections actions, and the balance is written off.

Can the IRS Collect After 10 Years?

Legally, the IRS cannot collect taxes once the 10-year collection period has passed after the tax was assessed on a taxpayer. However, certain circumstances may extend the CSED.

Can the IRS Collection Statute of Limitations Be Extended?

Some situations may extend the 10-year CSED. For example, applying for a payment plan, living outside of the U.S. for six months or more, or requesting an offer in compromise may all stop the clock on the statute of limitations for collections. Once the matter is worked out, the CSED resumes.

I have a tax debt from eight years ago, and just incurred a new debt. Does that reset the CSED?

No, each tax liability has its own collection period and its own CSED. People with complex tax problems often have many different CSEDs that are all tracked independently, sometimes even multiple CSEDs for the same tax year. New liabilities do not affect the CSED of previous liabilities.

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