You may think that you are stuck with your tax debt until it is paid in full, but thanks to the IRS statute on collection, this is not at all true. Most taxpayers operate under the misunderstanding that the IRS is an all powerful arm of the government and isn’t required to adhere to time limits. This couldn’t be further from the truth. If you are being pursued by the IRS for tax owed, then it is imperative that you know when statute begins, how long it lasts and when it ends.
The statute of limitations is the time frame the IRS has to address a taxpayer’s issues. Typically, the IRS is allowed up to three years from the date a return is filed to assess additional tax. For returns which were filed early or not filed at all, statute begins to run on the date the return was due, usually April 15th.
The 10 year statute of limitations refers to the time the IRS has to collect tax after the assessment. If there is a subsequent assessment, the clock on statute begins to run after the assessment is made. An assessment of tax could be the result of the balance due listed on an income tax return, an audit, or the result of an amended return. After the 10 year statute expires, the IRS cannot collect on any tax still left owed.
There are instances in which the IRS will ask the taxpayer to enter into an agreement to extend the statute period. For example, a Partial Payment Installment Agreement (PPIA) allows taxpayers with large outstanding tax liabilities to pay less than the minimum amount required to pay off the debt before the statute expires. In order to ensure that the IRS receives the full amount owed, it requires taxpayers to sign an agreement to extend statute before the PPIA can be approved.
If the IRS is taking action against you in order to collect the back tax owed, then they must cease all debt collection activity once the statute expires. For example, if the IRS has a lien on your property and the statute has expired, then you should expect to receive a lien release certificate in the mail. In addition, any levies on wages or against your bank account must cease as statute expiration deems them unenforceable.
Denise Caldwell is a finance writer who has been writing on taxation and finance since 2006. Her articles appear regularly on websites such as Gomestic.com and MoneyNing.com. She has taken what she learned while working at the IRS to provide readers with helpful tax and finance tips. Caldwell received a Bachelor of Arts in political science from Howard University.