The Internal Revenue Service has powerful collection abilities. If you owe a tax debt and don't make immediate payment arrangements, the IRS can attach a lien to your real estate, seize your bank accounts, garnish your wages and intercept your tax refunds. Fortunately, your unpaid tax debt won't live forever. The IRS must adhere to a collection statute of limitations that limits the amount of time it has to recover a debt.
Tax Collection Statute
Federal law gives the IRS only ten years to collect your tax debt. Although it may seem counterproductive for a government agency to limit its own collection abilities, old debts are harder to collect than recent ones. The statute of limitations ensures that the IRS focuses its available time and resources on those debts it is most likely to collect. The IRS assigns a collection statute expiration date, or “CSED,” to every delinquent account. Once the CSED expires, the IRS loses its right to seize your assets or make payment demands. Debtors often confuse the statute of limitations for tax debt with those that govern commercial creditors, such as collection agencies. Once a commercial statute of limitations expires, the creditor loses its right to sue, but it may continue other collection efforts. Making a payment during this time resets the statute of limitations. After a tax debt's statute of limitations expires, however, the IRS must immediately cease collection efforts, and making a payment does not impact the CSED.
Tax Collections Time Frame
The statute of limitations for tax debt begins on the date the IRS assesses the debt, not the date it accepted your tax return. In most cases, the IRS has three years from the date you submit your return to conduct an audit. If you omitted more than 25 percent of your income, this time limit increases to six years. Thus, depending on your specific tax situation, the IRS could have as long as 16 years to collect your tax debt.
The 10-year statute of limitations for tax collection isn't set in stone, and certain events can extend the amount of time the IRS has to collect from you. If you file bankruptcy or leave the country, the statute of limitations stops running and resumes once your bankruptcy case is complete or you return to the U.S. Filing an offer in compromise in an effort to settle your tax debt can extend the statute of limitations by one year or the duration of your proposed payment plan. If you want to pay your debt, but the statute of limitations has either expired or is close to expiring, you can sign a waiver and extend the collection period voluntarily.
Tax Liens for Delinquent Taxes
When you don't pay delinquent taxes, the IRS attaches a blanket lien to your property. In the case of real estate, a tax lien gives the IRS the right to foreclose on your home and apply the proceeds to your outstanding balance. Even if the IRS opts not to foreclose, a real estate lien hinders your ability to sell or transfer your property. The IRS is supposed to automatically release any real estate liens it holds once the 10-year statute of limitations passes. If it does not do so within 30 days, you have the right to contact the IRS and request information regarding your lien's status. You can also request a certificate of lien release proving that your tax lien is no longer in effect.
- IRS: Collecting Process -– Section 19 -- Collection Statute Expiration
- Patrick T. Sheehan & Associates: Statute of Limitation -– How Long Does the IRS Have to Audit My Tax Return?
- Colonial Tax Consultants: Getting an IRS Lien Released
- IRS: Instructions on How to Request a Certificate of Release for Federal Tax Lien
- IRS: Understanding a Federal Tax Lien
- IRS: Tax Topic No. 201 - The Collection Process