The Statute of Limitations on IRS Debt

by EricMcCarthy ; Updated July 27, 2017
The taxman cometh.

Interest and penalties compile rapidly on outstanding balances owed to the IRS. If a taxpayer owes the Internal Revenue Service a balance, the agency will pursue collections to pay down the debt through installment plans or through aggressive collection means, including liens on real estate or personal property, levies on bank accounts or securities, seizure of possessions and wage garnishment. The IRS has a finite amount of time to collect the balances due, and this statue of limitations must be adhered to by the IRS according to the law.

Collection Period

The IRS has the legal right to attempt to collect any debt for 10 years. The clock starts when the tax liability is assessed--this occurs when the tax return is filed. The IRS may take a number of steps to collect the amount due, including taxes, penalties and interest. There are some exceptions to the 10-year collection time frame that increase the time the IRS has to collect the amounts due.

Exception: Bankruptcy

Bankruptcy generally does not relieve the taxpayer of debts owed to the IRS, with few exceptions. During the bankruptcy stay period, collection activities are stopped by the IRS under the bankruptcy code. Upon exiting the bankruptcy stay period, the amount becomes due and payable. The length of time that the stay was in effect plus six months is added to the 10-year collection period.

Exception: Requesting an Installment Plan

The collection period is suspended when the taxpayer requests an installment plan. The suspension is for the period that the installment plan is under consideration by the IRS. This suspension also applies to Offers in Compromise filings. These filings are requests to settle the tax debt for a lesser amount than owed, and they apply only to certain circumstances.

Exception: Out of the Country

During the collection period, if the taxpayer is out of the country for six months or more, this amount of time will be added to the 10-year period of collections afforded to the IRS by law.

Exception: Tax Appeals

Tax courts and their appeals process offer an opportunity for the taxpayer to resolve differences. The collection period is suspended from the initial filing date of a case in court until the final ruling is made. The suspension includes any time frame during which the case is under review by the U.S. Court of Appeals, if applicable. A suspension period also is in effect for taxpayers filing motions for Innocent Spouse Relief.

Photo Credits

  • Bankrupt. Businessman with empty pockets (with clipping paths) . image by Vitaliy Pakhnyushchyy from Fotolia.com