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What You Need to Know About The IRS 10-Year Statute of Limitations

You've been audited by the Internal Revenue Service (IRS) and it has been determined that you owe money to the government. A lot of money. So, you might be thinking that you're now on the debt hook forever. That, however, is not exactly the case. Though not widely shared by the IRS, each IRS audit tax debt has a Collection Statute Expiration Date (CSED). Generally speaking, the IRS has 10 years to collect an unpaid tax debt, after which the debt is expunged. Towards the end of the CSED, the IRS has a tendency to become more aggressive in its collection efforts, hoping that the taxpayer will pay as much as possible before the deadline or agree to extend it.

Here are some things about rights regarding a CSED that you need to know.

The debt is at least three years old. To begin assessing whether a taxpayer will be able to discharge back income taxes, the rule states that the tax return must have been due at least three years prior to filing for bankruptcy.

Not all collection tactics are "aggressive". The efforts taken by the IRS can take on, both, the bounty hunter and helping hand tactics. The latter of the two is often accomplished through the IRS presenting the tax debtor with deals, such as installment payment agreements, which require the CSED to be extended.

The start date of the 10-year period is not always clear. While it is supposed to begin when the tax is originally assessed, the CSED is frequently disputed between tax debtors and the IRS. The agency has different ways to calculate the CSED, especially when the taxpayer either did not pay taxes in full or paid only partial for several years. One way to avoid this is to address the start date with the IRS immediately upon notification of an outstanding tax balance. (Note: Due to the complex nature of IRS proceedings, it is almost always a good idea to present your tax information to tax professionals, such as those on our team at Tax Help Network, before approaching the IRS.)

Know what may stop the CSED clock. The timeline of your CSED may be temporarily stopped, also known as "tolling the statute of limitations," for several reasons, such as filing for bankruptcy, for an offer in compromise, for appeals, and for a lawsuit against the government. Other reasons include being out of the country for at least 6 months, signing an CSED extension waiver, and military deferments. Once the tolled time is finished, the CSED clock will resume, but not always immediately. For example, after filing for bankruptcy, it could take as long as 6 months for the timeline to kick back in.

You will not be notified of the expiration of the statute of limitations. Aside from the decrease and eventual elimination of collections calls, the IRS will not contact a tax debtor when the CSED has passed. That is left to the individual or their tax professional in addition to requesting necessary documentation that shows the debt no longer exists. Documentation clearing the tax debtor is needed for instances involving the withdrawal or release of a federal tax lien, which is a necessary step to begin repairing financial and credit profiles.

Waiting out the statute of limitations is NOT the best choice for everyone. Ten years is a long time to maintain an outstanding tax balance with the IRS. For some, that could involve prolonged liens on all property and potential seizure after a levy has been enforced. Credit profiles can be decreased significantly, which can affect credit scores, employment, and buying and selling properties. Attempt to wait out an imminent CSED as a tax debt strategy should only be considered under careful advisement and guidance of licensed tax relief teams.