Take It To The Limit: IRS Statute of Limitations

Nearly every day, my law firm receives calls from people who are terrified of IRS collection activities, but don’t realize that their debt has expired. On the other hand, similar calls from people who thought their tax debt expired only to find that their wages are being garnished.

As you may know, the IRS has 10 years to collect on a taxpayer’s tax liability. The clock starts running from the date of assessment, which means the date the return was processed and an amount due was calculated for the tax return. Sounds easy enough, right? Well, like most things involving the IRS there are always exceptions. The IRS calls these exceptions “special circumstances.” And there are a few special circumstances that can extend the statute of limitations on a tax liability.

Bankruptcy which is either incomplete, or if the tax liability was not discharged. While your case is pending, the statute extends accordingly. If your bankruptcy agreement does not include your tax liability, those expiration dates keep getting pushed out.

Filing an Offer in Compromise. Yes, just the act of filing an OIC will extend a tax liability’s statute of limitations during the process. Of course, an accepted and completed OIC will resolve the debt.

Signing Form 900 Waiver, allowing the government additional time to collect. Why would anyone sign this document? Well, sometimes the IRS tells taxpayers they must sign it in order to enter into an installment agreement or other negotiations. Of course, they can not actually force you to sign the document, which is why asking for professional help in IRS negotiations can be beneficial.

Important to keep in mind, the statute of limitations begins running on the tax liability’s date of assessment. Which is when an IRS official actually signs off on your return. So, if you file your 2005 tax return in 2008, the liability won’t expire until 2018. This should be an enticement to file your returns on time, even if you can not pay your full liability. The earlier taxes are assessed, the sooner they will expire.

How do you find out when your debt will expire? You need to request a Record of Accounts from the IRS for each year you owe. Of course this will be a lot of paperwork, and it will be written in the classically difficult to understand IRS language. But the inconvenience can be worth if for taxpayers with particularly old debt. If you find you only have a few months left for the IRS to collect, you can simply ride it out and hope the IRS does not take any further action against you.

Sometimes an impending debt expiration can work in your favor, enticing the IRS to accept an Offer in Compromise. They would rather get some of their money than risk collecting nothing at all.

The IRS is not under any obligation to notify taxpayers that their debt is no longer collectible. So, many taxpayers live in fear of collection activity that will never come. Sounds pretty stressful. Sometimes, the IRS forgets to release a tax lien against your property, even after the debt expires, tarnishing a taxpayer’s credit. These are all reasons to get informed and be your own advocate. If you are not comfortable contacting the IRS, find a CPA or a tax attorney with experience in IRS negotiations and let them deal with all the bureaucracy.