Not many people know this but the IRS has only a set time to collect unpaid taxes. Once this collection period passes, called a statute of limitations on collections, the tax debt is written off.
IRS Statute of Limitations on Collections
Generally, the IRS has 10 years from the date of assessment to collect a tax. Sounds easy right. Wait out the IRS for ten years and you're home free. Not so fast.
First, 10 years is a long time and the IRS is certainly not going to sit idle. The IRS has the power to seize bank funds or garnish your wages. It can also file a lien on your property, which may make it hard to later sell it.
A word of warning, if you owe a substantial tax debt and have assets of value than the IRS can file a suit in court to get a judgment against you. Court judgments can last for 20 years or more. The IRS doesn't do this in a lot of cases but the risk is still there.
Second, even if you avoid IRS collections, if you take advantage of bankruptcy or certain IRS progams to stop or slow down IRS collections than you may extend the 10 year statute of limitations. Here is a quick list:
- Filing bankruptcy
- Requesting an offer in compromise
- Requesting a collection due process hearing
- Requesting an installment agreement with the IRS
Bankruptcy, for example, extends the statute of limitations by 6 months plus the number of days the taxpayer is in bankruptcy. So there is a potential to extend the statute by at least a year or more, depending on what actions the taxpayer takes.
Still, in spite of IRS collections and possible extensions, if you do make it pass the statute of limitations on collections than the IRS writes off the balance due and any liens filed against you will expire (either automatically or by requesting they be removed). This can be a huge benefit to taxpayers.
The IRS statute of limitations on collections is a powerful tool. If you are close to the date than you may not have to do a thing to wipe out your IRS tax debt.
The only way to know for sure is to talk with a tax professional. He or she can pull your tax transcripts, the subject of my next post, to see when your tax debt expires. It can have a huge impact on your case!
If you or someone you know in the Portland, Maine area has an older IRS tax debt, please feel free to contact me directly at 207-747-5318 or by filling out my contact form.
James D. Wade, Esq.
Law Office of James D. Wade
53 Exchange St., Ste 400
Portland, ME 04101