IRS Statute of Limitations

IRS Statute of Limitations: Can the IRS Collect After 10 Years?

The IRS expects you to file and pay your taxes on time each year. When you fail to submit a tax return or if you don’t pay your tax debt, you put yourself at risk for IRS-enforced collections. This can lead to serious financial hardships for you and your family. Luckily, the IRS has a limited amount of time to assess taxes and collect on delinquent tax debts. 

This is called the statute of limitations on tax assessment and collection, and once the collection statute expiration date passes, the IRS can no longer assess or collect on the tax debt. 

You may be thinking, “I have not filed in many years and have never been contacted – I shouldn’t worry, right?” Or you may be on the opposite side of the spectrum worried that the IRS is going to come and find you for all your unpaid taxes or unfiled returns. Although it’s never simple, in most cases, the latter applies. The IRS doesn’t let a lot of unpaid taxes go past the expiration date. Even if the agency has ignored you for years, the IRS is likely to start collecting as the deadline approaches. 

However, the time limit isn’t always cut and dry. You have to understand when the clock starts ticking and which types of events can pause the clock or extend the statute of limitations. To help you out, we’ve put together an overview of the statute of limitations on IRS taxes and collection. Or you can get help immediately, by contacting us today. The tax attorneys at the W Tax Group are ready to leverage their experience to help you deal with the IRS. 

Does the IRS Have a Statute of Limitations? 

The IRS statute of limitations is the amount of time the IRS has to take a certain action. In general, a statute of limitations is a law (statute) that limits how far back you can go when assessing a penalty, charging someone with a crime, or taking other actions. There are different statutes of limitations for different types of tax issues. 

How Long Is the Statute of Limitations for IRS?

The IRS statute of limitations varies depending on the issue at hand. Here are the three most significant time frames and a brief explanation of when they apply:

• Refund statute expiration date (RSED) — Three years. You have three years from the due date of a tax return to file or amend and receive a refund. You can file or amend after that date, but you cannot receive a refund. 
• Assessment statute expiration date (ASED) — Three years but potentially longer. The IRS has three years after the tax return due date or the date the return was filed to assess a tax against you. If you unreported your gross income by 25% or more, the IRS can assess taxes six years back. If you committed fraud/evasion or if you didn’t file, the IRS can go back an unlimited amount of time. 
• Collection statute expiration date (CSED) — 10 years. The IRS has 10 years to collect taxes after they have been assessed. This deadline can move for a few different reasons which are discussed in the following sections. 

What Is the IRS Statute of Limitations on Tax Collection?

Typically, the statute of limitations on tax debt collection is 10 years. The IRS has 10 years to collect a tax debt after it has been assessed. After this time, the IRS can no longer forcibly collect the tax debt. For instance, if more than 10 years have passed and the statute hasn’t been extended for any reason, the IRS can’t garnish your wages or file a federal tax lien against you. This isn’t the same as when the IRS forgives tax debt. The tax liability still exists, but the IRS cannot collect it. 

What Is the Statute of Limitations on Back Taxes?

The statute of limitations to collect back taxes is 10 years as noted above. However, to assess a tax against you, the IRS has three years from the date you filed the tax return. For instance, say that you file an income tax return on April 15, 2021. The IRS has until April 15, 2024, to assess a tax against you. This is called the assessment statute expiration date (ASED).

If you didn’t file a tax return, then the IRS doesn’t have a deadline. The IRS can go back and assess a tax against you at any time. Additionally, if you commit fraud, the three-year limit doesn’t apply. The IRS can go back an unlimited amount of time. 

There’s also a time limit that falls in the middle of these extremes. Say the IRS audits one of your returns and discovers that you underreported your gross income by 25% or more. In this case, the agency can go back six years to look at your other returns and assess taxes against you.

What Is the IRS Audit Statute of Limitations?

The audit statute of limitations works just like the assessment statute. It overlaps because when the IRS audits your tax return, there can be tax assessed against you. Again, the deadline is usually three years after you file or the due date for filing. But the IRS can go back further if you substantially understate your income or in cases of fraud.

Collection Statute of Limitations on Filed Versus Unfiled Returns

How the Internal Revenue Service determines when the collection deadline starts and stops is highly misunderstood. Many folks believe that the IRS cannot take collection action against them if 10 years have passed since they last filed a tax return. This is not true.

It is true that the IRS can only collect tax liabilities that are 10 years or younger. However, that 10 years does not begin when you neglect, either accidentally or willfully, to file your return. 

Instead, the clock for the 10-year time limit begins only when you file a tax return. That is when the clock starts. So if you have not filed a return in years, the statute of limitations clock on those returns has likely not even started. 

It’s important to note that the Internal Revenue Service frequently files Substitute for Returns (SFR) for taxpayers with unfiled returns. Don’t assume that if you don’t file, the IRS won’t notice. If you haven’t filed, there’s always a chance that the IRS will file a return on your behalf at any point. This can happen years after the return’s due date. Typically, with an SFR, the IRS doesn’t give you any credits or deductions. As a result, you incur a lot higher tax liability than you should. Then, you will end up owing back taxes and penalties for that tax year. 

The collection statute doesn’t start with the SFR. Instead, it starts when you agree with the SFR or when the IRS issues you a formal tax assessment based on the SFR. 

Does the IRS Have to Pay Me a Refund When I File Back Taxes?

There are times when taxpayers don’t file because the IRS owed them a little bit of money and they didn’t want to bother with it. However, that doesn’t mean that you have an unlimited amount of time to claim the refund. Unfortunately, the IRS will only allow you to collect tax refunds owed to you within the last three years. 

If you are owed a refund from more than three years ago, you forfeit the rights to that money. That money becomes the property of the United States Treasury. To give you an example, imagine that you’re filing five years of back tax returns. You owe money for the most recent two years and you’re due a refund for the three years before that. You can likely get the refund from the return that was due less than three years ago, but you won’t be able to get the refund for the two returns that were due prior to three years ago.

To be on the safe side, you should file your missing tax returns as soon as possible so you are properly credited for the tax years where you earned a refund. Additionally, keep in mind that when you have missing tax returns, you risk not being credited as having paid into the tax system for those years. When you don’t report self-employment or business income, you don’t pay Social Security or Medicare tax on your income. As a result, you may not be able to take advantage of these programs as needed. 

When the Statute of Limitations Gets Extended

The above sections explained when the statute of limitations on tax assessment can get extended past the three-year mark, but what about collections? Can the IRS ever collect after more than 10 years? In some cases, yes. 

There are many situations where the statute of limitations on collections gets tolled (paused). This makes the collection time frame longer. For instance, say that five years have passed. Then, the clock tolls for 12 months. When the clock resumes, the IRS still has five years to collect. In this scenario, the Internal Revenue Service has the right to collect your tax debt 11 years after the assessment, but because it wasn’t allowed to collect for the 12 months when the clock was tolled, it still only had 10 years of active collection. 

Here are some things that can extend the statue on collections:

• If you file an appeal on your back taxes or tax assessment.
• If you request an Offer in Compromise or OIC.
• If you request innocent spouse relief.
• If you sign a waiver to extend the deadline — for example, the IRS may ask you to sign a waiver so the agency has more time to perform a tax audit.
• If you file for bankruptcy.

The above circumstances don’t start a new 10-year time period. Instead, the time from when the clock was tolled gets added to the end of the original CSED. For instance, if you file an Offer in Compromise or request innocent spouse relief, it may take months to get an answer. The statute of limitations is then pushed back for as long as the Offer in Compromise is being reviewed – if it’s eight months, for example, then the statute gets pushed out eight months on top of the 10 years.

Get Help With IRS Tax Issues

The IRS is the most powerful collection agency on the planet, and as the time limits for collecting and assessing taxes get closer, the agency becomes more likely to take action. Don’t let this happen. Get help with unpaid taxes or unfiled returns as soon as you can.

The W Tax Group has licensed attorneys and in-house accountants with years of experience, who know exactly what they’re doing when filing tax returns for prior years or preparing tax returns in response to IRS letters threatening to file a Substitute for Return.

If you need tax assistance or have IRS statute of limitations questions, contact our team at The W Tax Group for help. We offer a 100% free tax case review so you can learn about your options without any financial commitment.