01 / 07 / 13

Can the IRS Run Out of Time to Collect my Taxes?

Did you know that the IRS can't hound you forever to pay your taxes?

In fact, they have 10 years to collect - and if they don't, your debt is erased. It's called the Statute of Limitations (note...this only applies to Federal Taxes. Some states can indeed hound you for the rest of your life to pay your state taxes). But don't get too excited yet.

As you can imagine with the IRS, there's a little more "red tape" involved...

When the Statue of Limitations Really Begins:

For taxes assessed on or after November 5, 1990, the IRS does have a 10-year period from the time that the tax is assessed to collect the tax - not from the year the taxes were due. So, in other words, if you waited to file your 1998 tax return until 2000, and the taxes were assessed in 2002 - the statute of limitations doesn't begin until 2002. Now the IRS has until 2012 to collect taxes that were due in 1998. (All the more reason to file your taxes on time...even if you don't have the money to pay!)

How Do I Know the Date When the Tax Was Assessed?

You can receive record of when your taxes were assessed by requesting a Record of Accounts (ROA) from the IRS. However, if you don't want to risk raising any "red flags" with the IRS by personally requesting the report, you might consider having a tax attorney request it for you. There are ways of going about this discreetly that a good tax attorney will know.

When The Statute of Limitations Gets Extended:

There are special circumstances that actually "suspend" the Statute of Limitations that you should be aware of.

  • Bankruptcy: while a bankruptcy declaration is proceeding, the Statute is extended.
  • Offer-In-Compromise: while the IRS is considering an Offer-In-Compromise, the Statute is extended.

So, in other words, the time that it takes for either of these situations to be considered by the IRS does not "count" towards the time left in your Statute of Limitations. The statue is "frozen" for that period of time and then "picks up where it left off".

For example, if it takes 6 months for the IRS to decide on the status of an Offer-In-Compromise proposal - regardless if the proposal is accepted or rejected...those 6 months are "tacked on" to the remaining time left on the Statute.

The Good News About Installment Payments and the Statute of Limitations:

When it comes to installment payments, it used to be that the IRS wouldn't agree to the arrangement if the taxpayer's debt would not get paid off before the statute ran out. So, in the past, if you owed $30,000 in back taxes (including penalties and interest) and you had 5 years (60 months) left on the statute, the IRS would only agree to allow a payment plan that paid off the full $30,000 in 60 months. So, if you could afford it or not - you were stuck with a $500 monthly payment.

But thanks to Congress, this is no longer the case.

Code section 6159(a) now requires the IRS to take into consideration your entire financial situation before deciding on an installment agreement. So, in the situation just described, if it was determined that - considering your monthly expenses and income - you could only reasonably be expected to pay $300/month, that's what you would pay in a Partial Payment Installment Agreement. (NOTE: with a Partial Payment Installment agreement, your finances will come under review every two years. If it's determined at that time that you could afford to pay more than $300, your payment would be increased).

Assuming your payment was not increased, after the 60 months of $300 payments, you've paid a total of $18,000...and then the statute of limitations runs out. You no longer are liable for the rest of the $30,000 tax. So the statute in this instance worked to your advantage to the tune of $12,000...

Could the Statute of Limitations Be Worked To Your Advantage?

There may be ways of approaching the IRS in a manner that can use the Statute of Limitations to your advantage.

**Bryson Law Firm, LLC is a Louisiana law firm focusing 100% of our practice on helping people and businesses solve their IRS and Louisiana state tax problems. We have offices throughout the state in Lafayette, Baton Rouge, and Shreveport.**