Does the IRS Tax Debt expire after 10 Years?

Generally, IRS tax debt expires after 10 years. This means the IRS can no longer collect the debt through methods like wage garnishments or bank levies once this period passes, unless they obtain a court judgment.

• • Start of the Clock: The 10-year period begins from the date the tax debt was initially assessed. If a tax return is filed late, or if the IRS files a “substitute tax return” on behalf of a taxpayer who hasn’t filed, the clock starts from the assessment date or the date the substitute return is filed, respectively.
  • Tolling (Pausing) the Clock: The 10-year statute of limitations can be paused or “tolled” under certain circumstances:
    • Installment Agreements: If an individual is subject to a valid IRS pending installment agreement (a payment plan), the clock stops while the IRS considers or has the agreement in effect. The article provides an example where a client’s installment agreement consideration period extended the collection time from 10 to 15 years.
    • Bankruptcy: Filing for bankruptcy also pauses the 10-year clock for older tax debt while the bankruptcy proceedings are ongoing.

In addition to installment agreements and bankruptcy, other events that can cause the 10-year statute of limitations for IRS tax debt to be tolled (paused or extended) include:

1. Offer in Compromise (OIC): The clock is paused while the IRS reviews an OIC, and for 30 days after a rejection to allow for an appeal. If an appeal is filed, the clock remains paused during the appeal process.

2. Collection Due Process (CDP) Hearing Request: If you request a CDP hearing, the collection period is suspended from the date the IRS receives the request until the determination becomes final, including any court appeals.

3. Innocent Spouse Relief Request: The collection period for the requesting spouse is suspended from the date the claim is filed until a waiver is filed, or until the 90-day period for petitioning tax court expires, or if tax court is petitioned.

4. Taxpayer Litigation Against IRS: The statute is paused while litigation is pending.

5. Military Deferment (Combat Zone): IRS time limits are suspended during active duty in a combat zone.

6. Taxpayer Living Outside the U.S.: Certain provisions apply to suspend the CSED for taxpayers living outside the U.S.

7. Wrongful Levy or Lien: In cases of wrongful levy or lien, the CSED may be suspended.

8. Failure to File a Return: If a tax return is never filed, the limitations period can be extended indefinitely.

9. False or Fraudulent Returns and Willful Attempts to Evade Tax: There is no time limit on assessing tax in cases of false or fraudulent returns filed with the intent to evade tax, or willful attempts to defeat or evade tax.

10. Failure to Disclose Foreign Assets and Transactions: Failure to file required forms to report information regarding foreign assets and transactions can extend the limitations period indefinitely.

It’s important to note that if multiple events overlap, the time for these events is not added more than once.

Tax Resolution Options: Even if the 10-year period hasn’t passed, taxpayers may still have options to resolve their tax debt:

• • Offer in Compromise (OIC): This allows taxpayers to propose a settlement amount to the IRS that is less than the total amount owed. If accepted, paying the agreed-upon amount clears the tax debt.
  • Installment Agreement: This is a payment plan that allows taxpayers to make monthly payments to the IRS over time.

 

Professional Advice: A tax attorney can provide guidance on which resolution option is best suited for individual circumstances. In summary, while IRS tax debt generally expires after 10 years, it’s crucial to understand when the clock starts, what can pause it, and the available options for resolving tax debt before the statute of limitations runs out.