How Long Until the IRS Comes After You for Back Taxes?

Navigating federal back taxes can be daunting, to say the least. If you’ve got unpaid or unfiled taxes to deal with, it’s natural to feel some stress about the possible repercussions. The first step forward is understanding how long it takes for the IRS to initiate collection actions for back taxes. From there you can get a look at the bigger picture of your own situation.

As of early 2024, the IRS has recently begun sending out letters to taxpayers whom they believe owe a tax liability, after a two-year pandemic pause on many collection actions. If you’ve received Notice LT38, or if you’re already getting notices about a demand for payment, you’ll want to read on for more detail.

Although you haven’t heard from the IRS for a few years, the agency is ramping up collection processes and getting ready to come after taxpayers for back taxes. To get help now, contact us at the Timothy S. Hart Law Group today.

IRS Collection Process

When it comes to collecting unpaid taxes, the IRS follows a structured process designed to encourage compliance and recover debts owed. Generally speaking, this process begins with the issuance of notices to taxpayers informing them of their outstanding tax debts. The first notice will usually be sent out a couple of months after the relevant return is filed.

If the first notice is ignored, further notices will follow, and they are usually sent every six to eight weeks, progressing to more serious demands for payment. If a taxpayer fails to respond to the initial notices or neglects to make payment arrangements, the IRS may then initiate more aggressive collection actions. This can include placing liens on the taxpayer’s property, garnishing wages, or seizing assets.

It’s important to note that during and after the COVID pandemic, the IRS stopped the majority of its Automated Collection System (ACS). This meant that the majority of demand for payment notices were paused for an extended period, and some people with unpaid tax bills didn’t get a notice for a year or two after filing their returns. However, in usual circumstances, the IRS doesn’t wait this long to come after taxpayers.

Many taxpayers will be receiving notices in early 2024 when the IRS begins ACS again, after a two-year pandemic pause. From January 24, 2024, and onward, the IRS will be sending Notice LT38, which states that ACS collection letters will be issued again soon. It also explains that there will be an automatic penalty relief on late payment penalties for qualifying taxpayers with an assessed balance of less than 100k from 2020 and 2021.

Examples of Demand for Payment Notices

As indicated above, the IRS generally doesn’t start collection activity for a while after you file a return and don’t pay. However, once the letters start coming, you should expect them to arrive about every six to eight weeks, with each notice becoming increasingly serious. The IRS sends out many types of demand letters and notices, but here’s a look at some of the most common examples:

• CP14 – Balance Due Notice: Usually the first notice that goes out in regards to an outstanding tax debt. This is an automated notice, altering you about your unpaid balance and subsequent payment options. It will include instructions on how to pay the balance, and how to request assistance if needed.
• CP501 – First Reminder of Balance Due: This is generally the first notice sent by the IRS after a balance due notice has not resulted in an attempt to make payment. As well as detailing your balance owed, it will also include any penalties and interest, which is likely to have accrued by this stage.
• CP503 – Second Reminder of Balance Due: Another automated notice, this one will be issued around six weeks after CP501, if the taxpayer has made no attempt to make payment. This is the final notice you’ll receive before the severity of your situation escalates.
• CP504 – Final Notice & Intent to Levy: This is both a final notice of reminder about your balance due, and it also introduces the next part of the process if payment isn’t made. Here, the IRS is notifying the taxpayer of their plans to seize assets if no attempt is made to pay the bill.
• CP90 – Final Notice of Intent to Levy & Notice of Your Right to a Hearing: Similar to the CP504 notice, the CP90 notice serves as a final warning before the IRS takes further collection actions. It informs the taxpayer of their right to request a hearing to dispute the tax debt, and outlines the consequences of failing to resolve the matter.

Once you receive CP90, the collection process is seriously underway, and if you don’t take action to stop it, the IRS will start to garnish your wages or seize your assets. At this point, you have 30 days to request a Collection Due Process hearing. If you don’t, the IRS will move forward.

IRS Collection Methods

The IRS employs various collection methods to recover unpaid taxes, starting with less severe actions and escalating as necessary. These methods include:

ACS Payment Reminders

The first line of collection actions taken by the IRS are payment reminders, or notices, such as those examples listed above. The Automated Collection System (ACS) is often used for less complex cases, utilizing automated processes to send notices and communications reminding taxpayers to address their outstanding tax balances. These reminders serve as gentle prompts for taxpayers to take action before more aggressive collection measures are initiated.

Installment Agreements

If taxpayers are unable to pay their tax debts in full, they may request installment agreements with the IRS depending on the circumstances. Also known as payment plans, an Installment Agreement allows taxpayers to pay off their debts in monthly installments over a specified period, making it possible for them to eventually settle their tax liabilities.

Offers in Compromise (OIC)

When taxpayers are unable to pay their tax debts in full due to financial hardship, it may be possible for them to qualify for an Offer in Compromise (OIC). This program allows taxpayers to settle their tax debts for less than the full amount owed, as long as they meet certain eligibility criteria and can demonstrate an inability to pay the full amount.

Revenue Officer Assignment

In more intricate cases or when dealing with larger outstanding balances, the IRS may assign a Revenue Officer to oversee the collection process. Revenue Officers possess the authority to take personalized and assertive actions, including issuing levies, seizing assets, or initiating wage garnishments. Their involvement becomes crucial when the automated processes of ACS prove insufficient or when dealing with complex financial situations. Once a Revenue Officer is assigned to your case, you can expect the collection process to move forward quickly.

Federal Tax Liens

If taxpayers continue to neglect their tax debts despite receiving notices, the IRS will eventually move to file federal tax liens against their property. These liens serve as legal claims against the taxpayer’s assets, including real estate, vehicles, or financial accounts. They can also affect one’s ability to obtain credit or sell property until the tax debts are satisfied.

Bank Levies

In more severe or complex cases where tax evasion is suspected, the IRS may resort to levying taxpayers’ assets or income to collect unpaid taxes. Levies can involve seizing funds from bank accounts, garnishing wages from employers, or seizing property to satisfy the outstanding tax liabilities.

How Long Does the IRS Have to Assess Taxes Against You?

So, how long does the IRS have to come after you if you make a mistake on your tax return or forget to report something? The IRS follows a structured timeline to assess any owed taxes, once a taxpayer has filed their return. If you file a return that eventually the IRS finds discrepancies with, they will assess a tax against you, but they have a limited amount of time to do so.

The assessment period generally begins from the date the return in question is filed, and concludes when the IRS formally records the amount owed. The definition of this timeline is important because it establishes the time frame under which the IRS can lawfully determine and communicate the taxpayer’s outstanding liabilities.

That’s because of a legal clause known as the Statute of Limitations (SOL). The IRS has three years to initiate an audit from the date of filing, or the due date of the tax return, whichever is later. There are also exceptions to this general three-year rule, including fraudulent tax returns, and under-reporting income. In other words, the IRS has three years to review your tax return and assess tax against you, unless fraud is involved. Then, the IRS has six years.

How Long Does the IRS Have to Collect Unpaid Taxes?

Once the taxes are assessed, the IRS has 10 years to collect them. The SOL on collections is, in most cases, 10 years from the date of assessment, or when the IRS officially determines the liability and issues a Notice of Assessment. Once those 10 years have expired, the IRS can no longer legally collect or attempt to collect an outstanding tax liability. However, there are exceptions and extensions to this general rule.

The statute of limitations on collections can be extended under certain circumstances. If, for example, the taxpayer enters into a payment plan (IA) or if they file for bankruptcy, the collection period can be extended. It’s also worth remembering that there are also statutes at the State level which may or may not vary from these Federal statutes.

What If You Have Unfiled Returns?

When a taxpayer fails to file their expected tax return, the IRS has an unlimited amount of time to file a return on their behalf to assess taxes. There is no stature of limitations on unfiled returns, because when you don’t file a return, the clock never starts ticking.

However, if you don’t file, the IRS may eventually generate a document known as a Substitute for Return (SFR). This is essentially a stand-in tax return that the IRS creates in place of an unfiled return. The information on a SFR is gathered from various places, including previous returns and data from third-party sources. A SFR is only an estimation of a tax liability, but the IRS can still use this document to recover an estimated tax debt if necessary.

It’s important to note that a SFR will trigger the statute of limitations for collections once the IRS makes the assessment (i.e files the SFR). This means that in most cases, the IRS will have ten years to pursue collections from the estimated tax return.

How the IRS Finds Taxpayers

How does the IRS figure out which taxpayers to go after? Well, the agency employs various methods and resources to identify taxpayers who have failed to pay or file their taxes. These methods include:

Third-Party Reporting

The IRS receives information about taxpayers’ income and financial transactions from third-party sources, such as employers, banks, investment firms, and other financial institutions. These entities are required by law to report income and other financial activities to the IRS using forms like W-2s, 1099s, and 1098s. Discrepancies between the information reported by third parties and the information provided on tax returns can trigger further investigation by the IRS.

Data Matching

The IRS compares information reported on tax returns with data from other sources, such as Social Security records, state tax agencies, and other government databases. This data matching process helps to identify inconsistencies or discrepancies in taxpayer information, which may then trigger closer investigation.

Taxpayer Compliance Programs

The IRS conducts various compliance initiatives to address specific areas of non-compliance. These programs may focus on industries, professions, or demographic groups with historically high rates of non-compliance or underreporting of income.

Audit Triggers

Triggers for an audit can vary from specific banking patterns, discrepancies or irregularities identified during the automated review of tax returns. Certain factors can raise red flags at the IRS, such as unusually high deductions or deviations from statistical norms.

Audit triggers will prompt close examination of a taxpayer’s financial records, ensuring that reported information aligns with the other evidence of financial activity.

Getting Proactive

Dealing with back taxes is nobody’s idea of fun, but continuing to procrastinate will only result in more stress and anxiety. Not to mention the fact that the longer you leave a tax liability waiting, the more debt you’ll accrue in penalties and interest. That’s why the best course of action when it comes to your tax liability is proactive engagement with the IRS.

Ideally you should be willing to get in touch with the IRS as soon as you receive your first notice of balance due. Even if you can’t afford to pay the bill, there are options for you, including payment plans, that can help you address the liability and minimize the financial burden.

That said, it is a reality that certain cases of tax delinquency are complex, and knowing exactly where you stand can sometimes be difficult. It’s also possible that we just don’t feel we have the time to address things promptly. In such cases working with expert tax professionals can make all the difference.

FAQs

When does the IRS come after you?

The IRS may come after you any time you have an unpaid tax bill and you don’t respond to demands for payment. Typically, the IRS only issues federal tax liens if you owe over $10,000, but the agency can take collection actions against taxpayers who owe less than that amount.

How long before IRS comes after you?

The agency starts adding penalties to your account on the first day you are late, but it doesn’t start sending letters for at least six months after the original filing deadline. The letters get increasingly serious, and if you don’t request a Collection Due Process hearing within 30 days of receiving a Final Notice of Intent to Levy, the IRS will start seizing assets and/or garnishing wages.

How long can the irs come after you?

The IRS can only come after you for unpaid taxes for 10 years. Once the taxes are assessed, the IRS has 10 years to collect them, but there are certain events that can pause the clock and add time to the end, thus extending the deadline beyond the original 10 years.

How Tax Experts Can Help

If you find yourself faced with overwhelming tax debt issues, the best step you can take is to consult with a tax attorney. No matter your situation, the help of an expert tax professional can take some of the weight off of your shoulders and help you find the fastest route forward to resolving your tax debt. To get help now, contact us at the Timothy S. Hart Law Group today.