How long does the IRS have to collect a tax debt? Do unpaid taxes ever expire? The answers to these common questions are especially important if you owe state and federal tax debt.
IRS Tax Expiration
The Internal Revenue Code requires that the IRS assess, refund, credit, and collect taxes within specific time limits known as the statute of limitations. The IRS generally has ten years from the date of assessment to collect a tax debt from a taxpayer. When the statute expires, the IRS can no longer assess additional tax, allow a claim for refund by the taxpayer, or take collection action.
The Collection Process
The IRS has wide powers when it comes to collecting unpaid taxes. If a taxpayer does not pay in full when filing his tax return, he will receive a bill from an IRS service center. The first notice explains the balance due and demands payment in full. It will include the amount of the unpaid tax balance plus any penalties and interest calculated from the date the tax was due. The first notice starts the collection process, which continues until the taxpayer’s account is satisfied or until the IRS may no longer legally collect the tax, such as when the statute of limitations has expired.
Exceptions to the Expiration Rule
The ten-year statute of limitations for collections can be suspended in the following cases:
- While the IRS and the Office of Appeals consider a request for an Installment Agreement or an Offer in Compromise
- From the date a taxpayer requests a Collection Due Process (CDP) Hearing
- While the taxpayer is residing outside the United States
- For tax periods included in a bankruptcy
The amount of time the suspension is in effect will be added to the time remaining in the ten-year period. For example, if the ten-year period is suspended for six months, the time left in the period the IRS has to collect will increase by six months. The IRS is required to notify the taxpayer that he may refuse to extend the statute of limitations.