The Internal Revenue Code (IRC) states that the IRS must assess and collect taxes within specific time limits. These time limits are known as the IRS Statutes of Limitations.
Here we explain what these limits are about and how they affect the IRS tax collection process.
The statute of limitations is the time limit set by law for the IRS to file charges or collect back taxes.
Once the statute of limitations expires, the IRS cannot assess taxes or take collection action. Likewise, taxpayers may not claim a credit or refund outside the established time frame.
The IRS has specific time limits to assess, refund, credit and collect taxes:
Generally, the statute of limitations for the IRS to assess taxes or initiate collection actions is 3 years from the due date of the return or the date it was filed, whichever is later.
However, the statute of limitations does not apply if:
- You filed a false or fraudulent return.
- You never filed a return or,
- You intentionally tried to evade paying your taxes.
On the other hand, the statute of limitations may be extended if:
- You understate your income on a tax return by more than 25% – In these circumstances, the statute of limitations gets automatically stretched out to 6 years from the date the return is filed or deemed filed, whichever is later.
As a general rule, the IRS has up to 10 years to collect unpaid taxes from the date they were assessed. After this 10-year period has expired, the IRS must cease any collection attempts.
However, if you’ve been putting off your back taxes and haven’t filed a return, the 10-year statute of limitations won’t start running and the IRS will have all the time in the world to come after you and demand payment of the taxes you owe.
There are certain events that can extend the expiration date of the collection statute, including:
- Bankruptcy Proceeding – The Collection Statute Expiration Date is suspended while the IRS is prohibited from collecting, and for six months thereafter.
- Judgment/Litigation – A court action brought against the taxpayer prior to the expiration of the collection statute extends the statute of limitations until the tax liability or judgment against the taxpayer is satisfied or becomes unenforceable.
- Collection Due Process (CDP) – The collection statute of limitations is suspended from the date the IRS receives the taxpayer’s request for a CDP hearing until the date the taxpayer withdraws their request or the date the Appeals determination becomes final, including court appeals.
- Offer in Compromise – If you request an offer in compromise, the collection statute of limitations is suspended during:
o The time the requested offer is pending with the Service.
o 30 days after the offer is rejected.
o The time an appeal of rejection requested within 30 days is being considered in Appeals.
- Installment Agreements – The collection statute of limitations is suspended under the following circumstances:
o While the request for installment agreement is pending with the Service.
o During 30 days after the rejection of the installment agreement request.
o During the period while an appeal of rejection is being considered in Appeals.
o Within 30 days of termination of an installment agreement.
o During the period when an appeal of termination is being considered in Appeals.
- Taxpayer Living Outside the U.S. – the period of limitations on collection after assessment is suspended while the taxpayer is outside the U.S. if the absence is for a continuous period of at least 6 months under IRC 6503(c).
Any claim for refund must be filed within 3 years from the time the return was filed or 2 years from the date the tax was paid, whichever is later. If no return was filed by the taxpayer, within 2 years from the time the payment was made. The amount of the refund may not exceed the portion of the tax paid within the period, prior to the filing of the claim, equal to 3 years plus the period of any extension for the filing of the tax return.