What is the Statute of Limitations on Tax Debt?

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Staff Writer
December 02, 2018
What is the Statute of Limitations on Tax Debt?

If you’re living under the shadow of unpaid taxes, it’s likely that you have a variety of questions, including how long the Internal Revenue Service (IRS) has to come after your back taxes. Fortunately, your tax debt is subject to a statute of limitations (SOL).

After the statute of limitations has expired, there are only a few circumstances in which the IRS can come after you for unpaid taxes. Here are a few things about the statute of limitations on tax debt that you should know if you have unpaid taxes hanging over your head.

What is a Statute of Limitations?

If you’re not familiar with the term “statute of limitations,” the best way to think of it is as a time period wherein a certain action can occur. In most cases, a SOL refers to how long the federal or state government has to charge someone with a certain crime. When it comes to your taxes, the SOL is the time span during which the IRS is legally allowed to pursue your unpaid tax debts.

The date where the IRS’s tax collection is set to expire is the Collection Statute Expiration Date (CSED). As this date approaches, the IRS will work harder to collect your back taxes, since it will be their last opportunity to collect the money that you owe. After the CSED has passed, the IRS doesn’t have the ability to sue you for your back taxes, which means that you would be free and clear of your tax debt.

More About the CSED

The statute of limitations for tax debt is 10 years. If your debt isn’t paid by the end of this period, which is the CSED, the IRS will have almost no options for collecting your taxes. If you’re dealing with tax debt, it’s important to understand exactly when the SOL begins so that you’ll know when it will expire.

The statute of limitations on tax debt starts from the moment tax liabilities are assessed. In most cases, this is when you file your annual tax return, although it can also be when the IRS files a return on your behalf.

Most people don’t realize that the IRS has the ability to file a return for a taxpayer. This type of return, known as a Substitute for Return (SFR), occurs when you do not file a return yourself. After the IRS files the SFR, the 10-year SOL begins.

It’s crucial that you understand that a tax assessment and the resulting SOL will only occur once a return is filed. If you don’t file a return, the IRS likely won’t file an SFR right away, which means the statute of limitations will not yet have started. The IRS can wait multiple years to file an SFR, which means if you miss a return, and the IRS files a SFR five years later, you could actually end up getting sued for back taxes 15 years after they were originally owed.

Suspending the SOL

A key factor that every taxpayer should understand about the statute of limitations on tax debt is that it is possible for the SOL to be suspended in certain circumstances. When the SOL is suspended, the IRS does not have the legal ability to collect back taxes. Let’s clarify this issue by examining some of the situations where a taxpayer’s action can suspend the statute of limitations.

A taxpayer declaring bankruptcy is the most common reason for suspension of the SOL. After the filing has occurred, the court will automatically order a stay of the IRS’s statute of limitations. Generally, the stay will be for the length of the bankruptcy proceedings, plus an additional six months after completion of the bankruptcy. Make sure that you know when the SOL will resume, especially if declaring bankruptcy doesn’t clear you of all your debts.

Agreeing to an Installment Plan

One of the most common solutions for paying off tax debt is requesting a payment plan from the IRS. If you make such a request, the SOL will be suspended until the IRS decides whether or not to accept your request. There are certain situations related to installment plans that will trigger a 30-day suspension:

  • A denial of your request.
  • Termination of an existing payment plan.
  • A taxpayer appealing a denied request.

Request for Spousal Relief

If your tax debt is a result of your spouse incorrectly reporting or paying for your taxes, you have the option of requesting innocent spouse relief. Upon making this request, the tax debt SOL will be suspended for 90 days while you are petitioning the tax court. Petitioning for an IRS denial will result in a 60-day suspension during the petition, plus another 60 days after the court has made a decision.

Other Reasons for Suspension and IRS Actions

There are a few other taxpayer actions that could result in the statute of limitations being suspended for a period of time:

  • Collection Due Process Hearing (CDPH): If you request a CDPH, the SOL will suspend while the hearing is pending and during the hearing itself. Understand, however, that you can only request a hearing after the IRS has given you notice that they are placing a tax levy.
  • Living Abroad: The SOL will suspend if you live outside of the United States for six months, and the suspension will remain in place for six months after you have returned to the country.
  • Military Deferment: The CSED can also be suspended. For instance, if you are a military member and the IRS is unable to collect your taxes, a suspension can occur for the length of your service plus 270 days.

The only action that the IRS can take that would suspend the SOL is to file a suit against you for your back taxes. The IRS may, however, ask that you voluntarily extend the statute of limitations for a five-year period. If you agree to this extension, the agency might approve an installment plan.

If you’re interested in clearing your tax debt, Solvable is here to offer you the help that you need. We feature reviews of top debt and tax relief companies so that you have the information you need to choose the right solution.

 

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