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If you have a tax debt that is past due, the IRS will attempt to collect on the money that you owe. Whatever your reasons for being past-due, the government has several options for recovery. They can impose a levy or lien on any income you receive or seize property you own.
By law, the IRS has a finite period of time in which to collect the money, a time period known as the statute of limitations on tax debt. This period is generally 10 years, but the statute of limitations can be extended under certain circumstances.
The 10-year rule for the collection of taxes can be misleading, as that time doesn’t start until the IRS assesses your tax liability and sends you a bill. If you fail to file a tax return, the IRS can file a substitute return and create a deficiency assessment, but the agency may not do so for up to three years after the due date.
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In addition, if you omit a substantial amount of gross income on your return, the time the IRS has to assess your taxes gets extended to six years.
The statute of limitations can be suspended by certain actions that you, the taxpayer, takes. The suspension period can extend from a few months to several years depending on your case. Any period of suspension will be added onto the 10-year statute of limitations. Actions that lead to suspension of collection proceedings include the following:
The IRS will rarely sue you for the collection of taxes due, but in this event, the statute of limitations would be suspended during this action. This suspension would also be the case if you were in litigation with the IRS.
You can voluntarily agree to extend the 10-year period of the statute of limitations under certain circumstances. An extension would usually be for five years.
In these cases, the statute of limitations will end 90 days after the expiration of the extension.
The IRS can impose penalties and interest fees if you are late filing your tax return, make a mistake, or if you don’t pay the full amount of tax due. What fees you incur will depend on how late you make payment or the severity of the errors, but they could include the following:
In cases where the IRS can determine that you have willfully failed to file your tax return, or you have done so fraudulently, no statute of limitations will be applied to the collection of your debt. Furthermore, if the IRS chooses to prosecute you, you could face severe penalties and possible time in jail.
In nearly all cases, it is far better to face up to tax debt and contact the IRS voluntarily to find out if you can come to an arrangement to settle the tax debt that you owe.
If you are worried about getting into debt with the IRS, or you’re already in the situation where the IRS is trying to collect back taxes from you, you should consider inquiring about professional debt advice from Solvable. We provide assistance by matching your needs with trusted debt relief providers that can help you with your debt concerns. Learn how our resources and knowledge about debt relief could help you get out of debt faster.
Graham Snelgrove is an English freelance writer who has had many articles on a wide variety of subjects published online and in print, including in Yachting Monthly, a Time Inc. publication. He currently lives on the Spanish island of Lanzarote in the Canary Islands.