The question that haunts every IRS tax payer is, “will I ever be able to ease burden of the IRS debt from my shoulders?” If you sag underneath the burden of your tax debts and fantasize about your burden-free life, then you are in luck! IRS has a limit to its tax collection and generally citizens are unaware of how long can IRS collect tax debts.
Understanding the IRS
In order to know for how long can IRS collect tax debts, firstly you must understand the IRS and its workings.
The Internal Revenue Service, better known as IRS, is a revenue service agency that is owned by the federal government of the United States of America. IRS was initially created by ‘Abraham Lincoln’ in 1862, the then the President of America. It was created with the purpose of collecting income and employment taxes, along with enforcing tax laws on the citizens. The IRS is a tax collecting agency of the US Department of the Treasury that works under the supervision of Commissioner of Internal Revenue. The principal responsibility of IRS is not only the collection of taxes, but also the management of the Internal Revenue Code.
The first income tax that IRS collected was in 1862, soon after its formation. The income tax was collected with a 3% rate for the objective of arranging funds for the American Civil War. However, in today’s date, about 234 million tax returns are processed by IRS annually with the tax collection amounting to more than $2.4 million every year. Apart from income and employment taxes, IRS also deals in the collection of gift taxes, commercial income taxes, excise duty and property taxes.
But before moving on to the commonly asked question, how long can IRS collect tax debts, let’s discuss some benefits offered by the IRS.
IRS only collects taxes – Is that it?
Wondering whether IRS is only a large scale tax collecting machine? No, its not! IRS also offers benefits to the citizens of United States.It has administered many benefit programs alongside enforcing fractions of the Affordable Care Act. The principle benefits offered by IRS for the ease of tax payers includes:
- Tax credits: It minimizes the amount of tax, subjected to be paid by a tax payer.
- Deductions:It reduces the sum of your earnings subjected to the tax collection and eventually minimizing the amount of tax you have to pay.
- Savings program: The Savings plan lets the total income grow without being subjected to tax- only till the money is not distributed.
- Scholarships:It is typically a benefit program that aid students in waving off their fees at any educational institution. A fellowship is generally provided to degree students for their studies or research, but is the scholarship amount taxable? That depends what the amount pays for.
What if you can’t pay the tax debts to IRS?
Before figuring out how long can IRS collect tax debts, You must know the consequences of not paying your tax debts to the Internal Revenue Service. IRS is a strict agency when it comes to collecting unpaid tax debts. So, a tax payer must not take tax debts lightly. If you owe any tax debt but don’t pay the amount immediately, IRS will impose a hold on your property, garnish your earnings, confiscate all your bank accounts and seize your tax returns. Aggressive! Isn’t it? So why take the risk of losing your priced possessions? Just pay your tax debts and tell IRS to leave you alone!
But wait. Are you unable to pay your hefty tax debts? Luckily, you don’t have to live with your unpaid tax debts forever!
Statute of limitations
So, for how long can IRS collect tax debts? A short and simple answer is 10 years! IRS is subjected to a 10 year statute of limitations on its tax collections, limiting the time span available to recover all the debts. The statute of limitations means that IRS is legally allowed to collect all the unpaid tax debts only up to 10 years of time period from the day they were imposed. With the exception of few circumstances, once the 10 year time span is over, the IRS has to stop the tax collection. There are thousands of tax payers in the United States who know how long can IRS collect tax debts. So they breathe a sigh of relief when their statute of limitations for paying the IRS gets expired. But there’s no sympathy for you before the expiration! Because IRS acts forcefully to recover as much tax debts as possible before the validity period of your ‘CSED – Collection Statute Expiration Date’ ends.
How does IRS track the Collection Statute Expiration Dates?
IRS encounters multiple Collection Statute Expiration Dates in a single year for numerous debt assessments done by them. It is not possible for IRS to track each and every expiration date manually, therefore they use an automated system that keeps a complete track record for every assessment done on your file. The system not only tracks the assessments but also handles the records of each account’s expiration date.
Now that you have come to know about how long can IRS collect tax debts, let’s have a look at the starting time of the limitation statute.
Beginning of the statute of limitations
For how long can IRS collect tax debts? 10 years! But what is the starting time of this period? The 10 year span of the statute of limitations starts from the day your debt is evaluated by IRS, not the day IRS accepted your tax return. The limitation period begins with an application form being signed by an IRS official at any of the IRS service centers. Let’s say, if you don’t pay the full taxation amount while filing for your refunds, IRS will issue a written document to you, stating the money you owe, basically a bill. The ten year time span of your statute of limitations begins from the date mentioned in that written notice. Now that you know how long can IRS collect tax debts, let’s look at some other details.
Mostly IRS has a time period of 3 years to conduct your audit starting from the day you filed your returns. But if you excluded more than 25% of your earnings, the audit time span will increase to 6 years. However, if you did not file for tax refunds, IRS can form an alternate return for you making a deficit assessment which will initiate the ten year time frame. Bottom line is, if you are planning to not file the tax returns and hide yourself for ten years, shove that thought right away!
Why does IRS have only 10 years of time span?
As you know for how long can IRS collect tax debts, let’s look at the factor that why only 10 years? IRS is allowed to collect tax debts from taxpayers only for the time period of 10 years by the federal law. Doing this will become a hurdle in the productivity of a government agency, then why would it limit its collection? This is because it is much easier to collect tax on the current debts than older ones. The implementation of statute of limitations compels IRS to utilize its resources on the debts it is almost certain to collect. Once the Collection Statute Expiration Date passes, the IRS has no authority to confiscate your properties and bank accounts or demand for the tax money.
The law of limitations is often mistaken with the one that administers commercial creditors like tax collection agencies. As soon as the limitation statute expires, the creditor is not allowed to sue the debtor but it can go on with other collection methods. Even if IRS chose not to seize your property, the lien imposed on your real estate will be a big hurdle in the sale or transfer of the estate. It is the duty of IRS to release all inflicted property liens as soon as the 10 year statute of limitations period gets over. If IRS still does not lift up the lien from your properties and other assets within 30 days, you must contact the IRS and appeal to get information about your property’s lien status. Apart from the request, a better option will be to ask for a lien release certificate from IRS. The certificate will be a proof that the lien inflicted by IRS on your asset is now invalidated.
Want to know more on how long can IRS collect tax debts? Continue reading!
Does the collection period gets extended?
Although federal law has imposed a ten year statute of limitations on the IRS for the collection of tax debts but how long can IRS collect tax debts, also depends on few other factors. There are some exceptions that might extend the time span of the statute of limitations. Let’s say, if you get bankrupt and file for the same or leave the United States, the statute of limitations will become null and void that very moment. It can only be resumed once you get back to the United States or in the other situation, if you win your bankruptcy case. But returning back to the country is not enough, once you are back you have to file an ‘offer in compromise’ so that your statute of limitations gets an extension by at least one year. But remember one thing, submitting a file for an offer in compromise, innocent spouse appeal or the request to process your due collection, all these will ultimately fall against you. Because by filing all these requests, IRS will get 10 more years for the collection of tax debts. For instance, if you file for an ‘offer in compromise’, it will take a time span of 9 months for IRS to conduct its assessment. If the offer in compromise gets rejected, IRS will get an extension of more 9 months. So be careful while filing for any request, because you may unknowingly allow IRS to continue collecting your tax debts for a long period of time. It is not enough just to know how long can IRS collect tax debts, read on for further details!
Voluntary extension of the statute of limitations
However, if your CSED has expired or is about to expire and you want to pay back the tax debts, then you can volunteer for the statute extension by signing a waiver. You know how long can IRS collect tax debts today but back in the late 90s, IRS used to pressurize the tax payers so that they eventually give up and agree voluntarily to extend the 10 year time frame of the statute of limitations. Once the extensions were given a green signal, they used to last for even twenty years, yes 20 years! IRS was so much aggressive in its collection policy back then that it even used to threaten tax payers to pay the money. But now it is fortunate for the taxpayers that IRS is not allowed to opt for any of these illegal collection methods.
How to clear your debt balance after expiration?
After being well-informed about how long can IRS collect tax debts, you must know that IRS is responsible for clearing your debt balance as well. Changes will be made to the record books of the IRS, once the ‘Collection Statute Expiration Date’ passes and the agency is no longer allowed to demand for collections. IRS will credit the amount of unpaid tax debts, penalties and interests from your account. The balance sheets of IRS accounts can be acquired from the agency, proving that you are not liable to pay them anymore. The transcription will include an entry under the section of “time frame to collect expired”, recording the debt balance to be zero.
Exceptions in which statute of limitations do not apply
You got the answer for how long can IRS collect tax debts, but you must know that there are few exceptions as well.The statute of limitations does not apply if:
- The tax returns filed by the tax payer is fake
- The tax payer tried to evade the taxes deliberately
- The debtor did not file for a tax return
If the tax payer commits any of the above mentioned acts, IRS will not only get an unlimited extension to the statute of limitations but tax payers will also have to pay hefty amount of interest fees and comply with serious penalties.
And the worst out of all is that fraudulent taxes and illegal evasion are serious criminal offenses and the tax payer can also go behind the bars alongside paying heavy fines. However, there are thousands of tax payers who do not pay their tax debts every year. But generally IRS does not take the matter to the court and tries to settle the taxation issues out of court. Although opting for the voluntary extension will not be beneficial for you in any way as you will have to pay the unpaid tax debts, but c’mon! It is way better than doing any criminal offense and going to jail. Since you know how long can IRS collect tax debts, you should be prepared for it! Try to pay your tax debts and remain in the good books of the Internal Revenue Service.
What happens if you don’t file tax returns?
Most citizens do not know that for how long the IRS can collect tax debts. It’s not that people always avoid filing for tax returns deliberately, there are a variety of genuine issues due to which tax payers fail to file the returns. The reasons could possibly be:
- Personal problems
- Fear of non-filing because of an extension
- Anti-government emotions
The federal taxation system of United States of America is based on the notion that tax payers honor their liabilities with their own will. This is the reason IRS also makes every possible effort to encourage individuals to volunteer for the filing of their tax returns, after a certain time span of not paying any tax debts. For this effort, IRS offers plans like considering voluntary disclosure while deciding whether to put the tax payer on judicial trail, negotiating payment installments or reducing the liable tax money for some individuals in need.
How to prepare for the IRS collection?
No matter how long can IRS collect tax debts, it has to collect all the money sooner or later. So don’t run away from the process by finding ways to avoid the tax collection, because any such act will just increase your troubles. Instead prepare yourself for it!
- Make sure to never ignore any of the notices received from IRS. Few notices will be sent to you via certified mail so if you plan to ignore the mails by not visiting the post office, don’t do it! Reply to the IRS notices whenever you receive them.
- IRS has made changes to its collection procedure lately. According to the revised publication, IRS should treat you professionally and if they do not act courteously, you have the right to stop the interview right there.
- Visit a taxation expert before your IRS interview. The expert will prepare you in every possible way, teaching you the ways to figure out if the IRS official is taking your advantage or not. You should be ready for all sorts of questions from the officer as they will be hell-bent on recovering their tax money.
- Yes, IRS maintains the record of your account and tax assessments but it is not possible for them to keep track of your tax debts so often, especially with payments being made regularly. IRS officials can also make mistakes, so always ask for a written proof of your account transcription.
So now you know all the possible details about how long can IRS collect tax debts. Be a law abiding citizen and pay your debts on time!