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IRS Statute of Limitations – Do Taxes Ever Expire?

Many Americans believe that an IRS debt is a debt for life and that the tax collector can hound them to the grave. Thankfully, that is not the case! There are statutory time limits restricting the ability of IRS to examine and collect taxes. Taxes do expire at some point and in many cases IRS does not get the money they were legally entitled to collect.

Basically, IRS has 10 years from the date they send out their first bill to collect the tax. The federal tax collector must get the cash before the clock runs out. The 10 Year Rule does not apply to state taxes as each sets its own statutes.

For tax assessments made after November 5, 1990, the IRS cannot collect the tax after 10 years from the date of the tax assessment absent special circumstances. If you never file a tax return, there is no statute of limitations on IRS requiring you to file, but as a matter of policy, IRS generally only requires non-filers to file the last 6-7 years. If IRS files for you by doing a Substitute-for-Return (SFR), they have 10 years from the date they file the SFR to collect from you. If a Federal Tax Lien (FTL) is on file against you, it expires and becomes void if the underlying statute expires. One can find out when the statute expires on a tax bill by requesting a Record of Accounts (ROA) from IRS for each tax year you owe.

The 10 Year Rule is not set in stone in all situations as there are exceptions based on special circumstances that may extend the statute. These are:

1. A bankruptcy wherein the tax is not fully discharged. Filing a bankruptcy extends the statute by the time the bankruptcy is pending plus 6 months.

2. Innocent Spouse and Taxpayer Assistance Orders. These extend the statute as they put a hold on the IRS Collection Division from enforcement action.

3. Collection Due Process Appeal. The ability to file a Collection Due Process Appeal (CDP) is a powerful right in fighting IRS levy or seizure. If timely filed, it extends the statute as it also precludes enforcement.

4. Voluntary Waivers. Execution of a voluntary waiver by a taxpayer to extend the statute is rare these days because IRS does not often pursue them. In the old days before the Taxpayer Bill of Rights II, it was common. IRS does not enforce old waivers from that time any longer and new ones are limited to 5 years.

5. Suit to Reduce a Tax Liability to Judgement. The IRS can sue to extend the statute by judgement via the Department of Justice. This is also quite rare.

6. Offer-in-Compromise. An Offer is a settlement proposal and once submitted, if IRS considers the Offer, it extends the statute while under review. If approved and the tax settled, IRS FTLs are released and the tax assessment adjusted accordingly. However, if rejected (and over 60% are rejected), it results in more time for IRS to collect.

The statute on refunds is 3 years from the due date to collect your refund. If you file 3 or more years after the due date, the refund is lost. In some cases it is possible to pursue a refund beyond the three years. If you pay the tax, you can file a claim for refund within 2 years of the payment. If your claim relates to a bad debt or worthless security, you have 7 years to make a claim.

The flip side to the 3 year refund rule is that IRS only has 3 years to examine a filed return by audit in most cases. Now, the tax code is complicated and there are exceptions to these rules. If you have committed fraud or tax evasion, there is no statute for audit. There is also a 6 year rule for audit in cases of “substantial omission” of 25% or more in income. But for most folks, the three-year statute will apply on audits.

If you have a serious IRS debt, get serious help from a CPA, E.A. or Attorney who focuses on these matters. Do not hire some fly-by-night outfit from a late night TV Commercial or snappy radio advertisement.

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