The Internal Revenue Code, which defines how all facets of the Internal Revenue Service (IRS) operate, states that the IRS can collect unpaid federal income tax for up to 10 years. This timeframe is known as the statute of limitations.
This 10-year statute of limitation begins running on the date the IRS assesses the tax. The assessment date is usually a few weeks or months after income taxes are filed with the IRS, when the IRS records the tax due record within their systems. For example, for a tax return mailed to the IRS on April 15, the tax assessed date may not be until sometime in May, June, or July.
There are various circumstances that can cause the 10-year statute of limitation to reset or that can pause the clock on the count to the 10-year limitation.
Review and subsequent assessment. If your tax return is audited or otherwise reviewed and this review results in the assessment of additional tax, a 10-year statute of limitation will commence on this additional tax amount at the time this additional tax is assessed. In this way, a single tax return may result in more than one 10-year timeframe that run at the same time for the collection of different parts of the tax due.
Voluntarily agreeing to extend the statute. One of the methods that the IRS may allow you to use to pay your taxes is an installment agreement. An installment agreement allows you to pay your taxes over a period of time rather than as a lump sum. If you enter into an installment agreement that will run past the 10-year statute of limitation for collecting a tax, the IRS may have you complete a Tax Collection Waiver (Form 900). This form allows the IRS to collect the tax due past the 10-year statute of limitation.
Submitting an offer in compromise. Another method that the IRS will consider to pay your taxes is an offer in compromise, which is when the IRS will accept less than the full amount of tax owed but consider the debt paid in full. While the IRS is considering an offer in compromise, the clock stops running on the 10-year statute of limitations. If the IRS rejects the offer in compromise, the clock resumes where it was suspended.
Declaring bankruptcy. While you are in the midst of a bankruptcy proceeding, the clock does not run on the 10-year statute of limitation for collecting tax. Depending on the age of the tax and other circumstances, it is possible that a bankruptcy can wipe out the tax debt owed. If the bankruptcy does not wipe out the tax owed, the clock will begin running again on the 10-year statute of limitation after the bankruptcy proceedings are complete.
If you want to confirm when your tax was assessed, you can submit a Request for Transcript of Tax Return (Form 4506-T) to obtain the actual date when the IRS considers the tax assessed. This form is available on the IRS website at http://www.irs.gov/pub/irs-pdf/f4506t.pdf.
What can I do if I need help with how to address my unpaid tax bill?
Tax matters are a serious issue and generally should not be addressed without seeking professional help. A tax attorney can provide that help, as they have specialized training and experience with all types of tax situations. If you complete the short form below, a tax attorney will review your information and provide you an initial consultation free of charge. This consultation does not obligate you to anything further and is completely confidential. Therefore, please take this opportunity have a tax attorney review your tax matter today.