How Many Years Can the IRS Collect Back Taxes? 10-Year Rule Guide

A little research on “tax relief” or “tax forgiveness” will lead you to the Collection Statute Expiration Date (CSED). This is the time limit the IRS has to collect tax debt from you. Yes, you heard that right: after the CSED period, the IRS is no longer allowed to pursue tax collections, and you don’t have to repay the taxes.

Exciting, right? Well, yes and no. The good news is the clock is ticking. The bad news? You typically can’t wait out the IRS. If you don’t take action, the agency is very likely to involuntarily collect the tax debt, using wage garnishments, bank levies, and asset seizures.

However, understanding the collection time limit can help you deal with tax debt more effectively. In this guide, we will discuss what CSED is, how to accurately calculate your CSED, and what action to take depending on how far your CSED is, among other CSED insights.

Key Takeaways

• CSED: The IRS’s Collection Statute Expiration Date, after which it has to stop collections.
• Time limit: 10 years but may be paused due to tolling events.
• When the clock starts: The statute of limitations begins when the tax is assessed.
• Tolling events: Activities that can lead to the extension of the CSED.
• Risks of waiting it out: Wage garnishment, bank levy, asset seizure, etc.

What is the Collection Statute Expiration Date?

The CSED is the last day of this collection duration; after which you’re no longer obligated to pay, and the IRS has to stop any collection efforts. The IRS has 10 years from the date of the tax assessment to collect tax debts, including any penalties and interest that may have accrued.

Unfortunately, there’s a catch. The 10-year period doesn’t usually run uninterrupted. Some actions can pause or extend the clock, potentially adding years to the collection period (more on this later).

When Does the 10-Year Clock Start?

The clock officially starts on the assessment date. This is when the IRS formally records your tax liability; it doesn’t always happen on the date you file. Here are a few scenarios to give you an idea:

• Return filing and assessment: For many taxpayers, the assessment is issued shortly after they file a tax return, and the IRS processes it.
• IRS audit assessment: If the IRS audits you and results in additional tax, the clock starts when the IRS officially assesses the additional tax liability.
• Substitute for return( SFR) situations: If you don’t file your tax return, the IRS may file an SFR on your behalf to start collections, and the collection time clock will start when the tax shown on the SFR is formally assessed.

Each assessment gets its own CSED, and if you owe back taxes from multiple years, each year has a separate expiration date. Additionally, a single tax year can have multiple CSEDs. For example, if you file a return and owe, that starts the timer for the collection period. Then, if the IRS audits you and assesses additional tax, that will have a different CSED. Even civil penalties can have their own CSED.

How to Find Out the CSED for Your Tax Debt

Now that you know that the 10-year period doesn’t usually run uninterrupted, let’s discuss the steps you can take to track your CSED accurately. Here’s how to calculate your CSED:

Determine your tax assessment date.

As we said earlier, the 10-year collection period begins after your taxes are assessed. You can confirm your assessment date on your Notice of Federal Tax Lien, which the IRS has likely filed against you if you owe over $10,000 in back taxes.

Obtain a tax account transcript.

Requesting a transcript of your IRS account might be more effective because it shows the dates your taxes were assessed, your tax liability, and when you filed your returns. But it also shows your CSED.

Here’s how to access your tax account transcript:

• Sign in to your IRS online account, or create one if you don’t have one yet. After you log in, you can request and download account transcripts.
• Alternatively, fill out Form 4506-T, Request for Transcript of Tax Return, to request a tax return, tax account, wage and income, record of account, and verification of non-filing.
• Call the IRS automated phone transcript service at 800-908-9946 to get a tax account transcript or a tax return. It will be delivered by mail within 5-10 calendar days.
• Have a tax attorney get a transcript for you. Most attorneys have software or processes that allow them to get transcripts very quickly.

Once you have a transcript, go to the transaction section and find the 3-digit IRS transaction code with a date below it. Typically, this is the CSED date plus any extra time the IRS has added by law. If you’re having trouble interpreting the transcript or need more clarification, you can contact the IRS to confirm the CSED for your tax account.

Adjust for tolling events.

If you only have the assessment date, you’ll need to add 10 years but then adjust for tolling events to find the CSED. A tolling event is an action that extends or suspends the CSED, and includes filing for bankruptcy, applying for an Offer in Compromise (OIC), requesting a Collection Due Process (CDP) Hearing, and setting up an Installment Agreement, to mention a few (more on this below).

The IRS should have factored in these events when calculating your CSED, and that should be clear on your transcript. However, the IRS often makes significant mistakes with CSEDs.

How Tolling Events Affect the 10-Year Collection Time Frame

The IRS must stop its collection efforts during certain events. When collection is prohibited, the clocks stop ticking. Once the prohibition ends, the clocks restart from where they left off. Here are some common events that pause the CSED:

• Bankruptcy filing: The collection statute of limitations is automatically suspended until the case is dismissed or closed. Once the case is over, the CSED is extended by an additional 6 months. This means if your bankruptcy case took seven months, you have to add 13 months to your collection period.
• Collection Due Process hearing: When you request a CDP hearing, the statute pauses until the hearing and during the appeal. If the CDP takes 15 months to conclude, that’s an extra 15 months on your CSED.
• Offer in compromise: The IRS pauses the CSED while reviewing your offer. The clock restarts if your offer is approved or withdrawn. If your offer is rejected, the clock tolls for an additional 30 days. OIC reviews can take months or years, and all this time is added to the 10-year CSED.
• Installment agreement: The IRS suspends collection as it reviews your IRS payment plan or installment agreement. The time taken to approve or reject the approval is added to the expiration date.
• Living outside the US: If you’re outside the US for more than 6 months, the IRS suspends CSED for the entire period and for 6 months after your return. This is because it’s challenging for the IRS to pursue collection when you’re living abroad, and they need enough time to collect after your return.
• Military service in combat zones: If you’re a service member and you’re deployed to combat zones, your CSED is suspended during the deployment period plus 180 days after your return.
• Innocent spouse relief request: Filing for innocent spouse relief suspends the CSED during the IRS review, until you file for a waiver or until your 90 days to petition the Tax Court expires.

How the CSED Affects Your Tax Relief Options

Dealing with IRS debts can be overwhelming, and you need to make payment arrangements before they collect on your tax debt. It’s extremely rare to be able to wait out the IRS until the CSED hits – but it is possible in some cases. That’s why you should consult with an experienced tax attorney. They’ll be able to identify the best strategy for your situation based on the CSED, your budget, and multiple other factors.

Here are some IRS relief options that leverage the CSED to your benefit.

Partial Payment Installment Agreements (PPIA)

A PPIA allows you to make monthly payments until your CSED expires. The IRS writes off the balance when the statute of limitations expires.

For example, if you owe $50,000 with four years left on your CSED and can only afford to pay $500 per month, the IRS might accept a PPIA in which you pay $500 per month for four years. This would amount to $24,000, and they would forgive the remaining $26,000 balance upon the statute’s expiration, as well as any interest and penalties that accrued on the debt while you were making payments.

However, the IRS will periodically review your finances and may increase your monthly payment or terminate the agreement if you can afford to pay more.

Currently Not Collectible Status (CNC)

If you can prove financial hardship, the IRS can place your tax account on CNC status. This temporarily pauses collection efforts, and the CSED continues to run. If the statute expires when your account is still in CNC, you’re no longer obligated to pay the tax debt.

The CNC status is a great option when you’re close to your CSED and experiencing financial hardship. Keep in mind that the IRS still files liens, and the interest keeps accruing. However, they won’t garnish wages or seize assets.

Offers in Compromise (OIC)

An OIC is an arrangement with the IRS to settle less than what you owe. You propose an amount, and the IRS accepts or rejects it. While the IRS is notoriously known for rejecting OIC offers, it is often more receptive to offers when the CSED is approaching.

Why? Because they’d rather collect any amount than nothing before the statute expires. However, even then, the IRS is not likely to accept an offer if they think you can pay more. To increase your approval odds, ensure your proposed amount is close to or greater than what the IRS would collect if it enforced collection by force. This is best handled by a tax professional.

When the IRS Gets More Aggressive (Why You Can’t Wait It Out)

The IRS loses billions of dollars in revenue each year due to uncollected taxes. To close the gap in uncollected taxes, the IRS intensifies its collection efforts when your CSED approaches, because they know they’re running out of time. Here are ways they do this:

• Revenue Officer (RO) assignment: Rather than letting the Automated Collection System handle your case, the IRS transfers it to a RO who can access your finances and seize your assets to cover your debt.
• Wage garnishment: The IRS instructs your employer to withhold a portion of your paycheck to repay your tax debt, but they must notify you first.
• Bank levy: The IRS instructs your bank to freeze the funds in your account up to what you owe in tax debt.
• Pressure to sign collection statute waivers: The IRS can execute a Form 900, Tax Collection Waiver, to extend the CSED. Never sign one without talking to a professional.

On the bright side, if you make payments after your CSED has expired, you can request a tax refund for the amount paid after the expiration date. But you have to file for the refund claim before the Refund Statute Expiration Date.

If you’re unsure about your CSED or how to deal with your IRS tax debt, a tax attorney can help figure out your options. At Seattle Legal Services, here are some ways we can help you:

• Reviewing your IRS Notices: When you first come to us, we review all your correspondence documents with the IRS to know where you’re at.
• Checking CSED calculations: We review your tax transcripts and make sure that the IRS has calculated your CSED accurately.
• Contacting the IRS directly: Trying to communicate with the IRS can be incredibly frustrating. When you work with us, you have one less thing to worry about.
• Customizing a solution: After reviewing your finances, your budget, and the CSED, we offer the most suitable solutions for your unique situation.

Then, we move with you to the next step. If you need to apply for an OIC, a CNC, or an installment agreement, we negotiate the best terms for you and ensure you’re approved. Then, we help you understand what you need to do to stay compliant going forward.

Frequently Asked Questions (FAQs)

Does the CSED apply to all taxes?

The CSED applies to most types of tax debts, including self-employment taxes and payroll taxes. However, civil tax fraud and criminal penalties have different regulations.

What happens to interest and penalties after the CSED?

After the CSED has passed, the IRS can’t collect the original tax debt or the penalties and interest that have accrued in relation to that tax debt. However, tax fraud penalties typically have their own CSEDs.

What can I do to prevent the CSED from extending?

Avoid filing for OIC or bankruptcy close to the CSED, and follow through on any installment agreements you have to avoid triggering a CSED extension. Work with a tax attorney for the best timing and strategy.

Need Help With Your CSED?

There are so many tax relief options, but they all come with rigid terms and approval terms, so it’s very critical to know what you’re getting into. For example, while installment agreements help manage a tax debt, requesting one close to your CSED may unnecessarily restart and extend the timeline. But on the other hand, ignoring your tax debt can lead to aggressive collection efforts, such as wage garnishment.

That’s why working with a tax professional is so important. At Seattle Legal Services, PLLC, we can help you find solutions that align with your goals and keep your tax account compliant, so you don’t end up here again.

If you’re unsure about your CSED or how to handle your tax debt based on the collection time clock, schedule a free consultation with us today, and let’s discuss how to handle everything.