How long can the IRS collect back taxes? Under 26 U.S. Code § 6502, the Internal Revenue Service (IRS) has ten years from the assessment date to collect tax. The last date of this 10-year collection period is called the Collection Statute Expiration Date (CSED). In other words, if the IRS has failed to collect the amount you owe in back tax by the CSED, it can no longer take collection action against you. So, does the mean you can wait out the IRS? In most cases, no. Trying to keep the IRS off your back for ten years is not a feasible tax debt relief option. However, understanding the statute of limitations on collections can help if you owe a lot of tax debt. This post by Seattle Legal Services, PLLC, takes an in-depth look at the tax debt statute of limitations and the implications of this period for taxpayers. Protect yourself by contacting our attorneys for help with back taxes today.

The Collection Statute Expiration Date – A Detailed Breakdown

Once the IRS has assessed a tax against you, it has ten years to collect the debt. Before 1990, this collection period was six years. After the CSED, the IRS can no longer garnish your wages, issue a bank levy, or take any other collection action against you for the assessed tax. However, while the tax liability is no longer collectible, the liability still exists, and the IRS has not forgiven the debt. The IRS collection statute of limitations encompasses the assessment date, collection, and the CSED. Here’s a closer look at those elements.

The Assessment Date

The collection statute of limitations starts running on the date when the IRS assesses a tax against a taxpayer by recording a tax liability in its records. The assessment date is when an IRS officer signs the summary record of assessment (RACS Report 006). The assessment statute does not start until a taxpayer files a return. If a taxpayer does not file a return, there is no assessment statute of limitations for the particular year. For example, if a taxpayer files a return on or before the due date, the assessment statute of limitations starts on the due date. However, if a taxpayer files a return after the due date, the statute starts running on the filing date. Under 26 U.S. Code § 6501, the IRS has three years from a return’s due date or the actual return filing date to assess a tax, whichever is later. However, in cases of fraud, the IRS can go back further to assess tax. The IRS is not obligated to notify taxpayers of assessments. To determine the assessment date for a given tax year, request your tax account or Record of Account transcript from the IRS. Note that if you don’t file a return, there is no assessment. Thus, the collection time clock doesn’t start running. With unfiled returns, the IRS can go back an unlimited amount of time, but in reality, the agency generally only looks back six years.

Collection Activity

If you owe the IRS, you have a creditor with extensive powers under United States law. As a result, you can expect this government agency to do everything it can to collect a tax debt before the collection statute of limitation expires. Taxpayers who fail to respond to the Notice and Demand for Payment are at risk of various IRS collection actions including the following:

• Seizing Tax Refunds -The IRS can withhold future state or federal tax refunds and apply them to your balance.
• Filing a Tax Lien – A Notice of Federal Tax Lien is a public record informing your creditors of the government’s legal claim against your property. Once the IRS files this notice, a delinquent taxpayer may struggle to borrow against, refinance, or sell their property. 

• Garnishing Wages – Wage garnishment is another collection method the IRS uses. This action involves seizing a portion of your wages. The amount the IRS can garnish depends on your number of dependents and filing status. However, the IRS can garnish and apply 100% of your commissions or bonuses to your balance.

• Levying Bank Accounts – This levy involves seizing the available funds in your bank account up to the amount you owe the IRS. In other words, if these funds do not cover your tax liability, the IRS can drain your entire account.

The IRS can also notify the State Department to take away your passport if you owe over a certain amount — $62,000 as of 2024. The agency can also take the funds from your retirement accounts and levy your Social Security benefits.

The Collection Statute of Expiration Date

The IRS’s collection period expires on the CSED, ten years after the assessment date. If the CSED has passed and the IRS did not collect your assessed tax, you are no longer subject to collection for that tax liability. Note: Filing your return early (before April 15) does not shorten the collection statute of limitations. Again, the 10-year collection period does not start until you file your return.

CSED Extension Activities

In some cases, the IRS cannot enforce the collection of a tax assessed against you while the collection period is still running. When this happens, the IRS can toll (extend) the statute of limitations period, moving the CSED to a later date. The sections below outline the different activities that can toll the statute of limitations:

Pending Installment Agreement

If you have applied for an installment agreement, the IRS will toll the statute while your application is pending. Then, once the IRS finalizes your application, it will toll the statute for an additional 30 days.

Pending Offer in Compromise

After submitting an offer in compromise, the IRS will toll the statute while the offer is pending plus 30 days. Once you submit the offer, the IRS will extend the collection deadline, regardless of whether it accepts the offer.

Bankruptcy

Filing bankruptcy results in an automatic stay on collections. As a result, the IRS will toll the statute for the duration of the bankruptcy proceedings plus an additional six months.

Collection Due Process (CDP) Hearing

A collection due process (CDP) hearing request can extend the CSED. In this case, the IRS will toll the statute from the date it receives Form 12153 until the taxpayer withdraws the request. Alternatively, the agency will toll the statute from the date of the hearing request until the finalization date of the determination from Appeals. The tolling period includes any judicial appeals.

Out-of-Country Status

The IRS can toll the statute of collections while a taxpayer is outside the United States, provided they are continuously outside the country for at least six months. Once the taxpayer returns to the country, the IRS can extend the collection period by six months to proceed with collection action.

Voluntary Waiver

After applying for an installment agreement, the IRS can request that you sign a waiver, extending the CSED by up to five years. Even though a pending installment agreement is a tolling activity, it is a viable resolution option to make your tax debt more manageable. More on this later.

Your Options if You Owe Back Taxes

Taxpayers often ignore their tax debt, hoping that the CSED will come and go without the IRS doing anything to them. Suppose the IRS made an assessment long ago, and you have not heard from them since. In that case, trying to run out the clock may seem like an option to avoid payment. However, the IRS knows that you have a tax liability, and once it starts the collection process, your property, wages, and current assets will be at risk. A proactive approach is always best, especially if you owe a substantial amount in back taxes, penalties, and interest. At Seattle Legal Services, PLLC, we can help you pursue one of the tax resolution options to settle your IRS debt. Below, we discuss the relief options that may be available:

Installment Agreement

Under an installment agreement, you make monthly payments towards your tax debt, making this liability easier to repay. The downside of this option is that interest and penalties continue accruing while you pay this debt, and the IRS will use your federal tax refunds to pay the balance. The IRS gives you varying amounts of time to repay the tax debt, depending on which of these payment plans you qualify for:

• Guaranteed Installment Agreement (GIA)
• Streamlined Installment Agreement (SIA)
• Partial Payment Installment Agreement (PPIA)

Installment agreements do not extend beyond the CSED. Also, taxpayers will only qualify for an installment agreement if they:

• Filed the returns for the previous five years on time
• Have never entered into a payment plan with the IRS before

A PPIA may be available to taxpayers who can prove that they cannot repay their entire balance by the CSED. The agreement stipulates a monthly payment to the IRS that the taxpayer can afford, and it ends on the CSED. Once the agreement ends, the IRS writes off the unpaid portion of the liability.

Offer in Compromise (OIC)

An offer in compromise is a settlement agreement the IRS may grant under specific circumstances. If you qualify for an OIC, you only need to pay a portion of your outstanding balance, and the IRS writes off the remainder. Doubt as to collectibility is one of the grounds for an OIC, and it applies to taxpayers whose income and assets do not cover the total tax debt amount. In this case, the IRS may approve an offer in compromise because they want to collect at least some of the outstanding tax before it becomes fully uncollectible. Note: You will only qualify for an offer in compromise if you are current and compliant. If you are self-employed, make all estimated tax payments for the current year before applying for an OIC.

Currently Not Collectible Status

If the IRS’s collection action will cause you financial hardship, you can apply for currently not collectible status. Once your account is not collectible, the IRS will stop collecting against you. However, interest and penalties will continue to ramp up while your account is not collectible. Additionally, the IRS will subject you to annual reviews to determine if your financial situation has improved. For example, your account may become collectible if your monthly income increases. Your tax account will only qualify for current non-collectible status if you demonstrate financial hardship. Contact us at Seattle Legal Services, PLLC, to determine if this tax resolution option is available.

Frequently Asked Questions

How do I know if the CSED on my tax debt has passed?

The IRS has an internal calculation of collection statute expiration that it codes on the TXMODA, a transcript. However, the IRS does not always make this transcript available to taxpayers, and you may need to submit a request under the Freedom of Information Act to access it. Additionally, you will need IRS Document 6209 to interpret and understand the TXMODA transcript.

How does currently not collectible status affect the tax debt statute of limitations?

Even though currently not collectible status pauses collection actions, it is not a tolling activity for the statute of limitations. If the IRS grants you financial hardship and stops collection, the clock will keep ticking on the collection statute of limitations. Practical example: The IRS assesses a tax against Taxpayer A in 2017, with the CSED in 2027. In 2024, A experiences financial hardship and successfully applies for currently not collectible status, at which point the IRS stops collection activity. In this example, the CSED remains “scheduled” for 2027. If A’s account remains uncollectible until the CSED, the IRS will never be able to collect the liability.

I believe the IRS has made a mistake in calculating the CSED. Is this possible?

The IRS can make a mistake when calculating the CSED on an assessed tax. Additionally, the TXMODA does not indicate how the IRS calculated the CSED. If you suspect your tax liability is no longer collectible or the expiration date is approaching, an independent CSED calculation may be necessary. Contact Seattle Legal Services, PLLC, to schedule a consultation and learn more.

What is the effect of an amended return or audit on the CSED?

An audit or return amendment can result in a higher tax liability. In this case, the additional tax resulting from the change will have a separate CSED.

Do penalties also expire on the CSED?

A penalty on a tax has a separate statute of limitations and CSED. Its collection period generally starts when it’s assessed.

I have made a payment towards my tax debt after the CSED has passed. What happens now?

You no longer need to pay an assessed tax after its CSED. However, suppose you did not know that the collection statute of limitations has expired, and you pay the tax. In that case, the IRS may apply the funds to any other outstanding debt on your tax account. If there are no other liabilities, the IRS will likely contact you and ask if you want to apply the payment to any future tax liabilities. You can also ask the IRS to return the payment to you.

Seattle Legal Services, PLLC – Your Partner in Tax Debt Relief

The IRS is a powerful debt collection agency acting on the government’s behalf and is highly successful in its collection efforts. If you owe the IRS back tax, penalties, and interest, and the agency picks up that you are ignoring its demand letters, they can take your money. A bank levy or wage garnishment can be catastrophic, especially if you struggle to make ends meet. Fortunately, you may have several tax debt relief options available. At Seattle Legal Services, PLLC, we can help you explore these options to resolve your tax debt and deal with the IRS on your behalf. Do not allow your tax debt and levy action by the IRS to jeopardize your financial security and peace of mind. Please schedule a consultation with us today.