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Tax debt can quickly snowball from interest, penalties, late fees, and the amount of the taxes due. And if you have unpaid taxes that you haven’t yet been making payments toward, it might make you fearful that the IRS will come knocking one day. However, a lot of the scaremongering surrounding the IRS is largely sensationalized in media and daily conversation. Rest assured, agents won’t come bursting through your door just because you have tax debt. In reality, they must follow due process in accordance with the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA). This means that you will always receive written notice concerning your balance due as well as collection actions and any requests for payment plans or settling your account.
However, if you haven’t received further notification concerning what you owe, you may be able to ride out the little-known statute of limitations on tax debt collections, which is 10 years.
What the 10-Year Statute of Limitations Entails
Your tax debt can actually be canceled in 10 years if the IRS makes no efforts to collect on your account — and if you also don’t contact the IRS. However, it’s not as simple as just waiting a decade without ever paying the taxes you owe. There are conditions that must be satisfied. The first is that this 10-year time frame doesn’t begin when you filed that tax return with a balance due or when you realized you owed taxes you couldn’t pay.
The official statute of limitations date begins once you receive written notice from the IRS concerning what you owe. You may receive a notice of deficiency with an actual tax bill or a substitute tax return if you didn’t file by the due date. So, if you filed your tax return on June 15, 2023, and got a notice in the mail dated September 1, your statutory period would begin September 1, not June 15. This date is called the Collection Statute Expiration Date (CSED), and if you make it to September 1, 2033, without further collection actions, then you can actually get your entire tax bill from this period canceled. (Note: Future tax bills, such as next year’s taxes you also can’t afford to pay on the due date, do not count toward this.)
However, the IRS will not actively notify you of this. While the date of assessment is also generally when that notice is received, the IRS has argued over when the assessment date actually was. Some situations can also delay the CSED by halting the clock on the 10-year time frame, such as:
It takes six months after bankruptcy cases settle to get the clock restarted on the CSED, so this means the IRS has more time to take collection actions against you, and the IRS will tend to ramp up these efforts before the statute of limitations expires.
When you access your tax account transcript through your IRS Online Account [Hyperlink: https://www.irs.gov/payments/your-online-account], the transcript will indicate the earliest CSED associated with each tax debt. However, this is only a tentative estimate of the earliest possible date. The IRS can change this date based on the circumstances listed above, and you may also challenge the date through a formal process if you believe it is incorrect.
State Tax Debt
Unlike the IRS, state tax departments do not have reciprocity with the RRA or the Taxpayer Bill of Rights. Taxpayers who are subject to state income tax need to find out what options, if any, are offered by their state tax department, and they may actually take harsher collection actions. They can do this because many state departments do not have oversight committees. They also generally do not offer taxpayers the option to settle back taxes or make payment plans, and many do not have a statute of limitations on collections. The IRS tends to get a bad rap in movies and on TV, but it’s actually the state tax departments that are more likely to show up unannounced.
It’s very rare that anyone rides out the statute of limitations on unpaid taxes, and it’s usually due to extenuating circumstances like disability or a debilitating business closure. If enough time has passed that you think you might be able to go the whole 10 years without payments or responses to collection actions, you must keep fastidious records of all correspondence with the IRS. If the IRS sent you little or no mail in the time period after the time you think the CSED kicked off, you may qualify for the statute of limitations, but you should not intentionally try to ride it out without the guidance of a tax professional specializing in tax relief and resolution issues. Please contact Cray Kaiser today if you have any questions relating to unpaid taxes or your tax situation. We’re here to help.
Please note that this blog is based on tax laws effective in December 2023, and may not contain later amendments. Please contact Cray Kaiser for most recent information.
