A 10-year statute of limitations applies to IRS collection efforts. As a result, the IRS will not be able to continue pursuing the collection of a debt once the 10 years expire, unless an exception applies. Sometimes the agency will vigorously pursue collection on a debt if it knows that the statute of limitations is about to expire, or it may try to persuade the taxpayer to grant an extension to the statute of limitations.
The date of the tax assessment is the date that determines the start of the statute of limitations period. This might be the date on the notice that informs you that you owe a debt to the IRS if you failed to pay the full amount when you filed your tax return. Sometimes a taxpayer does not file a return or make any payment at all. When this happens, the IRS will generate a substitute return on their behalf. The date of the resulting deficiency assessment will trigger the statute of limitations period.
Suspending the Statute of Limitations
Certain factors can suspend (or pause) the statute of limitations, such that the IRS may continue pursuing the debt more than 10 years after the limitations period started. One common example involves a proposal for an installment payment plan or an offer in compromise. The IRS generally cannot pursue collection efforts during that period, so the limitations period is also paused. If a taxpayer receives an automatic stay when they file for bankruptcy, the IRS will not be allowed to continue collection efforts. This will suspend the limitations period for the duration of the bankruptcy case and an additional six months.
If you live outside the U.S. for an uninterrupted period of six months or more, this will suspend the 10-year statute of limitations during that time. In unusual cases, the IRS may go to federal court to ask a judge to extend the statute of limitations with regard to a specific taxpayer.
Extending the Statute of Limitations
The IRS cannot intimidate or force taxpayers to “voluntarily” agree to extend the statute of limitations. Historically, it used aggressive tactics to induce taxpayers to grant a 10-year or 20-year extension, but its rules no longer permit these tactics.
Taxpayers who set up an installment payment plan with the IRS may need to agree to extend the statute of limitations for up to six years, which is the maximum length of the payment plan. Sometimes the IRS will try to entice a taxpayer to agree to an extension in return for receiving a generous installment payment plan, especially if they owe considerable amounts of debt and are approaching the end of the limitations period. Agreeing to this type of deal is not always in a taxpayer’s best interest. They may come out ahead financially by rejecting the deal and limiting the IRS to any collection efforts that it can complete within the 10-year period.