Every year, 30 million people end up owing money to the federal government for taxes. If you’re one of those people with unpaid taxes, you might forget about it and let it fall off your plate. However, it’s unlikely the IRS is going to forget, and they could come after you years after you file for something they say you owe.
Here’s everything you need to know about the statute of limitations and how far the IRS can go back to collect unpaid taxes.
What Is the IRS Statute of Limitations?
When you file your tax return, you inform the IRS of your owed amount, which they expect to be paid. If unpaid, this will be considered as delinquent tax.
The IRS has three years to assess and audit taxes once a return is filed. However, auditing extends to six years if you understate your tax liability or have an FBAR (Foreign Bank and Financial Accounts) violation. At the same time, you also only have three years to claim a refund. Once a tax is assessed, the IRS has 10 years to collect. After this, they can’t enforce collections. However, the IRS Statute of Limitations doesn’t start if you don’t file a return.
Furthermore, if you want to find out your CSED (Collection Statute Expiration Date—tax expiration date), read our CSED guide.
Watch for the Ten-Year Mark
Generally speaking, there’s an approximately 10-year expiration date for the IRS to get your back taxes. If the IRS collections don’t get what they’re looking for by the time ten years is up, they can’t go back any further.
The IRS can collect that far back, starting when they assessed your taxes. They set the deadline, and they know when their deadline is approaching. If you haven’t paid back taxes by the time that date rolls around, steel yourself for the possibility of some aggressive collection efforts.
Some exceptions are noted below of when they’re allowed to continue collecting, but legally, they can’t go past this deadline. The IRS lets thousands of taxpayers who owe money slip through their fingers every year. Some of these taxpayers breathe a sigh of relief, while others, who are chronically late with their taxes, may just live to fight another day.
If your CSED or Collection Statute Expiration Date is approaching, put some money aside to help pay off what you can. You can negotiate with the IRS if the date is fast approaching.
Mark the Start Date Right
If you don’t know when your limitation period begins, you might think you’re out of the woods long before you really are. If you then get loose with your spending and don’t prepare for the potential of paying off your taxes, you might end up dealing with a big bill at the last minute.
The ten-year period starts from when the taxes were assessed, meaning the date printed on the first letter you got from the IRS telling you that you owed them something. The IRS service center dates these forms so that you know the legal status of the situation that you’re in.
If you don’t pay when you file a tax return, you’ll end up getting a bill. The bill states the amount of money you owe in an official written notice, which is part of this legal process. If you don’t fill out the return, you’ll still be asked for what you owe.
In the absence of a filled-out tax filing, the IRS might fill one out for you. They’ll create a substitute return to figure out a deficiency assessment. In this case, they’ll start the clock then.
You’ll still be on the hook if you try to escape the IRS by not filling out a tax return.
How It Drags Over the 10-Year Mark
There are times when a collection period of ten years might last more than ten years. That’s because your CSED is suspended during certain periods. Any time that passes during the suspension isn’t counted toward your 10 years. The statute of limitation is suspended for a number of different reasons.
During periods when the IRS isn’t allowed to collect from you, this period goes into suspension. If you’re in one of these periods for a year, then they get a full extra year to collect from you.
It happens for some people when they’re filing for bankruptcy. If you go to bankruptcy court, you’ll get an automatic stay from your bankruptcy period plus six months. This can drag your collection period out for a while.
If you’ve reached out to the IRS and requested an installment agreement or something like an offer in compromise to pay it down, then it’s suspended. Any time the IRS looks over your status to determine whether to afford you any assistance, the statute is extended.
The IRS even gets the ability to extend the period if they sue you in a federal court, but the likelihood of this is limited.
Asking For an Extension
Not all extensions are court-ordered or out of the hands of the individual filer. Some people ask for extensions depending on what they need.
In the past, the IRS would put serious pressure on taxpayers to extend the limitations. The extensions could stretch as long as 20 years in some cases. While this is seemingly voluntary, it was often due to aggressive pressure from the IRS because they wanted to collect their back taxes in full, penalties and all.
If you were ever under this kind of pressure, you know how intimidating it can be. After years of lawsuits and pushback from lawmakers, people can avoid it.
Entering into an installment plan or a partial payment plan with the IRS requires filing some paperwork. In most of these cases, you end up signing a waiver letting them off the hook for the ten-year period. When this is the case, the period is only allowed to be extended for six years.
If the period is close to the end, and you still owe the IRS a lot of money, they’ll pressure you to get their money in full. They’ll offer an attractive agreement for the extension, but in the end, it’s unlikely to benefit you as the taxpayer.
Unpaid Taxes Can Turn Into a Major Headache
If you end up with unpaid taxes, you’ll have them hanging over your head for years, collecting interest and fees as you struggle to pay them back or just forget. If you fail to pay your taxes, the IRS will remember and find a way to remind you.
To deal with unfiled returns:
- Check if you were required to file. Even if not, consider filing to claim potential refunds.
- Determine the number of years to file. Usually, the IRS asks for the last six years, but it can vary.
- Collect financial data for those years, including income, business details, dependents, and estimated tax payments.
If you’re looking for a tax relief company to work with, check out our guide for more info.
Frequently Asked Questions
The IRS has a 10-year statute of limitations to collect back taxes from the filing deadline of each year’s taxes.
The IRS has no statute of limitations for unfiled tax returns or tax evasion. This means they can review records from any previous year. However, they usually focus on the last six years.
Yes, you may still have to pay back taxes if you don’t file your tax return. When you don’t file a return, the IRS estimates your owed taxes and bills you. However, the IRS sends you a higher bill than you owe because they don’t calculate any deductions or credits you would qualify for. Then, what happens? IRS collects tax debt through tax lien or tax levy.
Collection action typically doesn’t start immediately after a tax due date. The IRS follows a notification process and provides multiple chances to settle tax debts before initiating collection efforts. The timeline for collection varies based on individual circumstances and business structures. Generally, you’ll have an opportunity to resolve the tax bill independently before the government imposes severe penalties beyond late filing and payment fees.
Consequences will vary depending on the taxpayers’ financial situation. No matter your situation, you only have three years to file a tax return and request a refund. If you don’t do this, you may lose your tax refund. Besides, the IRS may file a substitute for return (SFR). Sure, an unfilled tax return penalty is 5% of the amount you owe. You’ll have interest on your unpaid balance until you pay the tax.
If there are mismatches between your payment documents and filed returns, the IRS detects unfilled returns.