How Long Does the IRS Have to Collect Your Debt?

Fortunately, the answer is not forever. The statute of limitations on federal tax debt is 10 years. This means the IRS must cease trying to collect your debt 10 years after filing your return or being audited. However, it’s not quite this simple. Understand the various journeys your tax debt may take below.

Things That Affect How the IRS May Collect Your Debt

Extension by Filing Certain Agreements and Financial Forms

The filing of an offer in compromise, innocent spouse request, collection due process appeal or bankruptcy starts what the IRS calls a “toll” or a pause on the clock on the statute of limitations, giving the IRS more time to collect. Although an offer in compromise can be a great debt resolution, it might hurt you in the long run. Of course, if you’re rejected, which isn’t always the best option regardless. Also be weary of companies that claim to help you find tax relief but continuously file offer in compromises to your detriment.

Filing bankruptcy is a similar situation, unless you file Chapter 7, where the debt will be discharged. If you file Chapter 13 and agree to repayments and default on these, the IRS will both receive your monthly payments and toll the statute of limitations.

If you file a collection due process appeal as a result of a pending levy, you will also experience a toll. This may still work out in your favor, as appeals provide the opportunity to present your case for stopping the levy from occurring. Filing appeals is always tricky. There needs to be reasonable evidence for the appeal to be recognized. And also to demonstrate to the IRS that you are taking your tax debt seriously.

Not Filing Returns and Leaving the Country Means the Clock Doesn’t Start

You can’t escape your debt by taking a prolonged vacation. If you leave the US, your tax debt will carry on indefinitely. Of course, that will apply if the IRS can keep track of where you are. The IRS has been notoriously bad at keeping tabs on issuing tolls for those that leave the US. But it’s anticipated that their record keeping will improve in the coming years. After all, the IRS now partners its database with Customs and Homeland Security.

Converting Tax Debt Into Civil Judgement

An unlikely but present possibility lies in the IRS converting your debt into a civil judgment. In this situation, the statute of limitations does not apply. This usually occurs when they assess you are purposefully waiting until the clock runs out to avoid repayment.

When the IRS Can’t Collect Your Debt

As long as you don’t run into the above circumstances, the IRS will forgive your tax debt, including liens. They will lift your debt 10 years after filing your return. That said, resolving your tax debt by utilizing one of the above may be your best option. This hinges on your circumstances and advice of your trusted tax professional. Obtain your IRS account transcripts to know where you stand, when your Collection Statute Expiration Date occurs, and evaluate your most financially savvy option.