Can The IRS Collect Tax Debt After 10 Years?
The government has a reputation of going after people that fail to file their returns, whether that is true or not. We can attribute that to how stories of people jailed for evasion hit the news, from Lauryn Hill to Wesley Snipes. Gangster Al Capone is the uber example, with his failure to pay taxes being the reason he was eventually convicted. When Capone tried to hire tax experts to mount an appeal, he lost.
If you are in a position of owing a tax bill to the Internal Revenue Service (IRS), you may wonder if you will ever get this monkey off of your back, so to speak. As a general rule, the IRS cannot collect back taxes forever—they have a maximum of 10 years to collect back taxes from a taxpayer. There is a 10-year statute of limitations on any tax debt, so after that time, the IRS must stop the collections process.
Does this mean that you are off the hook? No. Everyone must pay their federal taxes, even with the limitations on collection.
With that said, you do have more options when realizing that the time to collect is coming nearer. You won’t go the way of Al Capone or any celebrity who has run afoul of the IRS or has deliberately lied on a return. For one, you are trying to pay back a debt and restore your credit.
Details of Extending The Limitations Period of 10 Years
If you are trying to calculate the exact date of the 10-year period, you should begin with the date of the actual IRS tax assessment. So, if you fail to pay taxes on time but file a return, you will receive a letter from the IRS (called a “written notice”) and the date of that first letter is the date that the 10-year clock starts. If you do not file a return or pay your taxes, then the IRS will create a substitute return for you and what is called a deficiency assessment, which also will start the 10-year clock. Generally, a deficiency assessment is an additional review that calculates a payment you must make along with regular taxes. While the assessment sounds intimidating, it is merely balancing the government’s books.
You should keep in mind that there are occasional instances in which this time period can exceed 10 years. The IRS will automatically stop the clock during the decade if you declare bankruptcy, if you live outside of the United States for more than six months, or if you request an installment agreement or offer in compromise to settle your debt. As the 10-year period comes to an end, you will likely receive more communication from the IRS, but you will not be threatened or pressured. If anyone is threatening or pressuring you, then they are more likely a charlatan capitalizing on your fear. We will go into the details below.
Options for Resolving Your Tax Debt
Your unpaid tax balance is subject to interest that compounds daily as well as a monthly late payment penalty. Over the course of a decade, interest and penalties can really add a significant sum to your back tax balance.
Paying the IRS as soon as possible is always in your best interest and there are options for settling your tax debt. The IRS does not want to toss all people who owe taxes into jail for a few years. For one, that means they never get their payment. A tax professional can help you determine which method is right for you.
An installment agreement allows you to pay your back taxes (and interest and penalties) over time, similar to a credit card payment.
In contrast, an offer in compromise is an agreement between a taxpayer and the IRS for payment of an amount lower than the original debt. You have to meet certain requirements to qualify for this particular stature, with factors such as lifestyle and income being evaluated.
Beware Of Scammers
In recent years, people trying to pay taxes may find themselves concerned when the phone rings. Someone on the line says they are the IRS and you owe several thousand dollars in taxes. This often scares people into making a payment to what they think is the government, only to learn later that the agency that received the money was a fraud. Over 26 million USD, as of 2016, has been lost in this way.
The IRS will never telephone you about how much you owe in taxes first; they will attempt postal services first. You will also not receive emails about such missed payments. They will send correspondence via letters.
In addition, the IRS will never ask for you to pay via iTunes or Google gift card. Wire transfers and debit cards can be used to make tax payments, but be warned of scammers that ask for a specific method. The idea is that you can never recover your money.
Never give your information to someone who calls on the phone; ask for a badge number of the person in question. Then call the IRS’s actual number — (800) 366-4484– to verify if the agent was legitimate. You need to check, and sometimes it is quite obvious when the person calling is not an official agent.
Help Solving Complex Tax Problems
If you owe back taxes to the IRS and are unsure how best to solve your specific tax issues, you may want to consider partnering with a tax firm that can help. Success Tax Relief can review your tax returns, and walk you through your options for paying your taxes. In addition, if the IRS has been in touch with you about back taxes, our team can take the stress away and communicate directly with the IRS to help settle your tax issue.
Contact us online to get started. Tax relief is just a call away as well as the means to manage your income efficiently. Our professionals can help you find a solution even with the most complex tax problems.