How Long Can the IRS Collect Back Taxes?

Americans must file federal income tax returns every year on about April 15th. After filing your federal taxes, you may get a refund or be required to make additional payment to satisfy a tax debt.

The Internal Revenue Service (IRS) takes collecting unpaid taxes seriously. Once it determines that you owe taxes, the IRS will take steps to collect your outstanding tax debts. However, the IRS doesn’t have unlimited time to pursue collections. Read on to learn more about tax collection timelines and the penalties for not paying on time. If you have questions about how long the IRS has to collect back taxes, talk to an experienced income tax lawyer for legal advice.

What Are Back Taxes?

Many taxpayers don’t owe money at the end of the year and get a tax refund. Others receive a tax bill. If they do not pay the bill, this debt becomes back taxes.

There are several situations in which you may end up owing back taxes. For example, you may not have taken tax law changes into account. Self-employed individuals commonly owe back taxes because they didn’t make sufficient quarterly payments or made extra income. If they don’t account for the additional tax liability, the taxpayer could end up owing back taxes.

Back taxes are subject to interest penalties compounded daily. If back taxes remain unpaid, the IRS can assess additional tax penalties. Interest and penalties continue to accrue until you pay off the total amount of unpaid taxes.

How Many Years Can You File Back Taxes?

Most taxpayers can only claim refunds and credits in the three years following a return’s due date. Delays in filing or paying your taxes are not to your benefit. The longer it takes to pay, the more you will owe in tax penalties and interest. The IRS will also take progressively more aggressive measures to collect the debt if you don’t try to pay your tax debt.

“There’s a general misconception among the public that if you don’t have the money, you shouldn’t file. That really is not the best approach to handling the situation,” says David S. De Jong, a tax attorney at Stein Sperling Bennett De Jong Driscoll in Rockville, Maryland.

Taxpayers can file returns that are older than three years. However, they are not eligible for deductions, credits, or refunds on these older returns. Not filing your taxes to avoid the debt could result in owing more. You should always file your taxes, even if you don’t owe anything. This creates the required assessment date for the ten-year countdown for IRS collection.

How Long Does the IRS Have to Collect Back Taxes?

The Collection Statute Expiration Date (CSED) defines the statute of limitations for IRS collection actions. The IRS is subject to a 10-year statute of limitations from the date of the tax assessment. After the 10-year collection period runs, the IRS can no longer pursue the debt. The IRS assesses taxes when the taxpayer files their return, and the IRS records the tax liability.

If the taxpayer files their return late, the statute of limitations begins from this late filing date. The assessment date will also change if the taxpayer files an amendment to their return. The statute of limitations never begins to run for unfiled tax returns. This gives the IRS unlimited time to collect the tax debt owed. The IRS will file a substitute for returns not filed. This allows the IRS to assess a tax debt but does not qualify as an assessment for the statute of limitations.

De Jong explains the importance of filing your taxes even if you can’t pay the tax debt. “The penalty for failure to file is 5 percent per month for the first five months, whereas the failure to pay penalty is half of 1 percent. With the failure-to-file penalty, until it reaches its maximum of 25 percent, we will encourage people to file even though they cannot immediately pay.”

There Is No Time Limit for Tax Fraud or Evasion

The 10-year statute of limitations does not apply if the taxpayer commits fraud or tax evasion. There is no time limit on how long the IRS has to collect unpaid taxes because of tax fraud. If you committed tax fraud 30 years ago, the IRS can still come after you for unpaid taxes, including any interest and penalties.

Tolling the Tax Collection Statute of Limitations

There are several activities you can take that can toll the IRS statute of limitations. There are also ways the IRS can pause or extend the statute of limitations. If the IRS sees that the statute of limitations is ending, it may sue the taxpayer in federal court. If it obtains a judgment, there are separate time limits for pursuing recovery through this method. Generally, the IRS will only do this if you owe a significant amount of money.

Paying Through Installment Agreements

If a taxpayer can’t afford their tax debt and requests an installment agreement, the statute of limitations pauses while the IRS considers their request. The hold remains in place if the taxpayer appeals the IRS’s decision to reject a payment plan.

Filing Bankruptcy

If an individual files for bankruptcy, the IRS will suspend tax collection actions from the date they file until the closing of the case. After the conclusion of the bankruptcy case, you get an additional six-month extension before the countdown resumes.

Collection Due Process Hearing

If a taxpayer requests a Collection Due Process (CDP) hearing, the statute of limitations for the IRS to collect on their tax debt is suspended. The suspension will remain in place until the end of the hearing or until after the court rules on the taxpayer’s appeal. If the taxpayer gets a final determination within 90 days of the statute of limitations deadline, it will be automatically extended 90 days from the final determination date.

Offer in Compromise (OIC)

If a taxpayer requests an offer in compromise (OIC) from the IRS, the CSED gets suspended while the IRS reviews the request. If the IRS rejects your OIC request, they suspend the CSED for another 30 days or continue the suspension if the taxpayer appeals the rejection.

Innocent Spouse Relief

A spouse filing for innocent spousal relief in tax court will have their CSED time limit suspended while the tax court hears their case. If they don’t sign the waiver, the suspension stays in effect until the tax court makes a ruling. This suspension does not apply to the other spouse.

Combat Zone or Military Service

If a military member is serving orders or in a combat zone, the CSED will be suspended. The CSED is extended by 180 days when they leave the combat zone. In addition, another 270 days are added from the date of notification from the military.

Living Outside the United States

When an individual lives in another country outside the United States continuously for six months or more, it will suspend the CSED. When they return to living in the United States, the statute of limitations will extend by at least the six months they were gone.

If You Owe Taxes, How Long Do You Have to Pay?

You must pay your taxes by the due date for each filing year. If you cannot pay, there are several options to extend the time period to pay. The IRS will increase its collection efforts if you don’t attempt to make payments or arrange a payment plan. IRS tax collection actions include wage garnishment, real estate tax liens, or seizing assets like bank accounts. If you still do not make a payment, the IRS may pursue a claim through tax court.

Once you know your tax assessment for the year, make arrangements with the IRS to give yourself more time to make a payment. This can give you a few months to a year to pay your taxes.

Practical Tips for Dealing with Back Taxes

If you cannot pay your tax bill, there are proactive steps you can take to avoid mounting tax problems. The IRS is not as unreasonable as it seems. A good-faith attempt to pay your taxes or come up with a payment plan can help you reduce your interest and penalties.

Request a payment plan that extends the amount of time you have to pay. Ask the IRS to place your tax debt in uncollectible status for a period of time until you can resume making payments.

De Jong explains how a tax debt in uncollectible status can provide temporary relief to taxpayers. “The IRS will not engage in active collection activity if they classify your debt as currently uncollectible. The IRS can look at it every year, but in practice, uncollectible status usually protects you for a couple of years before the IRS takes a look at it again.”

Speaking with a tax professional can give you guidance on the available options. If you owe a significant amount of back taxes, a taxpayer advocate can help you negotiate with the IRS. Your attorney can negotiate a reduced payoff amount to reduce your overall tax liability. If the IRS has pursued a case in tax court, a tax attorney can provide representation. They can work to toll the IRS’s efforts and resolve your back tax issues.

Find an Experienced Tax Attorney

Ignoring your tax debt will only make your tax problems worse. It’s best to take a proactive approach by working with a tax attorney who can can advocate for your rights and resolve your back tax debts.

Visit the Super Lawyers directory to begin your search for an experienced tax attorney. For more federal income tax legal information, read our guide on tax law.