How Long can the IRS Collect from You?
One of the most common questions I am asked by taxpayers is “How long can the IRS try to collect my taxes?” It’s a good question, and one that would seem to have a quick, easy answer.
It doesn’t.
As a tax attorney, I say “it depends” to a client at least once a day. I didn’t appreciate the response in law school when my professors said it, and my clients don’t appreciate it now when I say it.
Unfortunately, for most lawyers “it depends” is about as automatic a response as a thirteen-year-old girl’s constantly using the word “like.”
Like, all the, like, time.
Basic Concepts
Before the IRS can collect a tax, it must “assess” it.
When you self-report the tax due on your return, the IRS makes a note of it in its ledger that a tax is due. Boom. Assessed.
Honestly, this is all “assessment” means — the IRS determines you owe tax, and it makes a note of it. If you paid the tax with the return, the IRS gladly notes that, too.
If you didn’t pay up, all kinds of bells and whistles go off. Before the IRS assesses the tax, though, it will give you a chance to pay what it thinks you owe by sending you a love letter (a notice of deficiency) in short order.
A notice of deficiency is the IRS’s way of saying, “hey friend, we sincerely believe you must not have realized it, but, well, we’re pretty sure that you owe us some money, and this is our politest way of asking you to fork it the hell over before shit gets real.”
This is known as a notice and demand for payment.
If you don’t *timely* acquiesce to the IRS’s polite request to pay up (or if you simply ignore it and hope that the IRS will just go away), the IRS will, in due course, not go away. Instead, it will crack its collective administrative knuckles, assess the deficiency, and send you the first of increasingly threatening collection notices. This first missive is generally a polite notification that a Federal tax lien has been filed against you.
Side note: This is generally when a client calls me. Not when they receive a notice of deficiency. Nooooo. That’d be too easy.
So, congrats, now you owe tax to Uncle Sam, who is now intent on forcibly collecting it from you. How long does the IRS have to collect this debt?
Having said that, there are two general rules of thumb:
First, the IRS has three years to assess tax from the time the return was filed.
Second, the IRS has ten years to collect the tax from the time the tax was assessed.
Time Limits on Assessment
Three Years (Generally)
The IRS only has three years to assess tax after a return is filed — whether the return was filed on time or not. If you read between the lines, if a taxpayer fails to file his return, in the immortal words of Michael “Squints” Palledorous from The Sandlot the statute of limitation on assessment remains open for-eh-ver.
Having said that, the IRS usually only looks back six years when it comes to unfiled returns.
If the IRS determines that you owe more than what you reported on your return, it must assess this alleged “understatement” within three years. There are a few narrow but important exceptions to this three-year rule.
First, if you lied on your return, and you meant to do so, the IRS may assess tax and penalties at any time.
Second, a taxpayer may agree to extend the statute of limitations on assessment.
“But, why would I ever willingly give the IRS more time to take my money?” you may be thinking to yourself. It’s a fair question. My stock answer is simple:
If you want the IRS to walk away from the bargaining table and start collecting in earnest, there is no better way call the IRS’s bluff (and royally piss off a revenue agent) than by refusing to extend the statute of limitations on assessment. It’s one of the IRS’s “buttons.”
Third, if there has been a “substantial omission of items,” meaning that you failed to report a lot of income (but not with bad motives), then the IRS may assess the tax within six years after the return was filed.
There are a dozen or so other exceptions to the three-year rule on assessment. For our purposes, however, those three are the most common.
Statute of Limitation on Collection
“But wait,” you say, “I don’t care about assessment. I asked you about collection.”
We care about the statute of limitations on assessment because the statute of limitations for collection begins at the time the tax is assessed.
Ten Years (Generally)
If the IRS makes a timely assessment, it may collect the tax within ten years. This means that once the ten-year period has run, if the taxpayer owes additional tax for the assessed period, the jig is up — meaning that the IRS may not continue to try to collect the liability from the taxpayer. Unless, of course, you’ve done something to extend the jig, in which case the IRS can keep on dancing… More on this in a moment.
Collection Mechanisms
As I discussed in a series of articles on the procedural considerations of collection on my blog, Briefly Taxing, the IRS has two primary mechanisms for collection — liens and levies.
Think of a lien like a little yellow sticker. Once your kid brother sticks it under the dinner table, it’s pretty much there until, 10 years later, when your mother discovers it and peels it off. If you were to sell the table, the sticker would go with it. That’s the essence of how tax liens “attach.”
And they are very, very sticky little bastards.
Liens attach to everything you own. They are collection devices. As such, liens generally last for 10 years. At the end of the day, a lien is just a sticker on a taxpayer’s property — a mean, nasty, ugly, life-complicating sticker.
Liens mean you can’t refinance or likely sell your house, they can kill your credit, and they just make life less enjoyable. They are a very real, very sharp, and very painful thorn in your proverbial financial side.
Sadly, liens are not even the worst of the IRS’s collection methods.
In order to actually collect against the taxpayer, the IRS must “enforce” its lien. Enforcement means levies, and levies mean seizing of your property — whether this takes the form of garnishing your wages or forcing the sale of property (only to take the proceeds to satisfy the lien).
Like liens, the ability to levy generally lasts for 10 years.
Extension of Statute of Limitations on Collection
As with assessment, the ten-year limitations period for collection may be extended for a number of reasons, some more common than others:
Voluntary extensions for negotiation purposes;
Offers in Compromise and Installment Agreement negotiations;
Pendency of a Collection Due Process hearing or a Tax Court case;
Innocent Spouse negotiations;
Presence outside the United States for six months; and
Bankruptcy
So, It Does Depend
I don’t say “it depends” because I am a fan of ambiguity. If I could guarantee that nothing the taxpayer would do could extend the statutes of limitations on assessment and collection, I’d be delighted to only have to remember the rules of thumb rather than all of the flipping exceptions to the rules.
At the end of the day, the IRS does have a finite time to collect a liability against a taxpayer. That is, of course, unless some event suspends the statute of limitations, and…well…then…it depends.
The original, longer version of this article appeared on my humorous tax blog, Briefly Taxing.
