Does an Installment Agreement Extend the Statute of Limitations?
Certain taxpayer actions to resolve tax debt can pause the IRS collection clock. Understand how the 10-year statute of limitations is affected.
An installment agreement with the Internal Revenue Service (IRS) allows taxpayers to make monthly payments towards a tax debt over time. Separately, federal law establishes a time limit on how long the IRS can pursue the collection of taxes. This period is known as the Collection Statute of Limitations. Understanding this timeframe is a component of managing a federal tax obligation, and the interaction between a payment plan and this statutory period has specific consequences for taxpayers.
The Standard Collection Statute of Limitations
The Internal Revenue Service has ten years to collect a tax liability from the date it is assessed. This ten-year period is known as the Collection Statute Expiration Date (CSED). The clock for this limitation period begins on the date of assessment, which is the formal recording of the tax debt in the IRS’s records. This typically happens shortly after a tax return is filed and processed.
For example, if a taxpayer files their return and a tax liability is recorded, the assessment date is established, and the ten-year collection window opens. This applies to various types of tax assessments, including the original tax due on a voluntarily filed return, additional tax from an amended return, or liabilities determined through an audit. The CSED provides a clear endpoint, after which the agency can no longer use administrative or judicial means, such as levies or liens, to collect that specific debt. It is the act of assessment that is determinative, not the due date of the tax return itself.
Impact of an Installment Agreement on the Collection Statute
Requesting an installment agreement with the IRS suspends, or “tolls,” the ten-year Collection Statute of Limitations. The suspension is not indefinite but is tied directly to the lifecycle of the installment agreement request. The tolling of the statute occurs during several distinct phases. The CSED is suspended for the entire time that an installment agreement proposal is pending review by the IRS. This period starts when the request is submitted and ends when the IRS either accepts, rejects, or allows the taxpayer to withdraw the proposal.
If the initial request for an agreement is rejected, the CSED is suspended for the 30 days following that rejection, during which a taxpayer can appeal the decision. Similarly, if a taxpayer defaults on an active installment agreement and the IRS proposes to terminate it, the statute of limitations is suspended for 30 days following the termination notice. During the time an installment agreement is in good standing and payments are being made, the CSED clock is running.
Other Common Actions That Suspend the Collection Period
Beyond an installment agreement, several other actions initiated by a taxpayer can pause the ten-year collection clock. Filing an Offer in Compromise (OIC) is a frequent cause of suspension. The CSED is tolled while the OIC is pending, for 30 days immediately after a rejection, and during any subsequent appeal.
Requesting a Collection Due Process (CDP) hearing also suspends the collection period. The CSED is paused from the date the IRS receives the hearing request until the determination from the hearing becomes final, which includes any time for court appeals. If the CSED has less than 90 days remaining when the determination is finalized, the statute is extended to equal 90 days.
Filing for bankruptcy protection is another event that halts the CSED clock. The statute of limitations is suspended for the period the bankruptcy case is active, plus an additional six months after the case is concluded or dismissed. Living outside the United States for a continuous period of at least six months can also suspend the collection statute.
Calculating the New Collection Statute Expiration Date
To determine the new CSED, you must calculate how much time was left on the ten-year clock at the moment the suspension began. Once the suspension event concludes, the time that remained on the original CSED clock is added to the date the suspension ended. Any additional statutory period, like the 30 days granted after an installment agreement rejection, must be accounted for in the total suspension time.
For example, assume a tax was assessed on July 1, 2020, setting the original CSED for July 1, 2030. The taxpayer submitted an installment agreement request on July 1, 2022, at which point eight years remained on the collection statute. The IRS then rejected the request on September 1, 2022.
The suspension period includes the time the request was pending (two months) plus the 30 days following rejection, lasting until October 1, 2022. The eight years that were remaining on the clock are then added to this date, establishing a new CSED of October 1, 2030.