How Far Back Can the IRS Collect Taxes?

The Internal Revenue Service (IRS) has the authority to collect unpaid taxes from individuals and businesses. This power is not indefinite, as specific time limits govern how long the IRS can pursue a tax debt. After this defined period, the debt may no longer be collectible.

Understanding the Standard Collection Period

The IRS generally has a 10-year period to collect taxes, penalties, and interest from the date a tax is assessed. This timeframe is known as the Collection Statute Expiration Date (CSED). The CSED marks the legal end of the collection period, after which the IRS cannot typically pursue further collection actions.

An “assessment” occurs when the IRS officially records a tax liability on its books. This can happen when a taxpayer files a return, when an amended return is processed, or following an audit where additional tax is determined to be owed. For instance, if an individual files their tax return and owes money, the tax is assessed once the IRS processes that return.

The 10-year collection period applies broadly to various types of federal taxes, including income tax and payroll tax. The starting point for this 10-year clock is the date of assessment. Internal Revenue Code Section 6502 establishes this 10-year collection period.

Situations Extending or Eliminating the Period

The standard 10-year collection period can be extended or eliminated under specific circumstances. If a tax return is not filed, there is no statute of limitations for the IRS to assess or collect the tax. This means the IRS can go back indefinitely to determine and collect taxes for unfiled years.

Filing a fraudulent tax return also eliminates the statute of limitations for assessment and collection. In such cases, the IRS can pursue the tax debt at any time.

The collection period can also be “suspended” or “tolled” during certain events, effectively pausing the 10-year clock. This means the time during which the IRS is legally prevented from collecting does not count towards the 10-year limit. Common situations that toll the statute include bankruptcy proceedings, periods when a taxpayer is outside the U.S., a request for a Collection Due Process (CDP) hearing, or during an appeal. Internal Revenue Code Sections 6501 and 6503 govern assessment limitations and the suspension of these periods.

Voluntary Agreements Affecting the Period

Certain actions initiated by the taxpayer can influence the collection statute of limitations. Submitting an Offer in Compromise (OIC), which is a proposal to settle a tax liability for a lower amount, suspends the collection period. This suspension lasts while the OIC is pending with the IRS and for an additional period if the offer is rejected or withdrawn.

Entering into an Installment Agreement (IA) also affects the collection statute. An IA allows taxpayers to make monthly payments for their tax debt over a set period. While an installment agreement is active, the collection statute of limitations is suspended.

Taxpayers can also voluntarily agree to extend the collection period by signing a waiver, such as Form 900, Tax Collection Waiver. This extension is often granted in exchange for the IRS considering an OIC or IA, or to prevent immediate collection actions.

IRS Collection Methods

Within the established collection period, the IRS employs various methods to collect unpaid taxes. A federal tax lien is the government’s legal claim against a taxpayer’s property when a tax debt remains unpaid. This lien attaches to all of a taxpayer’s assets, including real estate, personal property, and financial assets, and can affect their ability to obtain credit. The lien arises when the IRS assesses the tax and issues a demand for payment, and a Notice of Federal Tax Lien may be filed publicly to alert other creditors.

In contrast to a lien, which secures the government’s interest, a tax levy involves the actual legal seizure of a taxpayer’s property to satisfy a tax debt. The IRS can levy various assets, including bank accounts, wages, and other property. For instance, a bank levy allows the IRS to freeze funds in an account, typically for 21 days, before seizing them. Wage garnishments involve the IRS requiring an employer to send a portion of an employee’s wages directly to the IRS until the debt is paid.

Before initiating a levy, the IRS is generally required to issue a Final Notice of Intent to Levy and inform the taxpayer of their right to a Collection Due Process (CDP) hearing. This hearing provides an opportunity for taxpayers to discuss collection alternatives or dispute the tax liability. The IRS can also collect taxes through refund offsets, where future tax refunds are reduced or taken to satisfy outstanding tax debts, including federal or state income taxes, child support, or student loans. These collection actions can only be pursued while the collection statute of limitations remains open. Internal Revenue Code Sections 6321 and 6331 outline the authority for tax liens and levies, respectively.