IRS Statute of Limitations: How to Use it to Your Advantage


IRS Statute of Limitations Rule – What and How

This is one method of resolving your back taxes that the IRS will not tell you about. In general, the IRS has 10 years to collect taxes owed which is also known as the the Collection Statute Expiration Date (CSED) or the Collection Statute of Limitations starting from the date your tax debt was assessed or when your return is received and the tax debt or balance was calculated and put into the IRS system. If you were recently assessed with back taxes, this probably is not something you should aim for because of the misery with the IRS collection process. The most common way where someone gets to the point where the Collection Statute of Limitations will expire is if they were classified as currently not collectible for years.

Another rule with the IRS that can fall under that Statute of Limitations is that if the IRS does not assess taxes within a three year period of the tax return being filed, they cannot legally collect those taxes that you would have owed unless you understated taxes by 25% or more of you filed a fraudulent tax return. This is extremely rare that an agent misses the Statute of Limitations in a case like this, but errors are sometimes made and a taxpayer can get away with not paying a penny of whatever the tax amount owed was.

The most typical rule is the 10 year rule of the date of the assessment. Many times when the deadline is approaching the IRS will try to get the CSED to reset by having you take a certain action.

How Can the Collection Statue of Limitations Be Extended By The IRS?

In some cases, the CSED or the Collection Statute Expiration Date on collections may be suspended and/or extended. Here are some reasons why the CSED may be extended:

  • The IRS takes you to court and sues you. This is very rare and if you do not owe a significant amount of tax in IRS standards ($250K +) it is highly unlikely that they will take you to court and they will just allow the statute of limitations to expire.
  • If you file for an Offer in Compromise or file a request for innocent spouse relief
  • You Are Out of the Country for at least 6 months
  • Request a Taxpayer Assistance Order
  • File For Bankruptcy (relevant only for taxes not discharged)
  • Sign a Waiver Form extending CSED
  • Seek a Hearing or Collection Due Process with IRS Office of Appeals
  • Deferments with the military
  • Estate Tax Liens

There are other details not discussed above (see this IRS page) which is why it always a good idea to consult a tax professional if you feel that you may have a questionable case where you may be exceeding or you will be exceeding the statute of limitations and the IRS is still trying to take action against you.

Free Tax Analysis To See If You Qualify

Offer In Compromise
Settle IRS back taxes for a fraction of what is owed if you can prove you meet strict IRS specifications.

Understanding IRS Statute of Limitations
Basic descriptions of IRS statute of limitations on multiple aspects of IRS code.

Payment Plans
Setting up a payment plan with the IRS can sometimes be the easiest solution to dealing with back taxes. See what payment plan fits your situation the best.

Protect Assets from the IRS
If you are going to try to use the statute of limitations to your advantage, you will likely become a professional at protecting your assets. You can be assured the IRS will try to seize your assets if they know you don’t plan on paying.

Delay Collections
If you just need more time to pay and want to delay the IRS collection system you can easily get extensions.

Currently Not Collectible
Prove to the IRS that you do not have the means to pay your back taxes with your current financial standing. Hold of IRS until you can pay or until statute of limitations expires.