Tax Debt Statute of Limitations

What is the IRS Statute of Limitations? The IRS’ collection statute of limitations refers to the maximum time period the IRS can seek to collect back taxes from you. It is also referred to as the CSED, or the collection statute expiration date.

The CSED period is usually 10 years from the date your balance was assessed (formally entered in the IRS records that you owe). When this date passes, the IRS must erase whatever balance you have. It’s not always that easy, though. If they’ve placed a lien against your assets, they can reduce the lien to judgment and pursue the balance for another ten years in some cases.

The date on which the deficit accrues depends on the circumstances. For example, if the individual files a tax return that incorporates too many deductions, the initial date of the tax debt will be set on the date that the tax return was filed. If an individual failed to file a tax return, then the date that the IRS filed the return for the individual becomes the starting point. Generally speaking, the initial date is set as the first erroneous milestone causing the deficit.

The most viable solution then involves you working with the IRS so they will not resort to such extreme and rigorous measures. The 10-year period in itself is already a very long time and aside from this, specific actions may extend the statute of limitations period. For instance, applying for an Offer in Compromise, or an OIC, takes about a year to be processed for approval or denial. During that proceeding, your tax debt is essentially frozen.  If, unfortunately, your OIC is denied, the 10-year period resumes from the point when the decision was made. In effect, this burdens you with another full year, on top of the prescribed 10-year period.

Statute of Limitations on Taxpayer to Claim a Tax Refund

A taxpayer may file a claim for a tax refund of an overpayment of any tax within 3 years from the time the tax return was filed with the IRS or 2 years from the time the tax was paid to the IRS, whichever period is the last. If no tax return was filed with the IRS, the claim may be made within 2 years from the date that the tax was paid to the IRS. See section 6511(a) of the Tax Code.

What about State Taxes

Federal taxes do expire but many states have no SOL for state owed taxes. To know for sure, you need to read your state’s codes. Go to our Attorney General page and click on your state. From there locate your state laws and check. Usually it is under Taxation and Finance Code. Or visit the State Taxation Site>. State Tax forms> and remember if you read the code and cannot find an actual SOL for collecting the tax then the absence of such usually means there is NO SOL. You simply must read your own state law to see what the rule is for taxes. Some report (most) from date paid while others report from date opened or filed.

Nearing the End of the Statutes

As the statute expiration date draws near, the IRS will become much more aggressive in its attempts to collect. Besides the obvious result of collection action, forming any type of agreement with them will be harder. Since the IRS (at this point) has little time to collect, any payment plan will involve much higher monthly amounts unless it is proven you’re unable to do so. Even in this case, the burden of proof may be a tougher sell.

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