IRS Statute of Limitations: Do Taxes Ever Expire?

Many Americans believe that an IRS debt is a debt for life and that the tax collector can hound them to the grave. Thankfully, that is not the case and there are statutory time limits on the ability of the IRS to examine and collect taxes. Taxes do expire at some point and in some cases IRS does not get the money they were legally entitled to collect.

Basically, IRS has 10 years from the date they send out their first bill to collect the tax. The 10 year rule does not apply to the states. Some, like California have no statute of limitations and the state tax collector can indeed hound you forever. The federal tax collector must get the cash before the clock runs out.

For tax assessments made after November 5, 1990, the IRS cannot collect the tax after 10 years from the date of the original assessment absent special circumstances. Special circumstances that may extend the statute are: a bankruptcy not completed or wherein the tax is not discharged; filing an Offer-in-Compromise; or signing a Form 900 Waiver allowing the United States additional time to collect the tax. Also, it is possible for the government to sue to reduce the tax claim to judgment before the 10 years expires.

If you never file a tax return, there is no statute of limitations on IRS requiring you to file, but as a matter of policy, IRS generally only requires non-filers to file the last 6-7 years. If IRS files for you by doing a Substitute-for-Return (SFR), they have 10 years from the date they file the SFR to collect from you. If a Federal Tax Lien is on file against you, it expires and becomes void if the underlying statute expires.

You can find out when the statute expires on your tax bill by requesting a Record of Accounts (ROA) from IRS for each tax year you owe. If you can't afford to pay the tax, your account might be eligible to be put in a "temporary hardship" status. It may be possible to "ride out" the statute in hardship if you qualify. An impending statute might also be a beneficial factor in an Offer-in-Compromise.

If you have a refund coming to you, you only have 3 years from the due date to collect your refund. If you file 3 or more years after the due date, the refund is lost. In some cases you can peruse a refund beyond the three years. If you full pay the tax, you can file a claim for refund within 2 years of the payment. If your claim relates to a bad debt or worthless security, you have 7 years to make a claim.

The flipside to the 3 year refund rule is that IRS only has 3 years to examine a filed return by audit in most cases. Now, the tax code is complicated and there are exceptions to these rules. If you have committed fraud or tax evasion, there is no statute for audit. There is also a 6 year rule for audit in cases of "substantial omission" of 25% or more in income. But for most folks, the three year statute will apply on audits.

Websites that can help you research these issues are: www.irs.gov, www.naea.org, www.exirsman.com, www.taxattorney.com, and www.etaxes.com. I do not recommend dealing with IRS on your own. You should get help from a tax pro if you have a tax collection or audit issue. Don't hire some company you saw on a TV commercial, hire a flesh and blood person or reputable firm. A good CPA, Enrolled Agent (EA), Accredited Tax Advisor (ATA), or Tax Attorney can be invaluable. If you want to call IRS yourself, they can be reached at 1-800-829-1040.

James Robert Coleman, E.A., A.T.A.
Enrolled Agent & Accredited Tax Advisor
Member: National Association of Enrolled Agents
Former IRS Revenue Officer, GS-11
http://www.exirsman.com