IRS Statute of Limitations: How Far Back Can the IRS Go?
Over 10 million Americans owe back taxes to the IRS — but do they owe those taxes forever?
The good news is no, those who owe back taxes to the IRS do not owe those taxes forever.
This is because the IRS is limited in its assessment and collection activities by two different statutes of limitations governed by Internal Revenue Code (IRC) §6501.
In this article, I discuss both kinds of IRS statutes of limitations, how to strategize around them, and how to avoid pitfalls that could cause the statute of limitations to be extended (in IRS speak, “tolled”).
IRS Statute of Limitations on Assessment
Assessment refers to the recording of a tax debt in the IRS’ records (in the words of the Internal Revenue Manuel, “the statutorily required recording of the tax liability”).
This happens when an IRS assessment officer signs a summary record of assessment, formerly known as a Form 23C but now recorded electronically on a RACS Report 006.
Determining the Statute of Limitations on Assessment
Under IRC § 6501(a), the IRS generally has three years from the later of the due date of the return or the actual filing date of the return to assess a tax due on the taxpayer.
Any time within this three-year period, the IRS can assess the tax for a given tax year on the taxpayer.
|Scenario||When 3-Year Statute Starts|
|Return Filed On or Before Unextended Due Date||Statute begins to run from the due date.|
|Return Extended and Filed On or Before Extended Due Date||Statute begins to run from the date the IRS received the return.|
|Return Filed Late||Statute begins to run from the date the IRS received the return.|
|No Return Filed||Statute never begins; if a taxpayer never files a tax return, there is no statute of limitations on assessment for that tax year.|
How to Know Your Assessment Date
Now, the IRS won’t come out and tell you, “Oh, by the way, we’ve assessed your tax.”
In fact, in Revenue Ruling 2007-21, the IRS stated that it can begin collections actions even without providing notification of assessment to the taxpayer!
You can generally assume that the IRS assessed your tax a few weeks after you filed your tax return, though of course this could be significantly delayed if, say, you sent your tax return to the wrong processing center.
However, if you’d like to know the exact date of assessment for a given tax year, you would need to request your Tax Account Transcript from the IRS. Alternatively, you can request your Record of Account Transcript, which combines the information in your Tax Account Transcript as well as your Tax Return Transcript.
IRS Statute of Limitations on Collections
Collections refers to the actions the IRS takes in order to collect the tax it believes it is owed by a taxpayer.
Determining the Statute of Limitations on Collections
Under IRC § 6502(a)(1), once the IRS has assessed the tax, it has 10 years to collect it from the date of assessment.
Note that the statute of limitations on collections used to be six years, but now it’s ten years as described above.
The last day of this statute is known as the Collection Statute Expiration Date (CSED).
Once the CSED has passed for a particular tax, the IRS cannot solicit any more payments of that tax or engage in collections activity for that tax.
At the same time, the IRS is not required to let taxpayers know when the CSED has expire; the burden to find out is on the taxpayer if their CSED has passed. This can be done in any of the following ways:
- By looking at the TXMODA (described below)
- By calling the IRS and asking if the CSED has passed
- By requesting a Tax Account Transcript and looking for TC Code 608 “Write-Off of Balance Due”
Tolling the Statute
Various activities can toll — that is, extend — the statute of limitations on collections on a tax beyond 10 years from the date of assessment.
This is generally because during these particular activities, the IRS cannot enforce collection of the assessed tax.
Below are examples of activities that toll the statute.
|Event||Effect on 10-Year Statute|
|Bankruptcy||Statute is tolled during pendency of the bankruptcy during which the IRS cannot collect from the taxpayer due to the automatic stay on collections plus six months.|
|Offer in Compromise||Statute is tolled during pendency of the offer in compromise plus 30 days.|
|Installment Agreement||Statute is tolled during the pendency of the installment agreement plus 30 days.|
|CDP Hearing||Statute is tolled from the time the IRS receives a CDP hearing request on Form 12153 to the date the taxpayer withdraws their request or until the date that the determination from Appeals in the hearing becomes final, including any judicial appeals.|
|Taxpayer Abroad||Statute is tolled while a taxpayer is outside the United States if they are outside the United States for at least six months continuously. Additionally, the statute will be extended so that when the taxpayer returns to the United States the government has at least six months to collect from the taxpayer. Note that the IRS' determination to adjust the CSED for taxpayers abroad is affected by how cooperative the taxpayer is.|
The IRS’ internal calculation of the CSED is coded on a transcript called the TXMODA.
The TXMODA does not look like a normal transcript; it is highly coded and you will need to use IRS Document 6209 to interpret it.
Note that the IRS may refuse to provide this transcript.
If this happens, you should submit a Freedom of Information Act (FOIA) to obtain the transcript.
The IRS Makes Mistakes
Even on the TXMODA, the IRS does not reveal how it calculates the CSED, and sometimes the IRS makes mistakes in calculating the CSED.
In fact, in 2013, the Treasury Inspector General for Tax Administration (TIGTA) sampled 75 tax accounts and found that the IRS significantly miscalculated the CSED in 39% of them!
The National Taxpayer Advocate has also pointed out that the IRS tends to make mistakes in its CSED calculations.
Bottom line: Always independently calculate the CSED!
Effect of Audits and Amended Returns
If your tax return for a given year is audited, amended, or otherwise changed and you owe additional tax as a result of the change that additional tax will have its own ten-year collections statute.
Statute For Penalties
Note that penalties may have their own statute and Collection Statute Expiration Date.
If you make a payment for a tax after its CSED has passed, the IRS will apply your payment at its discretion to another outstanding liability or liabilities on your account.
If there are no other outstanding liabilities on your account, the IRS must attempt to contact you and ask if you would like the payment applied to your account to cover any future tax liabilities or if you want the payment returned to you.
If the IRS cannot reach you, they should return the payment to you.