What Is The IRS Statute Of Limitations?

Whether you owe money to the Internal Revenue Service (IRS) or the IRS owes money to you, both sides have time limits to collect whatever amount of money is owed. These deadlines, called statutes of limitation, are very strict. They can also differ depending on the situation.

Of the many statutes of limitation, many wonder how long the IRS has to collect a tax debt. Generally, the IRS has at least 10 years to collect. This IRS statute of limitations is called the Collection Statute Expiration Date (CSED). When that 10 years begins and ends depends on the situation.

When Does the 10-Year IRS Collection Statute Start?

When the 10-year IRS collection statute starts depends on when you filed your income tax return, assuming you filed one. In all, there are four different dates when the CSED could start:

• If You Filed Your Tax Return Early: If you filed your income tax return before the tax due date, then the 10-year period starts on the original due date of the return instead of the filing date. Every year, taxes are due on April 15 (or the next business days if that falls on a weekend or holiday) for individual taxpayers. So, for example, if you filed your tax return on February 1, 2019, the CSED period would start on April 15, 2019. However this year, due to the pandemic, the IRS has extended the tax due date for all individual taxpayers to May 17, 2021.

• If You Filed Your Taxes After the Due Date: If you filed your taxes after the due date given by the IRS, then the collection statute starts on the filing date. For example, if your taxes were due on April 15, 2019, but you filed your tax return on June 1, 2019, the CSED period would start on June 1, 2029.

• If an IRS Audit Shows You Owe Additional Taxes: The IRS can audit any tax return. If a taxpayer makes a mistake in their tax return and the IRS determines that they owe additional taxes, then the CSED starts on the date of the IRS’s assessment of those taxes.

• If You do Not File a Tax return: If you didn’t file your tax return at all, then the IRS will file one for you. In this case, the statute starts on the date of the IRS’s assessment of any taxes owed. This is not the same date as the date the return was filed. It’s usually a few weeks later.

Again, unlike previous years, the IRS has decided to extend the tax deadline for individual taxpayers to account for the impact that the COVID-19 pandemic had on the United States. Due to the pandemic, taxpayers now have until May 17, 2021, to file their tax return for the 2020 tax year. So, for example, if you filed your taxes on April 16, 2021, which is considered early filing this year, the CSED would not start until May 17, 2021. 

How Long Does the IRS Have to Assess Taxes Against You?

For the IRS to begin the process of collecting any unpaid taxes, they must first assess those taxes against you. An IRS assessment is a determination made by the IRS of the federal taxes you owe. The IRS must make this determination before any tax liability can be imposed on you for any tax debt.

The date of an IRS assessment is the date that an IRS officer called an assessment officer signs a summary record. A summary record is a document that lists the taxes owed by a specific person. Summary records explain how the IRS came to the conclusion that a taxpayer still owes them money, and they are usually the result of a tax audit.

Just like with collecting back taxes, the IRS has a statute of limitations to assess taxes against you. The time period to assess taxes is called Assessment Statute Expiration Date (ASED). Like the CSEDs, how long the IRS has to assess taxes depends on the situation.

The Default IRS Statute of Limitations for IRS Tax Assessment is 3 Years

The general rule is that the IRS has 3 years to audit a taxpayer’s income tax return and assess back taxes against them. The 3-year ASED starts on the date you file your tax return, unless you file it early. Just like with the CSED, if you file your tax return early, the 3-year period starts on the original due date for those taxes.

Although taxes are usually due on April 15, due to the pandemic, the IRS extended the tax deadlines for both the 2019 and 2020 tax years:

• July 15, 2020, for the 2019 tax year, and

• May 17, 2021, for the 2020 tax year.

More information about this 3-year statute of limitations can be found in the Internal Revenue Code (IRC), specifically IRC § 6501(a).

The Extended IRS Statute of Limitations for “Substantial Omissions” is 6 Years

The IRS has 6 years to assess taxes against a taxpayer if they reported significantly less income than they actually made on their income tax return. This extended ASED applies if you under-report your gross income by more than 25%, or if you omit at least $5,000 of income related to undisclosed foreign financial assets. 

Undisclosed foreign financial assets can include any bank accounts, stocks, bonds, or certain other financial instruments located outside the United States. They can also include interest in a foreign company.

More information about this 3-year statute of limitations can be found in IRC § 6501(e).

In Cases of Fraud or No Return

There are two situations where the IRS does not have a deadline by when they need to assess taxes against a taxpayer: when the tax return was filed fraudulently, or when no tax turn has been filed at all.

If a taxpayer files a fraudulent tax return, it means they have purposefully filed the return with incorrect information to try and evade taxes.

If a taxpayer does not file a tax return at all, they will still have a tax liability for their unpaid taxes and the IRS has an unlimited amount of time to assess the taxes against them.

It’s important to remember that these deadlines are not the same as the CSED. The 10-year CSED period will not start until taxes are assessed. For example, if a taxpayer files a fraudulent return in 2005 and the IRS finds out and assesses taxes against them in 2015, then the IRS will have 10 years from 2015 to collect the unpaid taxes. This means that the IRS would have until 2025 to collect.

In Cases of Amended Returns

When it comes to the statute of limitations for amended returns, the IRS has a special rule if the taxpayer files their tax return close to the ASED. Under this rule, if a taxpayer files an amended tax return either 60 days or less before the ASED deadline, then the IRS has 60 days from when they receive the amended return to assess taxes.

For example, let’s say you file your taxes on time. Then, almost three years later you realize you made a mistake on that tax return and you file an amended return just 30 days before the ASED period ends. Under the special rule for amended returns, the IRS will have 60 days from the day that they receive the amended return to assess taxes.

This extension only applies to the additional taxes reported in the amended return.

There’s a 3-Year Statute of Limitations for a Refund Claim

If the IRS owes you a tax refund, you have 3 years to file a refund claim with the IRS. If you do not file a claim within the 3-year statute of limitations, unfortunately, you won’t be able to get your tax refund.

However, there are two exceptions to this 3-year statute of limitations:

• Bad Debts & Worthless Securities: If the refund is due to a deduction for bad debts or worthless securities, then the statute of limitations is 7 years. Bad debts are debts caused by clients or customers who don’t pay their bills. So, this exception usually applies to businesses.

• Incapacity: There is no statute of limitations to collect a refund when the taxpayer is mentally or physically unable to manage their finances.

If either of these situations applies, the taxpayer will be able to get their refund even if the usual 3-year statute of limitations has expired. 

Situations That Extend the 10-Year Collection Statute of limitations

There are many situations where the IRS can pause the 10-year collection statute of limitations:

• Bankruptcy: If you decide to file for bankruptcy, the CSED will pause while the bankruptcy is pending and for an additional 6 months after your bankruptcy discharge is entered. 

• Collection Due Process (CDP) Hearings: If you receive a notice that you owe back taxes and the IRS is starting a collection action to either take your property, garnish your wages, or use a tax lien, you have the right to a CDP hearing. The CDP hearing is an opportunity to challenge the tax debt and ask for tax relief. The 10-year period will pause while the CDP hearing is pending.

• Offer in Compromise (OIC): One form of federal tax relief is to settle with the IRS through an OIC. An OIC results in an installment agreement, which is a payment plan that allows you to pay off a portion of your tax debt over time. Not everyone qualifies for an OIC. The CSED period will pause while the OIC is pending and for an additional 30 days after.

• Taxpayer Assistance Request (Form 911): Another form of federal tax relief is to request assistance from the Taxpayer Advocate Service. The CSED period will pause while the request is pending.

• Innocent Spouse Request: An innocent spouse request, sometimes called a request for innocent spouse relief, is a request made by the spouse of someone who has tax debt asking to be relieved of a tax liability. The CSED period will pause while the request is pending and for an additional 30 days after the request is processed.

• Pending Tax Litigation: If there is a lawsuit regarding your federal taxes, the CSED period will pause while litigation is pending.

• Appeals: All taxpayers have due process rights when it comes to the IRS collecting federal tax debt. If you request some sort of tax relief and an appeal for the denial of that relief is pending, the CSED period will pause during that appeal.

• Living Abroad: The CSED period will pause while the taxpayer is living outside the US if they remain living outside the US for six continuous months or more.

• Military Tax Deferment: Military members can file for a tax deferment based on their military status. A tax deferment is when the IRS agrees to allow a taxpayer to pay taxes at a later time. The CSED period will pause during a military tax deferment.

Examples of the Statute of Limitation Calculation

As you can see, the IRS has many different statutes of limitations for federal tax debt payment. The following examples will help you understand how the ASED and CSED statutes of limitation are calculated.

Example 1: Joe Smith Made a Mistake on His Taxes

Joe Smith filed his 2015 tax return on time on April 18, 2016. April 15 was a holiday in some states that year, so the due date was extended to the 18th. He thought he did everything right. The 3-year IRS statute of limitations to assess taxes, or the ASED, started on April 18, 2016. It turns out, the IRS decided to audit the 2015 tax return and found that Joe owed additional taxes. The IRS assessed these additional taxes on May 15, 2018.

The 10-year statute of limitations for the IRS to collect those additional taxes, or the CSED, started on May 15, 2018. This means that the IRS had until May 2028 to collect.

Joe files for Bankruptcy…

Joe had been going through financial troubles for many years and decided to file Chapter 7 Bankruptcy on February 1, 2019. The bankruptcy was finalized when a discharge was entered 5 months later on July 1, 2019.

What is the ASED?

Here, Joe filed his taxes on time. He made a mistake, but he wasn’t trying to commit fraud. The ASED in this case was 3-years after April 18, 2016, which would be April 2019.

What is the CSED?

Filing for bankruptcy pauses the CSED while the bankruptcy is pending and for an additional 6 months after. In this case, the bankruptcy paused the 10-year CSED for 5 months while the bankruptcy was pending, and for the additional 6 months after the bankruptcy discharge is entered. This means that the 10-year period was paused for a total of 11 months.

Because of the bankruptcy, the IRS has 11 additional months to collect the additional taxes, which calculates to April 2029.

Example 2: Laura Baker Never Filed a Tax return

Laura Baker owns a business. She got so busy dealing with the company’s finances that she forgot to file her 2011 tax return. Four years later, the IRS filed a tax return for her, which is called a "substitute for return,” on May 1, 2015. In this return, the IRS assessed taxes against her.

Years later, Laura’s tax problems started to get worse, and she received a notice from the IRS about her tax debt. The notice informed her that the IRS would start by taking money from her paychecks through garnishment, and they were going to take money out of her bank account as well. 

After researching online, she learned that she could apply for an Offer in Compromise (OIC) that would let her pay back a portion of her taxes through an installment agreement. She applied for the OIC on February 1, 2020. The IRS denied her OIC request 9 months later. Laura, overwhelmed with the whole process, decided not to file an appeal to the tax court.

What was the ASED?

In this case, there was no ASED. Under federal tax law, there is no statute of limitations period for assessing taxes when the taxpayer does not file a tax return.

What is the CSED?

If Laura had not requested an OIC, the IRS would have had until May of 2025 to collect the tax debt. However, the OIC request paused the 10-year period for 9 months and an additional 30 days after. This calculates out to March 2026.

Let’s Summarize…

Most people in the United States have to deal with tax issues at least once in their lives. If those tax issues lead to tax debt, generally, the IRS has 10 years to collect it. The 10 year period starts with the filing of the return or assessment by the IRS. However, there are a few situations that can pause this 10-year period, which gives the IRS more time to collect. Some of these situations include filing for bankruptcy or a pending OIC.

If you have back taxes, or if you’re not sure whether you’re owed a tax refund, it’s important to contact a tax professional or tax attorney to help you understand what deadlines apply to you.