Is There a Statute of Limitations On Tax Debt?

It may surprise you to know that there is a statute of limitations on tax debt. For people who owe back taxes to the federal government, these time limits can seem long and arduous, leaving your in a never ending financial hole with little apparent chance for escape.

Let's get the facts straight before you let an IRS imposed tax burden leave you with financial stress. The IRS actually has several different time limits which may apply to your situation, all will depend on the issue at hand. For instance, if you have a tax refund due to you, you only have three years to file that return and claim the refund.

In addition, the IRS only has a three year window to audit your tax return. However, if you are found to have failed to report income this time limit may not apply.

What Is The Statute Of Limitations On Tax Debt?

The statute of limitations placed on the IRS to collect a tax debt owed to the government is 10 years. This time period starts on the day the specific tax liability has been finalized. A tax liability can be finalized in several different ways.

One way that a liability can be finalized is if someone has a balance due on their tax return, the day the return is filed is the day the clock starts. Another way to start the statute of limitations on tax debt clock would be the day an assessment was levied as the result of an audit. The time also begins when a proposed assessment from the IRS has become final. From this finalization day, the IRS has a full 10 years to collect the tax due as well as any penalties and interest that may have accrued.

If, for some reason, the IRS does not collect the full amount during the allotted 10 year time period, then the remaining balance due simply goes away as the statute of limitations expires. Don’t count on this happening though, the IRS as an agency is mandated to collect tax revenues for the federal government.

These time limits are one of the reason why it may be in your best interest to file your tax returns as early as possible. For one thing, you can claim any refunds due while also starting the statute of limitations clock ticking.

One very important point to remember about tax debt time limits is this: There is no statute of limitations on the collection of taxes, penalties, and interest on individuals who fail to report income. Don’t fall into this trap by not reporting cash or other hard to track income you may receive.

What If You Can't Pay Off Tax Debt?

What do you do if you find yourself in a situation where you can't pay off your tax debt in a timely manner? There are several options available to you should you find yourself in this situation. First of all, you will want to try working directly with the IRS to set up a payment plan that is reasonable based on your current financial situation. Many times, the IRS will accommodate your budget and financial needs when setting up a schedule of payments.

However, there may be times when the payment schedule set forth by the IRS is outside of your financial reach. Should this happen to you it may be time to contact an experienced tax attorney and get some advice on the matter. This can be a tricky situation, so you don't want to work with just a generic attorney, find someone with extensive experience in dealing with the IRS and federal tax debt issues.

Owing money to the IRS is never a fun situation and it may take some creative thinking for you to get the debt paid off, but don’t give up. Aside from working with the IRS on your debt you may want to consider other options like taking on an extra part-time job solely for the purposes of paying down your tax debt faster. You certainly don't want to have federal income tax debt or tax lien lingering over your head for years to come.

While there is a statute of limitations on tax debt, the IRS is going to want to collect any monies owed before the time limit expires. You should not count on time running out before you can pay the tax debt because there may be other legal implications that apply here as well.