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Ever received a notice from the IRS about a tax debt from years ago? It’s a common worry for many taxpayers. You might think, “Can they really come after me for something that old?” The good news is that the statute of limitations on taxes can protect you.
Understanding the statute of limitations and your options for dealing with IRS collections can be complex, but it doesn’t have to be overwhelming. This blog post explains the basics of the statute of limitations, including when it applies and what you need to know to protect your rights as a taxpayer. And if you need legal guidance, our tax debt attorney is ready to help.
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The Statute of Limitations: A Taxpayer’s Shield
The IRS has a time limit within which to take action to collect taxes. Generally, the standard statute of limitations for IRS tax assessments is three years. This means the IRS usually has three years from the date you filed your tax return (or the tax deadline, whichever is later) to assess any taxes you may owe.
For example, if you filed your 2020 tax return on April 15, 2021, the IRS would have until April 15, 2024, to assess any additional tax liability for that year. After that date, the statute of limitations would expire, and the IRS generally couldn’t come after you for additional taxes from that tax year.
If the IRS completes your tax assessment within the allotted three years, it then has 10 years to collect the taxes you owe. This period is referred to by the IRS as the Collection Statute Expiration Date (CSED).
Exceptions to the Rule: When the IRS Gets More Time
While the three-year statute of limitations is a helpful safeguard, there are some important exceptions to the rule. These exceptions allow the IRS to extend the time they have to collect taxes. Here are some key scenarios:
Significant Errors or Omissions
If you made a major error on your tax return, such as failing to report all of your income or claiming deductions you weren’t entitled to, the IRS can have more time to assess your tax liability. This is because they need to investigate the error and determine the correct amount of taxes owed.
Fraudulent Returns
If the IRS determines that you filed a fraudulent tax return, the statute of limitations can be unlimited. This means the IRS could come after you for taxes from any year, regardless of how long ago the tax debt was incurred.
No Return Filed
If you didn’t file a tax return at all, the IRS has no time limit to assess your tax liability. This means the IRS can pursue taxes for any tax year for which you failed to file a return, even if it was decades ago. The statute of limitations for assessment does not begin until a return is filed.
It’s crucial to understand that failing to file a tax return does not make your tax liability disappear. The IRS can still pursue you for taxes, penalties, and interest, regardless of how long ago the tax year occurred.
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Contact our tax law firm in Washington, D.C., to find out about your legal options and whether you are eligible for relief programs like an offer in compromise, installment agreements, or currently not collectible status.
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Knowing Your Deadline: How to Calculate Your Statute of Limitations
While the basic calculation of the statute of limitations seems straightforward, it’s important to understand that it’s not always simple. The statute of limitations can be tolled, or “paused,” under various circumstances, extending the time the IRS has to assess and collect taxes.
Here’s a breakdown of how to determine the statute of limitations, keeping in mind the potential for tolling:
- Identify the tax year in question: For example, if you’re concerned about your 2021 taxes, the tax year in question is 2021.
- Find the filing deadline for that tax year: The filing deadline for most tax years is April 15th.
- Determine the date you actually filed your tax return: If you filed an extension, use the extended filing deadline.
- Add three years to the later date (from step 2 or 3): This is the initial statute of limitations expiration date for assessment.
However, the statute of limitations can be tolled (paused) under various circumstances, including:
- Collection due process hearing: If you dispute the IRS’s proposed collection action, the statute of limitations is tolled while the hearing is pending.
- Currently not collectible (CNC) status: If you’re granted CNC status, the IRS can’t pursue collection while your financial situation is deemed to make collection impossible. The statute of limitations is paused during this period.
- Offer in compromise (OIC) consideration: When you apply for an OIC, the statute of limitations is paused during the OIC process.
- Form 872 during an examination: Signing a Form 872 during an IRS examination extends the statute of limitations.
- Bankruptcy filing: The statute of limitations is paused while you’re in bankruptcy proceedings.
- Living outside the U.S.: The statute of limitations can be tolled if you’re living outside the U.S. for an extended period.
- Amended return filing: Filing an amended return can reset the statute of limitations, giving the IRS additional time to examine your return and make adjustments.
- Installment agreement: Entering into an installment agreement with the IRS to pay off your taxes can also pause the statute of limitations.
Keep detailed records and copies of your tax returns. This will help you determine the statute of limitations expiration date, but keep in mind that the IRS can still pursue collection even after the initial three-year period if any of the tolling circumstances mentioned above apply.
For a more accurate assessment of the statute of limitations in your specific case, seeking guidance from a tax attorney is strongly recommended. They can help you understand how these tolling periods apply to your situation and ensure you are protected.
Relief at Last? Understanding the Impact of the Statute of Limitations
When the statute of limitations expires, the IRS can no longer assess new taxes or collect on unassessed debts from that tax year. But it’s important to note that the IRS can still pursue penalties for underpayment or failure to file.
For example, they can still impose penalties if you didn’t file your tax return on time or if you didn’t pay all of the taxes you owed, even if the statute of limitations has expired.
FAQ: Statute of Limitations on Taxes
What if I owe taxes in Washington, D.C.? Is there a different statute of limitations?
The general rules for the statute of limitations on taxes apply in Washington, D.C. The Office of Tax and Revenue has three years after the return was filed to assess taxes.
What if I received a notice from the IRS after the statute of limitations expired?
If you receive a notice from the IRS after the statute of limitations has expired, it’s important to respond promptly and correctly. You can challenge the notice and potentially avoid paying the debt. However, it’s important to seek legal advice to ensure you are protected.
If the IRS can’t assess or collect on old taxes, can they still pursue penalties?
Yes, the IRS can still pursue penalties for underpayment or failure to file, even if the statute of limitations for the tax year has expired. This is because the statute of limitations primarily limits the IRS’s ability to assess new taxes or collect on unassessed debts. It doesn’t affect their ability to impose penalties related to your tax filing or payment obligations.
For example, if you didn’t file your tax return on time or if you didn’t pay all of the taxes you owed, the IRS can still impose penalties for those actions, even if the statute of limitations has expired for that specific tax year.
If I owe taxes, can I just wait until the statute of limitations expires?
It’s important to understand that the statute of limitations is a legal protection, not an excuse to ignore your tax obligations. While it’s true that the IRS generally has a limited time to assess and collect taxes, it’s best to address your tax liabilities promptly and work with the IRS to resolve them.
Here’s why waiting isn’t a good strategy:
- The IRS is persistent: The IRS is highly unlikely to let you “run down the clock” on the statute of limitations without taking action. They have a wide range of collection tools at their disposal, including levies, liens, and even wage garnishment.
- Penalties can accumulate: Even if the IRS can’t assess new taxes or collect on old debts after the statute of limitations expires, they can still pursue penalties for underpayment or failure to file. These penalties can add up quickly, making your tax debt even larger.
- Stress and uncertainty: Ignoring your tax debt can cause significant stress and uncertainty. It’s much better to take control of the situation and work with the IRS to find a resolution.
If you’re facing tax debt, the best course of action is to contact the IRS and explore your options. You may be eligible for a payment plan, an offer in compromise, or other relief programs. A qualified tax attorney can guide you through the process and help you negotiate the best possible outcome.
Get Help from a Tax Attorney
Navigating the statute of limitations on taxes can be tricky. It’s essential to understand the rules and how they apply to your specific situation. If you have any concerns about the statute of limitations or any tax liability, it’s crucial to reach out to a tax attorney who is licensed to practice in the District of Columbia.
At Tax Relief Counsel, we can provide guidance, answer your questions, and help you protect your rights as a taxpayer. Don’t wait until it’s too late to seek help. Schedule a no-obligation consultation with a qualified tax attorney in Washington, D.C., today.
