Section 6502 of the Internal Revenue Code states that the duration of the collection period after the evaluation of a tax liability is 10 years. The expiration of the collection law ends the government's right to request the collection of liability. In general, the IRS has 10 years after the evaluation date to collect back taxes and tax-related fees, although there are some exceptions. This 10-year limit is known as the expiration date of the Collection Act (CSED) and frees tens of thousands of Americans from their tax obligations every year.
The Internal Revenue Service (IRS) has audited you and it has been determined that you owe money to the government. So, you may be thinking that you are now in trouble for good. However, that's not exactly the case. Although the IRS doesn't share it widely, every IRS audit tax debt has an expiration date of the collection statute (CSED).
Generally speaking, the IRS has 10 years to collect an unpaid tax debt, after which the debt is eliminated. Towards the end of the CSED, the IRS tends to be more aggressive in its collection efforts, hoping that the taxpayer will pay as much as possible before the deadline or agree to extend it. The date of your CSED may exceed 10 years from the initial evaluation if the IRS has to suspend collections at any time, which can happen if the IRS is not legally authorized to initiate collection actions against you for any reason. In addition, if the collection law is about to expire, the IRS can also sue you in federal court to obtain a judgment against you, which has its own expiration limits.
The following examples will help you understand how the prescribed periods for ASED and CSED are calculated. The statute of limitations begins on the day the IRS “officially evaluates the tax on its tax return,” that is, it includes the taxes due in the books. The IRS is known to pressure taxpayers to accept these terms, especially as the ten-year statute of limitations approaches. For example, after you file for bankruptcy, it can take up to 6 months before the deadline is restored.
If you're currently struggling with a tax debt, your taxes may be close to statute of limitations, and if not, you may want to work with a tax lawyer to get a long-term tax plan that will allow you to reach that date. When the standard 10-year statute of limitations is nearly over, the IRS often offers attractive installment agreements for taxpayers to voluntarily extend the deadline, especially if the taxpayer still owes a substantial amount. Other examples include the period during which the IRS considers installment agreements, commitment offers, and help for innocent spouses. In addition, if you have tried to hide your income or have filed a fraudulent tax return, the statute of limitations does not apply to the attempt to collect the balance due by the IRS.
After this 10-year period or statute of limitations has expired, the IRS can no longer attempt to collect the balance due by the IRS. Fortunately, legislators considered this practice illegal in 1998, but the IRS is still finding creative ways to get taxpayers to extend the statute of limitations. More information on this 3-year limitation period can be found in the Internal Revenue Code (IRC), specifically in IRC § 6501 (a).
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