Does the IRS Forgive Tax Debt After 10 Years?
If you owe the IRS back taxes, you may be wondering if the IRS forgives tax debt. There are several options here, so we will be looking at the best path forward for you.
In this article, we’re looking at a common question we hear from people – does the IRS forgive tax debt after 10 years.
Does the IRS Forgive Tax Debt After 10 Years?
Under certain circumstances, the IRS will forgive tax debt after 10 years. But that 10 year period may be longer than you expect, given lengthy suspensions, the IRS’s date of tax assessment versus your last return, and whether or not you have been keeping up to date with your tax returns since the debt period began.
Furthermore, certain actions and agreements may require signing a waiver that dictates that the IRS can extend the limitations period, meaning that the 10-year period may not necessarily be absolute.
If you have been struggling under tax debt for a considerable period of time and believe that you may be nearing the end of your collection period, it may be in your best interest to contact a tax professional and reasonably explore your options.
So, does the IRS forgive tax debt after 10 years?
Time Limits on the IRS Collection Process
Put simply, the statute of limitations on federal tax debt is 10 years from the date of tax assessment. This means the IRS should forgive tax debt after 10 years. However, there are a few things to consider.
The date of tax assessment is the date you will find on the document serving as your Notice of Deficiency, and it is the date on which the IRS agent who first discovered your debt filed the appropriate form. It is not the date of when you sent your last tax return or made the last payment for that year.
If you find that you cannot pay your taxes and simply don’t file, the IRS will use existing information (such as a previous return and information returns from employers and businesses) to file an approximate substitute return in your name – without any of the applicable deductions that you would typically take advantage of.
Once you receive a Notice of Deficiency (a bill for your outstanding balance with the IRS), and fail to act on it, the IRS will begin its collection process. For every month that your balance remains due, your debt grows through failure-to-pay penalties and a flat interest rate.
The two strongest weapons at the IRS’s disposal for coercing payment for tax debts past a certain limit are the federal tax lien, and eventually, levies on your accounts, wages, and certain property.
Throughout the collection process, the IRS will stress that you can halt levies or withdraw a lien by getting into contact with them and beginning a payment plan, or negotiating an Offer in Compromise (OIC) if you cannot afford to pay off your debt within a reasonable time frame and have the means to prove it.
Alternatively, if you are in deep financial trouble, you can file as Currently Not Collectible (CNC), and pause any collection efforts until your income reaches a point where you can potentially begin to make debt payments.
Figuring Out Your Collection Statute Expiration Date (CSED)
Whenever the IRS cannot currently collect any payments from you – and whenever you are in contact with the IRS and waiting for them to deliberate your offer for a payment plan, or OIC – the 10-year timer on your tax debt is halted. This includes filing for bankruptcy, as the IRS is legally barred to collect payments from you during this period.
Depending on your communications with the IRS over the last few years, as well as your financial situation and other potential actions that may suspend the 10-year timer, your Collection Statute Expiration Date (CSED) may be further than you would originally anticipate.
It typically isn’t as simple as figuring out your tax assessment date from the original Notice of Deficiency, and then just adding ten years to the date. Bankruptcy proceedings alone can take a year, and after that, the IRS waits an additional six months after the proceedings have ended to begin their collection efforts (and, consequentially, the collection timer). Some of the other things that may stop the clock include:
- Being outside of the US for more than six months.
- Filing a lawsuit against the IRS.
- Military deferment.
- Any proceedings that cause your assets to be held in court custody (litigation, divorce proceedings, etc.)
To summarize, whenever the IRS cannot pursue you for payments, it stops counting down on the time limit for your debt. Exactly how much time each of these issues adds to the clock on your CSED is variable. And this is before counting any agreements wherein you might have allowed the IRS to extend its collection period.
What About State Taxes?
While there is a statute of limitations on a federal tax debt, states are not required to offer the same kind of relief. Furthermore, state tax agencies do not necessarily have their own Taxpayer Bill of Rights and may pursue state tax debt more aggressively than the IRS does.
If you owe substantial state taxes, your situation may look quite different from that of a taxpayer owing the IRS. It’s important to consult tax professionals in your state and figure out what your options are for debt relief as soon as possible.
For tax debt with the IRS, it is usually not reasonable to assume that you can simply let your CSED pass by. But that doesn’t mean it doesn’t happen. The IRS may ramp up efforts to collect or make suggestions for increasingly favorable deals – but only if you agree to extend the collection period considerably.
If you have had a tax debt with the IRS for many years due to some unfortunate circumstances, a costly accident, or financial troubles during the early years of the recession, then you may be looking at a potential expiration date for your debt, provided you kept (and continue to keep) meticulous track of your communications with the IRS, and don’t have the means to pay them back at the moment.
It is strongly advised that you coordinate with tax professionals who have experience in helping people negotiate tax debt relief with the IRS, as they may be able to best advise you on exactly when your CSED is likely to be given your history, and whether you should make contact with the IRS given your current circumstances and position, or potentially wait it out.