Isnt it Too Late for That - Understanding the Rules About IRS Tax Collection Limits, SFS Tax, SFS Tax Problem Solutions, clocks, french clocks

Isn’t It Too Late for That? Understanding the Rules About IRS Tax Collection Limits

There are all sorts of misconceptions about the IRS. One of the bigger ones is regarding collection (and other) time limits.

Most people think the IRS has just 10 years to collect its tax debt from you. In most cases, that’s true, but there is much confusion about when that 10 years starts and ends. And (of course) there are exceptions to that 10-year rule as well.

Lest you be lulled into a false sense of security, here are the current rules on IRS collection time limits.

Three Years to Claim a Refund

You have the following amount of time to claim a refund with the IRS:

  • You have three years from the date you originally filed your tax return to claim a refund OR
  • Within two years from the date you paid the tax, whichever is later

Naturally, the limit on receiving a refund is the shortest time limitation the IRS has.

It’s a good idea to enlist the help of an Enrolled Agent to review your return. Why? Because you may not know all the deductions you can take.

Many times we’ve found errors or unclaimed deductions while reviewing tax returns. This applies whether individuals filed them on their own or with another preparer. Sometimes those errors and omissions could have turned a debt into a refund, or a small refund into a larger one.

You aren’t stuck with the return you originally filed, either.

As long as the time limit has not been reached, you can file an amended return and get the refund you are entitled to.

Isnt it Too Late for that - Understanding the Rules About IRS Tax Collection Limits, SFS Tax, SFS Tax Problem Solutions, gold watch, beach, world map

Three to Six Years (or Forever) to be Audited

Sound a little nebulous? We thought so.

Here’s a breakdown of the IRS time limits on audits:

  • The IRS has three years from the date you filed your tax return to begin an audit, UNLESS
  • You omitted over 25% of your income, capital gains and other forms of income. In that case, the IRS time limit is six years; OR
  • You omitted over $5,000 in foreign income – interest and gains included. If this is true, the IRS has six years to conduct an audit, AND
  • There is a precedent for a 30-year audit in a case where a business owner was held responsible for payroll tax penalties, AND
  • If you don’t file a return, there is no time limit on audits AND
  • There is also no time limit if you do not file certain tax forms, such as a Form 5471 for a controlled foreign corporation

Ten Years to Collect

The IRS generally has 10 years to collect a tax debt – from the time the debt was assessed.

Didn’t file a return? No tax has been assessed yet. (Now the IRS can use the information it has on hand about you to file a return and then assess tax on that return).

How do you figure out, then, on what date was the tax assessed?

Look at the first notice you receive from the IRS. The date on that notice is when the clock starts ticking.

Again, if you don’t file, the clock never starts ticking.

Therefore, not filing and hiding under a rock for 10 years isn’t going to help you.

Here are more exceptions to this ten-year collection period:

  • It can be extended if you agree to do so.

If you enter into an installment agreement, for example, you will most likely have to sign a waiver of the 10-year collection limit. This extension is limited to six years, however.

  • The IRS can sue to extend the deadline.

This is a rare occurrence, but it is still an option available to the IRS.

  • It can drag on for more than 10 years if the collection period is temporarily suspended.

For example, you are in a disaster area (this happens more in Florida than you would think). During that time, the IRS may suspend its collection activity toward you. Don’t worry, though. They’ll be sure to pick it up again once that designation is lifted.

Other events that could cause a temporary suspension of the collection period are:

  • Bankruptcy
  • Submitting an installment agreement
  • Submitting an offer in compromise
  • A request for innocent spouse relief
  • If you live outside of U.S. borders for six months or more

Isnt it Too Late for That - Understanding the Rules About IRS Tax Collection Limits, SFS Tax, SFS Tax Problem Solutions, hourglass, antiques, clocks, timeThe Best Defense is a Good Offense

Filing (and paying) your taxes correctly, on time, is the best defense against an audit and/or IRS collection activity.

If you are unable to pay your tax debt in full when it’s due, there are options to take so that you remain in good standing with the IRS.

Remember that an Enrolled Agent can analyze your returns to see if you are entitled to a refund. He or she can also advise you of the best course of action should you have to deal with the IRS.

It’s always better to have the right information and the best advice when it comes to the IRS!

It’s always better to have the right information and the best advice when it comes to the IRS!

Jeffrey Schneider, EA, CTRS, NTPI Fellow has the knowledge and expertise to help you reach a favorable outcome with the IRS. He is the head honcho at SFS Tax & Accounting Services as well as the Enrolled Agent and Certified Tax Resolution Specialist for SFS Tax Problem Solutions.
Now What? I Got A Tax Notice From The IRS. Help! Defining and deconstructing the scary and confusing letters that land in your mailbox. Jeff defines and deconstructs the scary and confusing letters in a fashion that mixes attention to detail with humor and an intricate clarification of what is what in the world of the IRS.

The book is available in paperback and ebook on
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Phone: 772-337-1040