Even after you file your taxes, the IRS may determine that you owe additional money. However, it only has a limited window of time to assess or collect what you owe. This time limit is known as the IRS statute of limitations.
So how far back can the IRS actually go to collect unpaid taxes? Here’s what you need to know about how the statute of limitations works, when it applies, and why it matters.
IRS Statute of Limitations: The Three Clocks
In regard to the IRS’s statute of limitations on taxes, there are three different “clocks” that apply:
Assessment Statute Expiration Date (ASED)
Sometimes, the IRS will find out that you owe more taxes after you file. When they determine that you need to pay more, it’s called “assessing” tax.
How long does the IRS have to audit/assess additional tax? The statute of limitations for assessing tax is three years from the later of these two periods:
- The date your return was due
- The date you actually filed your return
Fortunately, having the IRS assess more taxes is fairly rare. If you do owe more, you’ll get a letter in the mail.
Collection Statute Expiration Date (CSED)
Is there a statute of limitations on taxes owed to the IRS? The law limits how long the IRS has to assess tax, but it also limits how long it has to collect it.
You may wonder: how long can the IRS collect back taxes, and what pauses it? In most cases, the agency has 10 years from the date of the tax assessment to collect it.
There are many situations that can “toll,” or pause, the CSED, such as:
- Requesting an installment agreement
- Making an Offer in Compromise (OIC)
- Declaring bankruptcy
- Scheduling a Collection Due Process (CDP) hearing
Let’s say you file your taxes and owe $10,000. You can’t pay it right now, so you ask for an installment agreement. The IRS approves your request, and you make payments for five years. Then, you suddenly stop, and the agreement is terminated.
In this case, the IRS will have 10 years after the termination to collect. That’s because the IRS statute of limitations on collections paused when you requested a payment plan.
Refund Statute Expiration Date (RSED)
The IRS statute of limitations doesn’t just limit the actions the IRS can take. It also limits how long you have to claim a credit or refund.
If you didn’t claim a tax refund last year, you might be asking, “how long do I have to claim an IRS refund for a prior year?” Typically, the IRS statute of limitations for refunds is the later of the following:
- Three years from the date you filed your return
- Two years from the date you paid the taxes due
There are a handful of exceptions that can give you more time to claim credits or refunds. For example, if you’re fighting in a combat zone or are in an area impacted by a natural disaster, you may have a larger window.
Do Back-Owed Taxes Ever Go Away?
Many people who have back taxes hope they can just run out the clock. However, doing this is a lot harder than it sounds.
The IRS doesn’t offer forgiveness programs to wipe out tax debt. And if you try to wait out the 10-year statute of limitations, the agency could take forcible collection actions, such as:
- Putting a levy on your wages or bank account
- Putting a tax lien on your house
- Seizing your vehicle or other property
- Applying any future refunds to your debt
If you owe a significant amount of money, the IRS can even revoke your passport.
If you have back taxes you can’t pay, it’s best to get in touch with the IRS to discuss setting up a payment plan or making an Offer in Compromise.
If You Never Filed a Return, Does the Statute of Limitations Still Apply?
The statutes of limitation outlined here can be determined by counting the years after filing. But is there an IRS statute of limitations on unfiled tax returns?
Unfortunately, no. There are a few exceptions to the statute of limitations, and unfiled taxes are one of them. There’s no statute of limitations on assessing or collecting taxes on unfiled returns.
Here are a few other situations where there’s no statute of limitations:
- If you file a fraudulent return
- If the IRS files a Substitute for Return (SFR) for you
- If you don’t report foreign assets or gifts
Some situations extend the statute of limitations. For instance, if you understate your income by more than 25%, the IRS has six years (instead of the usual three) to collect or assess tax.
What if You Make a Mistake on Your Return?
You may have heard of people going to jail for tax mistakes. Taxes are complicated, so you might understandably worry about the same thing happening to you.
Fortunately, the IRS considers your intent. That means someone who makes an honest mistake could owe a small penalty or more interest, while someone who takes willful steps to avoid paying taxes is committing a crime. The IRS may assess fines, and in some cases, people who try to avoid taxes may go to prison.
If you’re confused by the tax-filing process or you have a complex tax situation, it’s often wise to seek the help of a professional.
The Importance of Understanding the Tax Statute of Limitations
When you’re dealing with the IRS, it’s important to know your rights. Compared to other creditors, the IRS has increased authority to collect debts. Understanding the IRS statute of limitations and following the law can save you time, money, and stress.
