IRS Tax Debt Statute of Limitations Exceptions

Where there’s a rule, there’s an exception. And that even applies to the IRS when it comes to collecting back tax debt. That even includes the tax debt statute of limitations. There’s always exceptions to the rule, even with tax debt.

Typically, the IRS has ten years to collect bad tax debt accrued by a taxpayer or business. A full decade is plenty of opportunity for an IRS agent to get a wage garnishment, bank levy, or tax lien on your paycheck, bank account or home.  But sometimes that 10-year statute of limitations can be postponed if a tax debtor makes certain moves. If you’re nearing the ten-year mark, you might want to rethink some of these events that can suspend the statute of limitations period. Here’s a few.

Tax Debt Statute of Limitation Exceptions

Offer in Compromise

The Offer in Compromise (OIC) is the IRS’s back tax debt settlement program. It’s a bit more complicated than making a simple settlement offer, can take months or even years to finalize, and are pursued by those with major back tax debt – typically more than $25,000.

If you try to obtain an Offer in Compromise with the IRS, the 10-year statute of limitation will be tolled. Because the process can last anywhere from a few months to a couple years, it’s a big factor in deciding whether to pursue an OIC.

Does the tax debt statute of limitations apply to living outside the U.S.?

If the back tax debt is from a taxpayer, his or her living outside the US for more than six months will suspend the statute of limitations. Upon your return, the government gets an additional six months to collect.

Bankruptcy cases

If your back tax debt case goes to bankruptcy, the statute of limitations will be suspended. That’s because the IRS is unable to collect while the tax debt issue is in litigation. The statute will be suspended for not only the period in which the case is active, but for an extra six months after the case is resolved.

Installment plans

If a taxpayer requests an installment plan, that’ll also extend the statute of limitations. It’ll be extended for the time it takes for the IRS to consider and decide the taxpayer’s installment plan offer.

Tax appeals

If you try to appeal your tax ruling that was made in US Tax Court, that’ll pause the statute of limitations. It’ll be paused the entire time the case was heard in tax court. It will remain paused until a final ruling is made by an appeals court. If you’re able to hire a tax attorney, then this will be a beneficial result if your case goes to tax court.

Keep the Tax Debt Statute of Limitations in Mind

The statute of limitations for the IRS’s collection efforts is certainly a long ten years. But certain tax moves can make it run even longer.

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