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Understanding Statute of Limitations on IRS Debt

  Sanjiv Gupta CPA  Published 
Understanding Statute of Limitations on IRS Debt

As a rule, anyone who owes back taxes stands the risk of falling into heavy debt as the taxes accrue both interest and penalties for the duration that they remain unpaid. This, in essence, means that the longer you keep skipping payment of the taxes due, the more you are likely to pay when the IRS eventually catches up with you. That is the general length and breadth of the situation. However, the IRS only has 10 years within which it is required to collect the taxes due to it. The counting of these 10 years is supposed to start from the date that your tax bill is finalized until the end of the tenth year. As such, beginning the date upon which your tax bill is finalized and it is agreed that you have tax arrears, then the 10-year window is opened and the countdown begins. It is also important to note that in cases where you did not file a proper tax return, then the IRS will go ahead and make a tax return of their own based on their assessment. The result is that the statute of limitations will be set by them depending on when they would prefer it to. As such, for all intents and purposes, it serves you best to file a tax return on your own, if not to avoid the penalties and interests, then to avoid being slapped with a huge tax bill that has been set by the taxman.

The date upon which the statute of limitations expires is very important especially to those persons who are in the process of sorting out their tax mess. To start with, if the Collection Statute Expiration Date, which is an acronym as CSED, is near, then you are normally advised not to do anything that would lead to the extension of such a deadline. This will only work against you as the IRS may opt to start off aggressive actions that are aimed towards the collection of the whole tax debt in full. If for instance, you sign a waiver of the expiry, then you are by all means allowing the IRS more time to come after you for the remainder of the tax debt. However, if the Collection Statute Expiration Date expires and you have not completed the payments, then it is not required of you by law to complete such payments to the IRS.

Extensions to the Collection Statute Expiration Date may be given in special circumstances that include: if you chose to solve your tax debt by filing for bankruptcy, if you left the country for an extended period of time or if your tax assessment was completed after you have been convicted of a tax fraud case. In fact, in these situations, your tax debt never expires until such a moment that you actually complete the balance in full. Taxation issues affect virtually everyone at one point in their lives, it is therefore important that you know how the law operates and how you can find some wiggle room.