Does The IRS Forgive Tax Debt After 10 Years? (Statute Of Limitations Rules)
When it comes to taxes, the rules can get confusing fast. One tax rule that confuses many taxpayers is the statute of limitations for debt. Many wonder if the IRS has to forgive tax debt after a certain amount of time has passed. And, if so, how does one erase tax debt?
The short answer? Yes, it’s possible you don’t have to pay off back taxes after 10 years have passed. But it’s more complicated than a simple yes or no question.
The IRS offers many opportunities for tax relief, such as the Fresh Start Program. Think of the tax debt statute of limitations as another form of tax relief. And, just like the Fresh Start Program, it has specific rules and qualifications.
Before we lay out how to get the IRS to forgive your tax debt, let’s go through a few important definitions.
What Is Tax Debt?
Tax debt is the money you owe to the IRS. Another word for tax debt is back taxes. This debt often comes from tax returns, penalties, and interest.
Essentially, the government decided that you haven’t paid the amount of taxes you were obliged to pay. Remember that you’re only required to pay the least amount of taxes possible. Tax credits and tax advantages are all incentives for Americans to get a discount on taxes.
If you were involved in a tax audit, then your tax debt could have come from there.
What Is A Statute Of Limitations?
A statute of limitations is a law that regulates how long parties have to settle a dispute.
In regards to back taxes, the IRS only has a certain amount of time to collect your tax debt. Otherwise, it will be forgiven after 10 years.
Once the 10 years pass (with exceptions), you’ll be off the hook for the back taxes you used to owe.
Finally, if you attempt to conceal your income or file a fraudulent return, the statute of limitations won’t apply to you. The IRS will be able to collect your tax debt, no matter how much time has passed.
What’s A Collection Statute Expiration Date (CSED)?
A CSED is the date the statute of limitations expires. This period is exactly 10 years, though there are a few exceptions.
Knowing your CSED is vital because there are some actions you can take that will start the statute of limitations over or delay it.
How Does Tax Debt Accumulate?
When someone doesn’t pay enough taxes for the year (due to the IRS’s calculations), they will owe tax debt.
When tax debt exists, penalties and interest start snowballing. This is why it’s always in your best interest to get your back taxes resolved as soon as possible.
Also, depending on how severe the debt is, the IRS has the authority to take aggressive collection tactics. So imposing federal tax liens, wage garnishments, and asset liquidation are within the IRS’s authority. People in tax debt also have a difficult time securing loans (especially those with a good interest rate).
So, what do you do if you have tax debt that’s growing over time?
How To Clear Your Tax Debt (Can The IRS Forgive Tax Debt?)
The statute of limitations on tax debt is 10 years from the date of assessment. In other words, once 10 years have passed, then your tax debt won’t exist anymore (with some exceptions below).
To be clear, the date of assessment can be one of two things:
- The date taxes were due for that tax return year (around April 15th)
- The date the tax return was actually filed
Whichever one of these dates occurs last is when your date of assessment is. For example, let’s say you only owe tax debt from your 2016’s tax return. But, you didn’t file that year’s tax return in 2016, you filed it exactly 4 years later (in 2020). That means your CSED is in 8 years, not 4 years (in 2026).
Additionally, if you file an amended return, your CSED will restart. Be sure to understand what actions will extend the tax debt statute of limitations below.
One way to clear your tax debt is to wait for the statute of limitations to expire. The IRS can forgive tax debt. But, there’s another option: The Fresh Start Program.
Despite its name, the Fresh Start Program isn’t a program. Rather, it’s an umbrella term for multiple tax resolution programs the IRS offers. Depending on the taxpayer’s ability to pay off their debt (and a few other factors), the IRS calculates your reasonable collection potential (RCP). In other words, how much back taxes you could reasonably pay the IRS.
Popular programs include the offer in compromise (OIC), installment agreements (IAs), and currently non-collectible (CNC).
What Extends the 10 Year Tax Debt Statute Of Limitations?
Besides filing an amended return or a fraudulent return, several things will extend the tax debt statute of limitations.
For example, declaring bankruptcy, applying for an offer in compromise, or being accepted in the CNC program are two actions that can cause the IRS to increase the statute of limitations.
Since this is a tricky subject, check out TaxRise’s free tax consultation today! With this short call from one of our tax experts, you’ll be able to determine the best course of action for your situation. And the best part? It’s completely free with no strings attached.
The Takeaway
Taxes are complicated, but they don’t have to ruin your life. We help advocate on your behalf to the IRS. We save you stress, time, and money.
TaxRise has helped thousands of American taxpayers just like you resolve their tax issues and erase their tax liability.
If you don’t know which tax resolution best suits your needs, check out TaxRise’s free tax consultation. From this quick call, you’ll be able to determine if you qualify for our services and which tax relief program will work best for your unique situation.
