Do Past Due Federal Taxes Ever Expire?

Is it possible to wait out the Internal Revenue Service if you owe taxes? Will the IRS eventually forget about you and just go away? It's possible but it's not likely, and trying could just cause further complications.

Voluntary Tax Compliance

The U.S. tax code is something of an honor system. The federal government even has a name for it – voluntary tax compliance. It’s expected that taxpayers will do what they’re supposed to do when they’re supposed to do it: Prepare and file their tax returns, honestly report their income and deductions, then promptly pay any taxes that are due.

But the IRS has to toe the line with certain rules as well. The Internal Revenue Code sets out a series of statutes of limitations, deadlines by which the IRS must question or audit tax returns and assess taxes, and when they must stop trying to collect on tax debts. Technically, an IRS statute of limitations is a window of time that allows the agency to act in one respect or another. If it doesn’t, it legally runs out of time to do so. That’s simple enough on the surface, but the IRS is subject to more than one tax statute of limitations, and exceptions to the usual rules abound.

Understanding Statute of Limitations

The first statute of limitations gives the IRS three years to get around to auditing a tax return, but it has a little wiggle room. This is by no means an ironclad rule. The clock generally begins ticking on the due date for filing a return, not the date you actually file it. That’s usually April 15 for personal returns. So if you file your tax return on Feb. 15, the IRS actually has 38 months after your filing to audit it – until April 15 three years later.

But if you request an extension to file your return, that’s the starting date. An extension normally moves your due date to Oct. 15. So if you request an extension but don’t end up needing it so you go ahead and file in February, you’ve actually given the IRS an additional six months after receiving it to get around to auditing it.

An exception exists if you file your tax return late without asking for an extension of time to file. In this case, the clock starts running on your actual filing date.

You probably don’t want to skip filing a return at all so you don’t have to deal with a potential problem. In this case, there’s no statute of limitations. The clock never starts running and there’s no deadline as to when the IRS can reach out to you to ask where that missing tax return is or to question income you might have earned that year. The same applies if you don’t sign your tax return. The IRS says this is the same as not filing one at all so it has forever to question you about it.

Assessing Taxes Due Deadlines

The statute for assessing any taxes you might owe is three years as well, but with one additional wrinkle. Assessing a tax debt means that the IRS has effectively approved and accepted your tax return. In most cases, that’s the date you file. The IRS effectively accepts what you’re saying you owe and it puts that amount on your tax bill. If you make a payment with your return, that could be the end of it.

But sometimes the IRS will take a look at a tax return and determine that you actually owe more money than you calculated. The IRS will then assess the additional tax, usually by sending a notice.

Assessment has its own statute of limitations. If you file your tax return on Feb. 15 and the IRS immediately accepts it, the government has three years from that date to charge you additional taxes on that particular return. This coincides with the three-year rule for audits. This rule is known as the assessment statute expiration date. So far, so good. But if you owed taxes on that return and you wrote the IRS a check for that balance a month later, the IRS now has two years from that date to assess additional taxes, unless the three-year statute expiration is later. In this case, the law gives the IRS until the latter of these two dates. So if you're considering waiting until the three years is almost up to write that check, you might want to think again. You'll be giving the IRS two more years after that date.

More Exceptions to the Usual Rules

Those three years for audits and assessments can double to six years for a variety of reasons.

Did you make a really significant goof on calculating the total amount of income you reported on your return? If you were more than 25 percent off – you reported $55,000 in income when, in fact, you had $75,000 income – this gives the IRS an additional three years beyond the first three to get to the bottom of the situation.

This rule doesn’t just apply to ordinary income, either. It applies to capital gains as well, if you misjudge or miscalculate your basis in an asset that you later sell for a profit. Your basis is how much you paid for the asset plus certain allowable expenses incurred in selling or maintaining it during your period of ownership. Subtract this amount from the selling price of your asset. If it’s a positive number, you have a capital gain. The higher your basis, the less likely it is that you’ll have a significant gain or any taxable gain at all. Thus, the tax code applies the 25-percent rule to basis overstatements as well, effective July 31, 2015.

If you neglected to report foreign income, the 25-percent rule is thrown out the window. The three years jumps to six if you omitted more than just $5,000.

But if you overstated your tax deductions or claimed tax credits to which you weren’t actually entitled, the tax code is actually more forgiving. The IRS only has the original three-year deadline in this case. The flipside to this is when the IRS suspects an individual of civil tax fraud. In this case, there’s no statute of limitations at all. The IRS can pursue the taxpayer forever.

Extending the Statute of Limitations

There are also a number of ways in which any of the statutes might be extended. Maybe the clock is winding down on that original three years the IRS has to audit your return or to assess additional taxes due. You can rest assured that the IRS knows it’s just about out of time if it discovers a problem with your return at the last minute. If the government doesn’t think it has enough time left to resolve issues with you, it will probably request an extension of the statute of limitations from you. That’s right. It doesn’t have to ask the federal government for more time, but you have to agree to the extension. This puts you in the power seat, to some extent, because you can say you’ll only agree to a determined number of months or years – the extension doesn’t have to go on indefinitely until the IRS feels that it’s resolved the matter.

Statutes can sometimes be tolled as well, which means the clock stops ticking for a while for one reason or another. If it’s tolled for six months in the middle of that three-year period, your statute of limitation increases to three years and six months. This can happen when the IRS issues something called a John Doe summons. The summons is sent to a business such as a credit card company or tax preparation service, demanding records on all its clients because it suspects something is amiss. The summons doesn’t single out one single taxpayer and, in fact, the taxpayers involved might not even be aware that all this is happening. The statute will be tolled until the business gets around to providing the documents in question, at which point the clock begins running again.

The statute of limitations also stops if you leave the country, at least until you return again. It doesn’t matter if you leave in an effort to stay off American soil until the statute ticks down and you’re theoretically safe or if you take a legitimate job offer overseas so you never receive notification that there’s a problem. The statute pauses until you come home – or until you’re brought home.

Understanding Tax Debt Expirations

A whole different statute of limitations exists if your tax return is perfectly okay – it’s accurate, it’s correct and the IRS has no problem with it. It accepts your return right out of the starting gate, but you owe a lot of money that you just can’t come up with.

Does tax debt expire? Sometimes, eventually. This situation is subject to a 10-year statute. It begins running at the time your tax is assessed, which is when the IRS accepts your return and logs that unpaid tax debt onto your tax account. But it could be years later if you were subject to an audit to determine exactly how much in tax was assessed. In this case, the statute won’t start running until that happens.

This is known as the collection statute expiration date. When the collection statute expiration date arrives, the IRS loses any ability to take you to court to try to collect what you owe. So does the debt expire? Not technically. It still exists, but the IRS can’t do anything about it any longer. You can usually expect the government to ramp up its efforts to collect large tax debts as this 10-year deadline begins to loom for just that reason.

And the collection statute expiration date can be tolled as well. It can happen if you file for bankruptcy protection or if you leave the country for six consecutive months. It can even happen if you serve in the military and you’re deployed. The suspension period for deployment is the term of your service plus 270 days. The collection statute expiration date will also be tolled if you enter into a payment arrangement with the IRS or if you instigate a dispute regarding how much you actually owe. And, as in the case of audits, there’s no statute at all if you’re found guilty of tax fraud.

Understanding Tax Refund Expirations

All these statutes of limitations relate to something being wrong with your tax return or your ability to pay any taxes due. But there’s also a statute for refunds.

Maybe you realize as you’re preparing your tax return this year that you made a mistake last year. Amending your return and correcting the mistake will result in a tax refund. Or maybe you neglected to file a tax return at all but now you realize that the IRS will send you money if you do.

A two-year deadline can apply in this scenario if your refund is the result of overpaid estimated taxes or too much tax withholding from your paychecks. You might only have two years to file a tax return or to file an amended tax return that results in a refund – two years from the last date the tax was actually paid or three years from the date when you filed the return, whichever is later. If you wait any longer, the IRS gets to keep the money.

About the Author

Beverly Bird has been writing professionally for over 30 years. She specializes in personal finance, divorce and family law, bankruptcy, and estate law, and she writes as the tax expert for The Balance. She is the author of more than 30 novels.


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