What is Statute of Limitations on Unpaid Taxes?

If you owe back taxes, you already know you’re responsible for paying them. But did you know there’s a legal time limit on how long the Internal Revenue Service (IRS) can collect that debt? This time frame, known as the statute of limitations, isn’t always straightforward—it can pause, extend, or even restart depending on your situation. Understanding how this timeline works can make all the difference in planning your next steps, whether it’s negotiating with the IRS, protecting your assets, or resolving your tax issues for good. In this blog post, we’ll break down what is the statute of limitations on unpaid taxes, its rules, exceptions, and strategies you need to manage unpaid taxes effectively.

Understanding the IRS Statute of Limitations

A statute of limitations is a set time limit under which the IRS can take legal action against or enforce a legal right on someone. To put it simply, it prevents a person from being sued or facing legal action after a long time has passed.

Thus, this law was designed so that individuals do not have to answer to events that happened so long ago that remembering details or gathering evidence would be unreasonable or unfair.

How Does the Statute of Limitations Work with Taxes? 

In the vast majority of cases, the IRS collects your unpaid tax or taxes within a period of 10 years. This 10-year duration is frequently referred to as the Collection Statute Expiration Date (CSED). That time frame is not only applicable to the tax amount you owe but also covers penalties and interest on the tax debt.  The clock starts ticking on this 10-year period when the tax is first assessed against; that is, when the IRS officially determines how much you owe. After ten years, that debt can no longer be collected by the IRS.

Other IRS Statutes of Limitations

Apart from the 10-year limit for tax collection, there are other important IRS collection time limits to know about:

• Tax Assessments: The IRS has three years to assess taxes from the date your tax return is due or the date they receive it if it’s filed late.
• Audits: The IRS can audit your tax return within three years of filing. If you underreport income by more than 25% or commit fraud, the IRS has up to six years.
• Refund Claims: You have up to three years from the original tax filing deadline to claim a refund for taxes you’ve overpaid.

These time limits protect you from having to deal with old tax issues after too much time has passed.

Exceptions to the 10-Year Rule

Now that we know what is the statute of limitations on unpaid taxes, it is equally important to know that you might have more than 10 years to pay if something happens that stops the clock.  Here are the exceptions to tax statute of limitations:

1. Installment Agreement: If you apply for a payment plan, the IRS pauses the deadline while they review your request.
2. Appeal: If you disagree with the IRS decision and appeal it, the deadline is paused during the appeal.
3. Bankruptcy: If you file for bankruptcy, the deadline is paused until the case is over, and it may be extended by six months afterward.
4. Collection Due Process (CDP) Hearing: If you ask for a hearing about your tax situation, the IRS pauses the deadline until they decide. If you appeal, the pause continues.
5. Offer in Compromise (OIC): If you apply for a settlement using IRS offer in compromise for the tax debt, the deadline pauses while the IRS reviews your offer. The pause continues for 30 more days if your offer is rejected or you appeal.
6. Innocent Spouse Relief: If you ask for innocent spouse relief, the deadline pauses until the IRS makes a decision.
7. Military Service or Combat Zones: If you are in a combat zone or serving in the military, the deadline is paused. It is extended for 180 days when you leave the combat zone and 270 days after military service ends.
8. Living Outside the U.S.: If you live outside the U.S. for six months or more, the deadline pauses. When you return, the deadline is extended by at least six months.

Sometimes, the IRS may ask you to sign a waiver to extend the deadline. Make sure to speak with a tax lawyer at Hopkins CPA Firm before agreeing to this.

Additional Things to Know About Tax Debt Collection Deadlines Before using any of the information above for your tax problems, keep these three important things in mind: State Tax Laws: Each state has its own rules for how long they can go after unpaid taxes. These rules can be different from the IRS’s rules, and sometimes the state can take longer to collect. For example, some states have up to 20 years to collect taxes, which is double the time the IRS has. Tax Deadlines for Refunds or Credits: Tax deadlines also apply if you want to claim a refund or tax credit. Normally, you need to file an amended return within two years of paying the tax or three years of filing your original return. No Deadline for Fraud or Missing Returns: In some cases, there’s no time limit for the IRS to take action. If you’ve filed a fraudulent or false tax return or if you never filed a return at all, the IRS can come after you whenever they want.

IRS Collection Actions Within the Time Limit

If you owe back taxes, the IRS has several ways to collect the money you owe before their time limit runs out. Here’s a breakdown of each collection method, explained in simple terms:

Establishing a Federal Tax Lien

A tax lien is a legal claim the IRS places on your property because you haven’t paid your taxes. Think of it like the government putting a hold on your property. You won’t be able to sell it or borrow money against it unless the lien is removed. The IRS will only remove the lien when your tax debt is paid. In some cases, the IRS may allow you to sell the property, but the proceeds from the sale must go directly to paying your tax bill.

Placing a Levy on Your Property

While a lien is just a claim, a levy means the IRS can take your property to pay off your taxes. If the IRS decides to levy your property, they will send you a Notice of Levy (CP504), warning you that they will seize your property, sell it, and use the money to cover your tax debt. The IRS can levy personal belongings like cars, boats, or real estate. They can also garnish your wages, retirement income, or social security, or take money from your bank account to collect the taxes you owe.

Offsetting a Federal Income Tax Return

If you owe back taxes and are expecting a tax refund, you might be disappointed. The IRS won’t send you any refund money if you still owe them money. Instead, they will take the refund and use it to pay down your tax debt. So, if you have unpaid taxes from previous years, the IRS will collect the balance from your current or future tax refunds. These IRS actions can be serious, so it’s important to address any tax debt as soon as possible. If you receive any notices or warnings from the IRS, it’s essential to take them seriously and seek help if needed from the Hopkins CPA Firm.

Strategies to Resolve Unpaid Taxes Before Time Runs Out

If you can’t pay your taxes in full before the time runs out, don’t despair. Time is still on your side to look for solutions. Here are some simple, practical steps to help you out with unpaid taxes:

Strategy	Explanation
File Your Tax Return	Always file on time, even if you can’t pay. Filing on time reduces penalties; not filing increases penalties.
Check Out the Payment Options	The IRS offers short-term and long-term plans to pay off debt in stages. Review the options and choose what suits you best.
Short-Term Payment Plan	If you owe less than $100,000 and can pay in six months, you may qualify for a short-term payment plan to avoid IRS collection actions.
Long-Term Installment Agreement	For larger debts, you can apply for a long-term plan. If you owe less than $50,000, you can apply online; more than $50,000 may require additional steps.
Pay What You Can	Pay as much as possible, even if it’s not the full amount. This reduces penalties and shows good faith in following tax law.
Consider an Offer in Compromise (OIC)	If you can’t afford the full tax bill, the IRS may accept a smaller amount to settle your debt, but only if they believe you’re genuinely unable to pay the full amount.

What Happens When the Collection Statute Expires?

When it comes to tax debt, time can work in your favor. The IRS has a legal limit—called the Collection Statute Expiration Date—on how long it can pursue you for unpaid taxes. Once the 10-year period ends, the IRS loses its authority to collect the debt, and you are no longer obligated to pay. However, the 10-year clock doesn’t always run uninterrupted. Certain events can suspend or extend this period. For example:

• Suspensions occur when the IRS is legally prohibited from collecting, such as during bankruptcy or when you’re negotiating an installment agreement. The clock pauses during these times, and the CSED is delayed.
• Extensions happen when additional time is legally added to the 10-year limit, such as when you volunteer in extending tax collection period.

Because of these delays, the CSED might not always be exactly 10 years from the date of assessment.  It’s important to note that as the CSED approaches, the IRS often intensifies its efforts to collect the remaining balance. However, once the CSED officially expires, the IRS loses all legal authority to pursue the debt, and you are no longer obligated to pay. This provides taxpayers with final relief and marks the end of the collection process.

Protect Your Statute of Limitations Rights with Hopkins CPA Firm!

As we already know, having information about what is the statute of limitations on unpaid taxes is very useful because it helps you avoid unnecessary collection activity and ensures that the IRS cannot chase your untimely debt forever and ever. However, knowledge of the rules is not enough; it should be acted upon to make sure that your position is well protected under them. Factors like pauses, extensions, or tolling events can affect this timeline. Keeping that in mind, Hopkins CPA Firm is here to help you with these complicated factors. Our team can help you monitor the key deadlines and identify situations where the statute of limitations could be paused or extended.

We are the Trusted Experts Ready to Help You, Just Like We Helped Others

At Hopkins CPA Firm, we pride ourselves on being able to help clients resolve their tax issues with the extra level of care and expertise we provide. See what our clients say about us:

Just ask Jessica Vega, who came to us after years of not filing taxes. “Joe & Mark are great to work with. I had not filed taxes in several years, but they worked with me to get everything completed and filed. They encouraged me every step of the way. Now I don’t stress out anymore with that weight off my shoulders. Go see them. They can help you too.”

Or take Rachel Cortes’ word for it: “When it comes to tax resolution, Hopkins CPA Firm has the best teams on tax resolution. Why? Because they are made up of former IRS agents, CPAs, and tax attorneys with over 200 years of IRS experience combined. They can help you with your IRS tax problems today!”