Taxes are the most fundamental factors behind the proper functioning of a country. Citizens of the United States are entitled to pay their taxes based on the amount of income they are generating, whether in the form of business or any other work source. Yet some people find great difficulty in managing and dealing with taxes, especially when they have tax debt, which means they owe money to the government.
In this case, the IRS, a government body, comes into play as they must collect the owed taxes and assess tax audits of the people. The IRS has a stipulated time to collect the owed tax, after which they no longer actively have the power to do the collections. In this blog, we shall talk about IRS tax debt after 10 years and also look for some options for relief.
IRS Statute of Limitations
The IRS Statute of Limitations is a fundamental concept in the US related to the taxation system. It is also known as the Collection Statute Expiration Date (CSED). It defines the exact period between which the IRS can go after the unpaid taxes.
Generally, the IRS has a 10-year time frame to collect the owed tax and settle all the debts. But in exceptional cases, the period varies. Below are a few points on how the Statute of Limitations affects the tax debt:
- The countdown of 10 years starts right from when the IRS figures out the amount of tax debt a person has on record. They can assess the tax debt right after a person files their tax returns. The IRS can also calculate the debt if a person didn’t file a tax return, as the IRS already has information regarding every citizen and can use that to calculate the debt amount whenever needed.
- In these 10 years, the IRS can actively collect the tax amount owed using various methods or means. Some ways include directly deducting the debt amount from a person’s income, taking money from the bank account, and sometimes even putting a claim on the person’s property.
- Once the 10-year time limit is up, the IRS can no longer actively participate in the debt collection process. Although that does not mean that the debt gets forfeited, it’s just that the IRS cannot use its tools or methods to make the person clear their debts. A person is still entitled to clear their debts at the earliest; otherwise, severe consequences can occur.
Factors that can extend Statute of Limitations
The statute of limitations can be extended under certain circumstances, although the average time frame is ten years. Let’s take a quick look into the exceptional cases:
- Bankruptcy is one of the cases where the timeframe for legal actions is put on hold as it has been legally proved that the particular person has gone bankrupt and can no longer pay the tax debt. The pause continues mainly during the entire bankruptcy process but can be extended further, depending on the type of bankruptcy a person has filed.
- Getting involved in a legal fight or disagreement with the IRS regarding the debt amount or underreporting of tax returns can lead to an extension of the time frame. This time limit sometimes gets continued even after the case is over.
- Installment agreements are done to pay the debt amount in instalments over time. If a person has made a deal with the IRS regarding payment of debts, then the time frame increases. But it is a short-term relief, as the IRS will still try various means to recover the money.
- If a person sends an Offer In Compromise (OIC), which means they have to pay less than the actual amount they are supposed to, then the time frame can increase as the IRS needs time to review the OIC. The person receives an additional 30-day time as well.
Options and Strategies for Relief
It is essential to be aware of the strategies for relief before the IRS tax debt after 10 years has expired. There are several ways of dealing with the IRS tax debt for comfort, and we shall talk about some in the below pointers:
- If the time limit of legal action is about to get over and a person has the chance to wait, then the person can opt for that letting the 10-year term pass. After that, the IRS cannot actively participate in collecting the debt.
- An Offer in Compromise (OIC) lets a person pay less than the one they owe. However, the person has to show that they are financially struggling, and that condition needs to be proved legally. This is a good choice if a person meets the requirements as stated by the government.
- A person can appeal for innocent spouse relief if they face tax debt due to the negligence of their partner. In such cases, a person can be relieved from the responsibility of clearing the tax debt.
- An instalment agreement is another way of clearing the tax on an instalment basis, and in such cases, even the period can be extended by the IRS. This is a more structured and manageable way of clearing off the debt.
- Bankruptcy is generally the last option for relief if a person proves this legally. The person may face a significant future impact on their credit and financial situation. However, this option can relieve certain types of tax debts, and a person can start fresh.
Final Overview
Handling the IRS tax debt can be overwhelming, but at the same time, one must be aware of the various relief ways and time extensions one can avail if needed. IRS tax debt after 10 years would have no right or actively work in collecting the tax debt.
One can always refer to a legal advisor or tax consultant and get proper guidance regarding the right way of tax filing to avoid such hassles in the first place. It may feel scary if a person owes tax debt to the IRS, but with the proper information and planning, one can quickly get over these situations.
