Every year, my clients save millions of dollars because the time for the IRS to collect has expired. The Statute of Limitations for when you owe the IRS money is 10 years from the day the tax was assessed. Some of these people have been declared uncollectible by the IRS or have been making small payments and have not been able to fully pay over the years. Others are just plain lucky that they have slipped under the radar.
There are certain events that may temporarily stop the time period from running. These include an Offer in Compromise, a Collection Due Process Hearing, and Bankruptcy. An analysis of the taxpayer’s transcripts will tell us the exact expiration date.
The IRS can stop the Statute of Limitations from running by suing the taxpayer. They will then get a judgment for 20 more years to collect. This is rare and generally only happens when there is a residence with a significant amount of equity or some other asset that the IRS believes will ultimately pay the debt.
While an upcoming Statute of Limitations is a blessing, it can also be a curse. The IRS will exhaust all means to get the money as soon as they can. They are more hesitant to work with the citizen to pay out over time because the time is running out. The good news is that if you cannot pay, you cannot pay and more times than not, the IRS moves on to the next case because they never run out of customers who owe back taxes.