The Internal Revenue Service (IRS) has certain rules regarding forgiving or canceling debt that has gone unpaid for an extended period of time. Specifically, the IRS may forgive tax debt under certain circumstances if the debt is over 10 years old.
What is the 10 year statute of limitations on IRS debt collection?
The IRS typically has 10 years to collect unpaid taxes, interest and penalties. This time frame is known as the 10 year statute of limitations. The 10 years is counted from the date the tax was assessed, which is usually around the original filing deadline of the return.
Some key things to know about the 10 year statute of limitations:
- The 10 year time limit applies to collecting unpaid income taxes as well as other types of taxes like payroll taxes.
- The clock can be paused in certain situations – like if the taxpayer enters into an installment agreement or files bankruptcy.
- Only the collection actions are limited after 10 years – the IRS can still legally pursue unpaid balances even after the statute expires.
So in summary, while the IRS is limited in how it can collect older tax debt, the 10 year statute of limitations does not entirely cancel or forgive the debt. The government can still legally pursue payment after 10 years.
When does the IRS forgive tax debt?
There are a few situations in which tax debt can be forgiven or canceled by the IRS after 10 years:
Expiration of Statute of Limitations
Once the 10 year statute of limitations has expired, the IRS is essentially prevented from using its stronger collection tactics to recover the old debt. Things like wage garnishment, bank levies or property liens cannot be pursued.
However, the debt still technically remains on the books even though the statute has run out. The IRS could potentially still try to collect through:
- Requesting voluntary payment
- Offering to settle for less than the full amount
- Taking refunds or credits
So while IRS options become limited after 10 years, the debt is not automatically forgiven or canceled unless certain additional actions are taken.
Expiration of CSED
The Collection Statute Expiration Date (CSED) is the date that the IRS’ right to pursue collection of a tax liability legally expires. This is generally 10 years from the assessment date.
If the CSED expires, the IRS is required to remove the debt from their records and cease all collection activity. This effectively cancels the remaining unpaid balance.
However, like the statute of limitations, there are various circumstances that can pause or extend the CSED such as installment agreements, bankruptcy filings or requests for collections due process hearings.
Tax Debt Cancellation
The IRS may agree to “cancel” a tax debt in certain situations, essentially forgiving a portion or all of the amount owed. This usually requires proactive action on the part of the taxpayer, such as:
- Offer in Compromise (OIC): Allow taxpayers to settle tax debts for less than the full amount owed under certain circumstances of financial hardship or doubt over the actual amount due.
- Innocent Spouse Relief: Relief for taxpayers from liability of tax, interest and penalties related to a joint return in cases where the spouse applying for relief did not know about or participate in the error or underreporting.
- Penalty Abatement: The IRS may abate or remove penalties assessed on a tax debt in cases where reasonable cause for the failure can be demonstrated.
Abatement or compromise of the tax debt essentially cancels a portion or potentially all of the amount owed.
When does tax debt expire?
For federal income taxes, tax debt technically expires and is canceled after the CSED concludes. As mentioned, this generally occurs 10 years after the date the IRS assesses the liability.
It is important to note that interest and penalties continue to accrue during that 10 year period. So even though the initial tax balance may expire, the total debt owed could be significantly higher after a decade of accumulating fees and interest.
The CSED can be extended beyond 10 years due to:
- Installment agreements – CSED extended by duration of agreement
- Offers in compromise – CSED extended by 30 days plus any time the OIC is pending
- Collection due process hearings – CSED extended by 30 days plus time case is pending
- Bankruptcy filings – CSED suspended plus 6 months
In general though, taxpayers can expect federal income tax debts to expire 10 years from the filing deadline of the return period in question. At that point (the CSED date) the IRS is required to cease all collection activity and write off the balance.
State Tax Debt
Most states also follow a 10 year statute of limitations on collecting unpaid tax debt. However, some states have longer time frames such as 15 or 20 years. California for example pursues unpaid tax debts for 20 years.
Taxpayers would need to verify the applicable statute of limitations based on the state seeking to collect the tax debt. Similar to federal tax debt, state collection abilities become limited but the balance may still legally be owed unless the applicable CSED has expired.
Does IRS settle tax debt after 10 years?
For taxpayers unable to fully pay their tax balances within the 10 year collection timeframe, the IRS may be willing to settle for less than the total amount owed even after the debt becomes legally uncollectible.
Some key things to know about IRS settlements on older tax debt:
- Tax settlements typically require lump sum cash payment offers.
- The IRS looks at current income and assets when negotiating settlements.
- Settlement amounts can vary but might typically range from 10% to 50% of the total owed.
- The IRS may be more likely to accept lower settlement offers closer to the CSED expiration.
Installment agreements are sometimes possible on expired tax debt, but the IRS still generally prefers a lump sum settlement offer. Negotiating a reduced settlement is often a taxpayer’s best option to resolve unpaid debts that are over 10 years old.
Using Offer in Compromise
Taxpayers can propose settling tax debts for less than the full amount owed by submitting IRS Form 656 Offer in Compromise (OIC). This is a formal process requiring detailed financial disclosure and supporting documentation.
The IRS will not accept an OIC unless the amount offered reasonably reflects the taxpayer’s ability to pay based on their income, assets and expenses. However, older tax debt gives the taxpayer more leverage to negotiate a favorable settlement.
How to Settle Directly with the IRS
Taxpayers can try calling the IRS directly to negotiate a reduced settlement, especially once the 10 year statute is close to expiring. The IRS may be more willing to “work something out” over the phone vs. requiring the taxpayer to submit a formal OIC.
Having the following information available can help facilitate the settlement discussion:
- Summary of your current financial situation
- Total amount owed to IRS
- Existing IRS payment plans if any
- Payment amount you are proposing
Being prepared and professional when contacting the IRS to discuss settling older tax debt can go a long way towards reaching a compromise over the phone.
Using a Tax Professional
Seeking help from a tax professional is recommended when trying to negotiate an IRS settlement on older tax debt. A knowledgeable tax attorney or CPA can:
- Strategize the best settlement proposals based on IRS policies and precedents
- Communicate with the IRS on your behalf to negotiate the debt
- Avoid potential errors that could invalidate the entire compromise offer
- Ensure proper documentation is filed if submitting a formal OIC
Their expertise and experience can make a significant difference when working to settle IRS debt after the 10 year mark.
Does the IRS remove tax debt after 10 years?
Generally no, at least not right at the 10 year mark. The IRS is not required to “remove” unpaid tax debt from their records until the applicable Collection Statute Expiration Date or CSED.
As mentioned, the CSED is also usually 10 years from the date taxes were assessed (about the return’s original filing deadline). But certain events can extend that expiration date beyond 10 years:
- Installment agreements with the IRS
- Pending offers in compromise
- Bankruptcy filings
- Requests for collections due process hearings
So in many cases, if a taxpayer has been actively engaging with the IRS to resolve old tax debt, the balance may remain on record for longer than the initial 10 year collection window.
Once the CSED has passed however, IRS policy says they must cease collection activity and write off the debt. At this point, unpaid tax balances over 10 years old are legally considered expired and are removed from IRS books.
Do tax liens expire after 10 years?
Unlike the tax debt itself, federal tax liens generally do not expire after 10 years. A federal tax lien gives the IRS a legal claim to taxpayer’s property to secure payment of tax debt.
Some key facts on expiration of tax liens:
- Federal tax liens expire after 10 years IF the IRS refiles the lien before expiration
- The IRS can refile a tax lien multiple times to extend its life
- Most states also follow a 10 year expiration period for state tax liens
- Even after lien expires, the underlying tax debt may still be owed if CSED has not passed
So while tax liens themselves expire after 10 years, the IRS can and often does extend their collection reach by refiling liens on taxpayers who still have balances due.
After the CSED expires removing the legal basis for the debt, any active tax liens related to that debt would expire by default since the underlying tax liability no longer exists.
Do tax levies expire after 10 years?
The IRS can place levies on taxpayer assets and income sources to forcibly collect unpaid tax debt. Like liens, tax levies do not automatically expire after 10 years.
Key points on levy expiration:
- Levies are generally “released” after the tax debt is paid in full
- The IRS may issue successive levies if an original levy does not fully pay the tax debt
- Levies could potentially stay in place over 10 years until CSED expiration of the related tax debt
- Once CSED expires, the legal basis for the levy is ended and any active levy is released
So in summary, there is no fixed expiration date for tax levies after 10 years. The IRS can continue levying or reissue levies until the total tax liability is settled or the Collection Statute Expiration Date concludes the legal collectability of the debt.
Conclusion
The IRS is not required to fully remove unpaid tax debt from their records until the applicable Collection Statute Expiration Date (CSED) passes. This is generally 10 years from the date taxes were assessed. The IRS cannot legally collect tax debt after the CSED without filing suit, which is rare.
Tax liens and levies related to the unpaid debt can also persist beyond 10 years. Liens expire after a decade but may be extended by refiling. Levies can continue until full payment is secured or the CSED erases the legal collection basis.
In practical terms, taxpayers have no guarantees the IRS will cease collection efforts or forgive tax debt after exactly 10 years. While IRS options become limited, settlement is often required to fully resolve older unpaid balances. Tax experts can assist in developing the most favorable compromise proposals based on IRS precedent.
| Tax Debt Type | Expiration Timeframe |
|---|---|
| Federal Income Tax | 10 years from tax return due date (CSED) |
| Payroll Taxes | 10 years from tax return due date (CSED) |
| Federal Tax Lien | 10 years from filing (but may be extended) |
| Federal Tax Levy | No fixed expiration, lasts until CSED or until debt paid |
Key Takeaways
- IRS can legally pursue unpaid tax debt for 10 years from assessment date
- Tax debt expires after 10 year CSED, then IRS must cease collection
- Tax liens expire after 10 years but can be extended by refiling
- Tax levies have no fixed expiration and can persist beyond 10 years
- Taxpayers often need to negotiate settlements on older tax debt
In summary, the IRS is unlikely to completely forgive tax obligations after exactly 10 years. Statutes of limitations and CSED dates dictate legal collection powers. But proactively resolving older unpaid tax balances through settlement or payment agreements remains the prudent approach. Consultation with tax professionals is recommended when managing tax debts that are 10 years or older.