Does an IRS Installment Agreement Extend the Collections Statute of Limitations?

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If you owe the IRS back taxes and you are in the collections process then read on. Simply entering into an installment agreement with the IRS DOES NOT automatically extend or stop the time clock the IRS has to collect on this debt.

IRS installment agreements follow the collections statutes of limitations rules. The end date is 10 years from when your IRS liability began.

When Does an IRS Liability Begin?

The collection begins when the IRS places your debt on their books and notify you with an assessment letter. Assessments generally stem from one of three reasons:

(1) After you file your tax return and there is an amount due but not paid by the April 15 deadline for that tax year,

(2) If you did not file a return, the IRS will generate a return based on what they think should have been reported and put an estimate of your debt on their books, or

(3) After the IRS completes an audit of your tax return.

After the debt is assessed, the IRS has 10 year to collect the tax debt [Internal Revenue Code 6502(a)(1).]

During those 10 years, the IRS can levy your wages, bank accounts, or take your property (possible but unlikely).

Collections Statute of Limitations

The IRS has 10 years to collect an assessed tax liability. If you enter into an installment agreement you can stop making those payments once the 10 year statute has run out.

Example:

John's IRS liability started 4 years ago. He is self-employed and did not understand how to properly file taxes. The IRS made its assessment and put John's debt on their books. The IRS made their assessment 4 years ago, and they have 6 years left to collect, for a total of 10 years. An IRS Revenue Officer contacts John, or maybe he was prompted by a threatening letter from the IRS Automated Collection Service. Either way, John agrees with the IRS to make monthly payments.

The payment plan will last for 6 years.

Agreeing to make the payments does not give the IRS more time to collect even if the balance will not be paid in full by the end of the statute of limitations. The unpaid amount will be forgiven by the IRS after the collection period expires. In the example above this period is 6 years.

A few key points to ponder:

  • Your IRS liability may have started years before you entered into the installment agreement.

  • The 10 years the IRS has to collect begins when you first owed the IRS; it does not begin when you entered into an installment agreement.

  • Your installment agreement should last for the amount of time that remains on the 10 year IRS limitation of collection period. That could be 6 years, or it could be 2 years.

Get help from a Tax Professional

Certain actions taken by you can extend the 10 year collections period. These actions include but are not limited to filing an offer in compromise, a request for innocent spouse relief, or a timely collection due process appeal with the IRS. Actions related to terminated or defaulted installment agreements can impact the collection time as well. In rare occasions, the IRS can sue you for a judgment in court and get more than 10 years to collect; this is extremely unlikely and may happen only in cases of high dollar liability and noncompliance. The IRS can legally request that you agree to extend the collection time if your payments are not enough to repay what you owe, but IRS policy is to make these requests only in rare cases when an asset may come into your possession after the collection period expires (See Internal Revenue Manual 5.14.2.1.3).

What are your options if you owe IRS debt?

Pick up your phone and give a call at 208-935-1040. Let us take the stress off your shoulders so you can focus on the more enjoyable things in life.

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