How Long Can the I.R.S. Audit and Collect From Me?

There are two phases to a tax case: the first part is when the IRS conducts an examination to determine how much you owe (“examination”) and the second part is when the IRS tries to collect from you (“collection”).  Of course, if you filed your tax return and did not pay all that was shown as due, the IRS will seek to collect the balance even if there was no examination.

How long to examine?

The general rule is the IRS has three years from the later of the due date (including extensions to file) or the actual date you filed your return.  For example, if you filed your 2016 Form 1040 on March 11, 2017 (before it was due on April 18, 2017), the IRS has until April 18, 2020 (three years from the due date) to examine your return.  This is the later of the due date or the actual filed date.  On the other hand, had you filed your 2015 Form 1040 on that same date (basically a year late), the IRS would have until March 11, 2020 (three years from the filing date).  What this also means is that you generally only have to maintain most of your tax records for three years.

There are a host of exceptions to this basic rule.  The most onerous is that there is no statute of limitations to examine your return if it was false or fraudulent with the intent to evade tax.  Also, if no tax return has been filed, the three year statute of limitations on assessment does not begin until a return is filed.

How long to collect?

The general rule is that the IRS has ten years to collect following an assessment—an assessment is the recording of the tax debt (including penalties and interest) on the books of the IRS.  That period is extended by certain actions taken by the taxpayer, such as requesting a CDP Hearing, filing a bankruptcy, requesting an installment agreement or an offer in compromise.

Once an assessment is made, the IRS will begin the collection process by sending a series of notices demanding payment.  These notices get more and more threatening the longer you go without paying.  Taxpayers do have rights and can work with the IRS to resolve their liabilities.

In 1998, Congress added a safeguard against the over-zealous actions of the IRS and gave taxpayers the opportunity to have a hearing before the IRS can take such actions (referred to as a Collection Due Process hearing, or “CDP hearing”) in which it is possible to propose alternative methods of payment, such as an installment agreement (pay the balance over several years) or an offer in compromise (where the IRS might be willing to accept less than the full amount the taxpayer owes).  This is where good representation is essential.  Nobody wants to have the IRS levy on their property.

Near the end of the ten years, the government can go to court to extend the ten years by reducing the assessment to a judgment.  Depending on the laws of the state in which you live, collecting on the judgment can go on for many, many years.

If you owe the IRS money, contact Anderson & Jahde for competent, professional tax help.

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