How long does the IRS have to collect back taxes?

Under Federal law, there is a time restriction on how long the IRS has to collect unpaid taxes. This time restriction is most commonly known as the statute of limitations.

For most cases, the IRS has 3 years from the date the return was filed to audit a tax return and determine if additional tax is due. After the IRS determines that additional taxes are due, the IRS has 10 years to collect unpaid taxes.  Most taxpayers can rest assured that after 3 years, it is highly unlikely that the IRS will attempt to audit them and assess additional taxes against them.

Exceptions

However, there are certain exceptions to these rules. If the IRS suspects fraud or criminal activity, the statute of limitations on auditing returns and attempting to collect unpaid taxes is then extended further based on the type of fraud or crime involved.

The most important exception to the 3-year rule is that the IRS has up to 6 years to audit a return in situations where the IRS suspects the taxpayer underreported more than 25% of their gross income. The 3-year limitation is also extended to 6 years if a taxpayer underreports more than 25% of an estate or the amount of gifts given in a tax year.  Even if you file a corrected amended return, that will not shorten the 6-year rule. False or fraudulent returns can be audited for up to 6 years.

If you suspect that the statute of limitations may have expired in your case, but you are still being contacted by the IRS, contact a tax attorney or other tax professional to determine whether it is lawful for the IRS to pursue collection from you.

Case Studies: Understanding IRS Tax Collection and Statute of Limitations

Case Study 1: Audit and Collection Timeframes

John, a small business owner, filed his tax return on July 1, 2018. According to the statute of limitations, the IRS has three years from the date of filing, until July 1, 2021, to audit his return and determine if additional taxes are due. If the IRS assesses additional taxes, they have ten years from the date of assessment, until July 1, 2031, to collect the unpaid amount. John is relieved to know that after three years, the chances of an audit are unlikely, and he can focus on managing his business without the constant fear of IRS scrutiny.

Case Study 2: Exceptions to the 3-Year Rule

Sarah, a freelance consultant, filed her tax return on April 15, 2019. However, she underreported more than 25% of her gross income. In this case, the statute of limitations extends to six years from the date of filing, until April 15, 2025, allowing the IRS additional time to audit her return and assess additional taxes. Sarah realizes the importance of accurate reporting and vows to maintain meticulous records to avoid any future complications with the IRS.

Case Study 3: Legal Assistance

Michael, a retiree, received notices from the IRS regarding unpaid taxes from several years ago. Uncertain about the statute of limitations, he seeks legal assistance. Michael consults a tax attorney who thoroughly reviews his case. After careful examination, the attorney determines that the statute of limitations expired on April 1, 2022, and advises Michael on the appropriate response to the IRS. With the attorney’s guidance, Michael gains confidence in resolving his tax issues and feels relieved knowing he is protected by the legal time restrictions set by the IRS.