Statute of Limitations on Federal Debts

Generally, there is a 10-year statute of limitations that applies to federal tax debt. The clock starts ticking not when the tax is due, however, but from the date on which you file a federal tax return. It behooves you, then, to file the return as soon as possible. Further, there is a three-year statute of limitations that applies to audits.

Applicable Law

The law that governs the statute of limitations on federal tax debt is Section 6501(a) of the Internal Revenue Code, entitled Limitations on Assessment and Collection. This law also requires any taxes to be assessed within three years of any return being filed. However, fraudulent returns may not qualify for the three year statute. If the IRS determines the return was fraudulent it can assess the tax at any time.

Exceptions to the Statute of Limitations

If you file a fraudulent return, the statute of limitations does not apply. The Internal Revenue Service may come and assess the tax, along with interest, penalties and even criminal charges at any time.

Applicability to Collection Efforts

Occasionally, the IRS will reach an agreement with a taxpayer to accept past due taxes spread out over time, according to a payment schedule. When this is the case, the IRS will typically require that all taxes due be paid before the 10-year statute of limitations ends.

Bankruptcy

If the effort to repay your debts has become hopeless, bankruptcy may be an option. However, federal debt is not always subject to bankruptcy relief. Generally, in order to qualify for discharge in bankruptcy, debts owed to the IRS must be at least three years old. Some debts, such as those incurred as a result of defaulted student loans, are not subject to bankruptcy discharge at all, except in cases of severe personal hardship.