The IRS does not have unlimited time to collect back taxes. The law provides the agency 10 years to collect any tax debt. This collection period of 10 years is known as the statute of limitations.

Even though the IRS usually closes a tax debt case after the 10-year statute of limitations expires, it can, if it wishes to, collect back taxes even after that. However, that is rare.

Usually, after the expiry of the statute of limitations, the entire tax debt is forgiven and the case closed. There can be various reasons for the IRS’ inability to collect back taxes for 10 years, including inability to track down the taxpayer, and the taxpayer’s poor financial condition that doesn’t allow any payment.

The IRS is particularly strict with non-payment of income tax, but they are even more aggressive with non-payment of payroll taxes. The IRS closely watches small employers. The tax code places a 100% penalty on “responsible persons” who do not withhold employee taxes, or who withhold and do not transfer the tax money to the IRS. Employers and even employees that are required to withhold payroll taxes are required to pay payroll taxes on time.

If a taxpayer has the ability to pay and can be located, the IRS will usually collect back taxes well before the statute of limitations. Ability to pay includes income, equity in assets, and the ability to take loan.

Taxpayers that do not have the ability to pay any amount in back taxes may be assigned the status of Currently Not Collectible (CNC). This stops collection actions and allows the taxpayer more time to pay. If the financial condition of the taxpayer under CNC does not improve significantly by the expiry of the statute of limitations, the tax debt is forgiven and the case closed.

For help with any income tax question including unpaid taxes call one of our offices:      Plymouth 734.454.4100,    Allen Park 313.388.7180,    Grayling 989.348.4055,                           Royal Oak 248.399.7331,    Saginaw 989.782.1985,    St. Clair Shores 313.371.6600