What events extend the Statute of Limitations for collecting tax?

The IRS has 10 years to collect your income tax, but that time does not start running until you file the tax return and it is assessed (meaning entered into their computers).  If you do not file your return until  4 years after it is due, then the statute will not begin running until 4 years later also.  However, several events will temporarily stop the time from running and thus make the time to collect longer than 10 years

 

 

from when it started.  For example, if you file bankruptcy, the statute stops until the bankruptcy is dismissed.  The rationale for this is that the IRS cannot collect any tax while you are in bankruptcy, and they want their full 10 years to collect.

Another example is the filing of an Offer in Compromise.  If the Offer is accepted, the statute is not a problem, for the entire debt is compromised to a lower amount and paid.  However, if the Offer is denied, then the full amount is still owed.  The statute is stopped during the time the Offer is being considered, i.e. from the time it arrives at the IRS until the time it is denied.  This can add a year or more to the statute.  Sometimes the IRS will ask the taxpayer to voluntarily agree to extend the statute for a year or 18 months.  This may be part of a deal to allow the taxpayer to enter into a smaller installment agreement amount that would not pay off the debt within the time allowed to collect.