IRS Collections and Statute of Limitations

If you owe the IRS money you may want to "wait out" the statute of limitation, go bankrupt or discharge your taxes by offering the IRS a lesser amount (called "an offer in compromise").

The Internal Revenue Code usually allows you to discharge certain income taxes in Bankruptcy Court provided certain rules are followed. You cannot discharge Employment Taxes (Withholding Taxes). If you utilize the Bankruptcy Courts, generally, income taxes you owe must be 3 years old or older before you can discharge them in Bankruptcy. So if you were just audited for last year's taxes this doesn't apply.

Another option if you have no assets and wish to satisfy the IRS and stop levying your bank accounts or your wages then you might consider filing an "Offer in Compromise". An Offer in Compromise in effect says to the IRS, 'if I can pay you this much will you (IRS) accept this amount in lieu of my taxes'. There are problems with this, however, first the Statute of Limitations for collection by the IRS is held open while the IRS is considering the Offer in Compromise, and they could consider it for literally years. Meaning if the IRS rejects it they have that much more time to try to collect their money from you. Secondly, the Offer in Compromise must be for no less than your "net realizable assets", meaning your net worth. So if you have a home with $40,000.00 of equity, and no other assets, the IRS will accept no less than $40,000.

Your final choice is to wait out the IRS' Statute of Limitations. The IRS has 10 years to collect the tax from the date they assessed the tax against you. This assessment date is the date the IRS has recorded you owing a tax liability in their records. The IRS has 10 years from that point to try to collect from you. If they don't collect within the 10 year period of time then you do not have to pay.

Disclaimer: The information in these web pages has been prepared as a service to the community and does not constitute legal advice. This information may not apply to your situation particularly if you do not live in the state of California. Do not make legal decisions based on this material. Consult an attorney in person before making any important legal decision.