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Tax Debt and Bankruptcy Blog

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By Michael S. Anderson of Anderson Tax Law logo for Arizona tax attorney Michael S. Anderson P.C.
  • I have a Serious IRS Tax Debt and I have been out of the Country for a few years, how will being out of the Country affect my Tax Debt?

    bigstock-Face-Of-Antique-Grandfather-Cl-1687387The IRS’ ability to collect a Tax Debt ends 10 years after the IRS assesses the Tax.  This also applies to IRS Liens. This 10 year period starts running on the date the IRS assesses the Tax or writes in down in it’s books as a debt owed by you.  The 10 year period doesn’t start to run when the IRS lien is recorded.

    Example

    Fred owes unpaid Income Tax for the 2005 tax year.  This tax was “assessed” on October 20, 2007.  The IRS records it’s Lien in August of 2010.  The 10 year date from assessment will occur on October 20, 2017.  The Lien will self release on that date as well.

    Most Important Exceptions

    Judgement

    If the IRS sues you on the underlying debt and obtains a Judgement, it will than be able to renew that Judgement indefinitely and the Statute of Limitations period won’t help you.

    Bankruptcy

    Filing a Bankruptcy will extend the Statute for a period equal to the time in Bankruptcy plus six months.  If you file a chapter 7 bankruptcy and from filing date to closure date the case is open for 12 months, the Statute of Limitations on collection will be extended for 12 months.

    Offer in Compromise

    The filing of an IRS Offer in Compromise stops the clock from running as well during the time in the Offer plus 30 days.  Sidenote…most Offers are still rejected, so if you are going to use an IRS Offer in Compromise in hopes of eliminating tax debt, make sure you have a good chance of winning.

    Appeals

    As a general rule, appealing IRS collection activity will stop the Statute of Limitations Clock from running as long as it stops IRS Collection Activity.

    Out of Country

    If you have been out of the Country for a continuous period of more than six months, that absence will extend the statute period as well.   Generally, the time period of extension is limited to 5 years.

    Example:

    If you have been out of the Country for continuous period of one year visiting family, than the Collection Statute can be extended for 1 year as that period is longer than 6 months. If you visited family for less than 6 months, the extension won’t apply.

    Important to Know the Date

    If you have a serious Tax Debt and it has been around for a while, it will be important to know the 10 year collection statute date before embarking on an IRS Offer in Compromise, Bankruptcy or some other serious legal option.  Your solution may be as simple as arranging or re-arranging an installment agreement or non-collectible status with the IRS and waiting out the clock.