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Does an IRS Installment Plan Extend the 10 Year Collection Statute?

Michael S. Anderson Aug. 9, 2013

An ongoing IRS Installment Plan doesn't extend the IRS Statute of Limitations period for the collection of debt.

The IRS has 10 years to collect a tax debt. The 10 year period begins on the date the tax balance is “assessed”. The tax is usually assessed when the IRS processes the tax return.

If your 2004 tax return was received by the IRS and processed on April 16 of 2005, for example, then the statute period would expire on April 16th of 2015. If you filed the return on April 16 of 2010, then the statute would expire on April 16 of 2020.

Certain actions extend this 10 year statute period. Bankruptcy, Offer in Compromise and certain appeals will all extend the time-frame.

An Installment Agreement after set up, doesn't do it. When the statute period ends the debt is gone and the Installment Agreement will end.

It is important as a result to understand two things before you file an Offer in Compromise, a Bankruptcy or an appeal.

1. How much will the IRS installment agreement be per month.

2. When will the IRS Statute of Limitations period end.

It often makes sense to simply negotiate the Installment Agreement and wait for the Statute to kill the debt.

An example:

Mr. Smith owes the IRS $60,000.00 related to a failure to pay tax on an investment he cashed out in 2007. He filed his return in April 2008 timely and just recently the IRS began to levy his paycheck.

Given his current income, budget and asset situation, he was able to arrange a payment to the IRS of $250.00 per month. He doesn't expect his income or budget to change in the near future and the Statute of Limitations date will run in April of 2018 or 10 years from the date the tax on the 2007 debt was assessed.

$250.00 dollars per month multiplied by the remaining time left in the statute period means that Mr. Smith will only pay about $15,000.00 of the $60,000.00 balance.