Tax Myth: The IRS Eventually Forgets About Your Tax Debt -FALSE
There are many plausible-sounding rumors concerning the IRS and tax debt. But if there was one certainty about the IRS, it is that they prioritize the collection of delinquent taxes.
The IRS can unintentionally misplace your tax debt through human or computerized error. However, they will only ‘forget’ your tax debt after ten years.
Therefore, it is in your best interest to not engage with the IRS in a ten-year-long waiting game – you will lose.
The 10 Year Statute of Limitations
The IRS has ten years to collect an unpaid tax debt. After that time, the IRS writes the debt off.
Much like the IRS Fresh Start Initiative, the 10 Year Statute of Limitations is not in the financial interest of the IRS. Thus, information concerning the statute is unadvertised to delinquent taxpayers.
Additionally, the rules and nuances of the statute are complex and confusing; depending on your financial situation, you may not technically have ‘ten years.’
Should You Wait the 10 Years?
While it may seem tempting to grit your teeth and endure the ten years, we would strongly advise against this decision.
The IRS won’t sit idle for ten years.
Using a computerized Information Returns Program (IRP), the IRS matches information documents against tax returns you have filed. Should their computer search fail to find a return, the IRS will begin their Taxpayer Delinquency Investigation (TDI).
The IRS begins by sending collection letters, and then they’ll use phone calls. If those methods return void, and enough time has passed, the IRS will threaten and eventually use liens, levies, and even wage garnishments to collect their due.
Time is not your ally when dealing with the IRS. The longer your taxes go unpaid, the greater the financial penalties become.
Each year that you miss the tax filing deadline, your outstanding tax bill will accrue more interest. Likewise, the late-payment penalty increases with time; the fee will start at 0.5% of your unpaid taxes per month and caps at 25%. There is also a late-fling penalty that starts at 5% of your outstanding tax debt and maxes out at 25%.
What Can You Do If You Have Tax Debt?
The one thing you do not want to do if you have tax debt is wait – that’s the same as doing nothing.
The key to success is being proactive and looking for resolution options. One of the best choices currently available to taxpayers with back taxes is the IRS Fresh Start Program.
Contact TaxRise today for a free consultation to see if you qualify.
Any new or systemic Liens and/or Levies will also be suspended for the time being.
For taxpayers who are considered “seriously delinquent”, the IRS will suspend any new certifications for the remaining period. Any taxpayer who falls into this category in reminded and encouraged to enter into an Installment Agreement or apply for an Offer In Compromise.
The IRS will not forward any new delinquent accounts to private collection agencies at this time.
Taxpayers have until July 15, 2020 to verify to the IRS they are qualify for the Earned Income Tax Credit or to confirm their income. If the taxpayer is unable to verify their credentials or provide appropriate documents for this credit, they are encouraged to notify the IRS before the deadline. No cases will be denied this credit for failure to provide requested information until July 15.
Case workers will continue business as usual. However, most case work will be conducted remotely (video/over the phone conferences). Any requests for documentation sent by the Office of Appeals should be responded to in a timely manner to ensure a smooth process.
The IRS will continue to take the appropriate measures to stay compliant and protect the applicable statutes of limitations. In situations where certain statutes may be compromised, taxpayers are encouraged to extend such statutes. Otherwise, Notices of Deficiency will be issued by the IRS and similar actions will be pursued to protect the interests of the government in preserving such statutes. Where a statutory period is not set to expire during 2020, the IRS is unlikely to pursue the foregoing actions until at least July 15, 2020.
Practitioners are reminded that PPS wait times may be significantly longer, depending on staffing levels and allocations going forward. The IRS will continue to monitor this as situations develop.
“The IRS will continue to review and, where appropriate, modify or expand the People First Initiative as we continue reviewing our programs and receive feedback from others,” Rettig said. “We are committed to helping people get through this period, and our employees will remain focused on these and other helpful efforts in the days and weeks ahead. I ask for your personal support, your understanding – and your patience – as we navigate our way forward together. Stay safe and take care of your families, friends and others.”
Learn how easy it is to qualify for tax savings.