The IRS is bound by a statute of limitations just like any other creditor. However, unlike New Jersey where the statute for a sale of goods is 4 years and services is 6, for the IRS, they have 10 years to collect taxes from you! But you can shorten that to three years if you plan it right!

Ten Years and Counting

According to the Internal Revenue Code (26 U.S.C. §6502), the IRS has 10 years from the date the tax is assessed to collect it (assuming there has been no fraud). The important thing to bear in mind, however, is that this period can toll under certain circumstances.

Think of it in terms of stopping and starting a stopwatch that ticks away for ten years. Some of these are as follows:

  • If you file an Offer and Compromise with the IRS, for the time it takes for the IRS to consider it, and then another 30 days after rejection
  • If you have appealed a decision by the IRS to collect the tax by levy or seizure, for the time that is taken to review the appeal, plus 30 days
  • If you are out of the country for more than 6 continuous months, for the period of time that you are out of the country
  • If you file bankruptcy, for the period of time that you are in bankruptcy, plus six months, assuming the taxes are not discharged

For this reason the running of the 10 years can be iffy and subject to each taxpayer's situation. Therefore, you should consult with a tax accountant before making any decisions.

So How Do You Shorten It to 3 Years?

The good news is, you can shorten the period to 3 years; the bad news is, you have to file bankruptcy. If you have other debt that is unmanageable, though, you can also shed the taxes if you are strategic about it, and get a more complete fresh start. The secret to doing this is the following:

  • Don't file bankruptcy for at least three years after the taxes became due (April 15 following the tax year - or October 15 if you got an extension)
  • File the tax return at least two years before the filing of the bankruptcy, and
  • File the bankruptcy at least 240 days after the assessing of taxes by the IRS (such as after an audit or their review of your filed return)

Best to Have a Lawyer Help You!

This is not something you want to figure out yourself; there is too much riding on it! The proper timing for the filing of the bankruptcy can be the difference between paying and not having to pay the taxes.

If you live in Burlington, Camden, Gloucester, Salem or Cumberland County, tax debt has you concerned, and you are thinking about bankruptcy, please call me at 856-432-4113 or contact my office through the web site to schedule an appointment in my Woodbury office.

If you have more questions about bankruptcy and are looking for more information, then download my free book,Top Questions People Ask About Filing Bankruptcy in New Jersey.

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Steven J. Richardson
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Bankruptcy, Collections, Student Loan, DUI and Traffic Court attorney in Woodbury, NJ.