The Ten-Year Itch Explained
By Orlando Gotay
Many people ask me, “How long does the IRS have to collect taxes?” The answer always is, “it depends.” How? Let’s begin by saying that collection and assessment aren’t the same. Most people understand collection. Assessment is how the IRS figures out how much you owe. That’s done when you file a return. The IRS either takes your word for what you owe, or not, on audit. Assessment precedes collection. Makes sense, right?
The IRS has a 10-year time frame to collect previously assessed taxes. Like all clocks, it has start and stop times. The 10-year period can be messed up either by not starting the clock, by having time added, or by stopping it altogether.
The 10-year collection clock starts when a tax has been assessed, after Uncle Sam opens its big account book and writes “John owes me $x for tax year 2016.” How does Uncle Sam know you owe: when you tell him on a return. If timely filed, the collection clock starts the day the return was due. Early filers nicely help by providing extra time to assess and collect. I say, file on time. Of course, no return filed means the clock does not start running.
Some people with “foreign stuff” file special information returns with their tax return. If those information returns are not filed with the “regular” return, the clock does not start running. So your return stays open for assessment for three years after the missing information is provided, and then the collection clock starts.
Then there are clock stoppers. The one I like the most is “taxpayer living outside the US.” Yes Conchita, that’s right. The collection clock can be suspended while you are outside the United States if the absence is for a continuous period of at least six months. The clock stops until you come back. If the IRS figures you are gone, it can program its computer to keep on trying to collect for up to 16 more years, and of course it can add even more time if needed. In any event, the clock will have at least six months left on it after you return to reside in the US. If you are considered “cooperative,” then the IRS will be nice and not recompute your collection clock. Cooperation is defined as responsive to IRS notices and communications. Yes, Mexico mail is slow, but enjoying the sunsets here does not mean you can outrun the IRS collection clock. Just be aware!
Orlando Gotay is a California licensed tax attorney (with a Master of Laws in Taxation) admitted to practice before the IRS, the US Tax Court, and other taxing agencies. His love of things Mexican has led him to devote part of his practice to the tax matters of US expats in Mexico. He can be reached at firstname.lastname@example.org, online radio at mixlr.com/orlandogotay or Facebook: GotayTaxLawyer.