The IRS Collection Clock

They have a long time to come after you
BY: ORLANDO GOTAY

Many people ask me “How long does the IRS have to collect taxes?” The answer always is “It depends.” How? Let me begin by saying that collection and assessment aren’t the same. Most people understand collection (they take your hard-earned money). Assessment is how they figure out how much you owe. That’s done when you file a return. They either take 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 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 $XX.XX for tax year 2017.” How does Uncle Sam know what you owe? You tell him on your tax return. If filed in a timely manner, the collection clock starts the day the return was due. Early filers help by providing extra time to assess and collect. File on time, I say. 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 info is provided, and then the collection clock starts.

Then there are clock stoppers. The one I like the most is “Taxpayer living outside the U.S”. Yes Bunky, that’s right. The collection clock can be suspended while the taxpayer is 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 they figure out you are gone, the IRS can program its computer to keep on trying to collect for up to 16 more years, and of course they 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 they will be nice and not recompute your collection clock. Cooperation = being responsive to IRS notices and communications. And I’m pretty sure they won’t accept the “Mexican mail is really slow” excuse.

Enjoying the sunsets here in Mexico does not mean you can outrun the IRS collection clock. Just be aware.

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Orlando Gotay is a California licensed tax attorney (with a Master of Laws in Taxation) admitted to practice before the IRS, the U.S. 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 U.S. expats in Mexico.  He can be reached at tax@orlandogotay.com, online radio at mixlr.com/orlandogotay or Facebook: GotayTaxLawyer.