10-Year Statute of Limitations

View the Full OIC Guide at: Offer In Compromise Guide

The Offer in Compromise (OIC) is an attempt by the IRS to come to a resolution with those individual and business taxpayers who cannot pay their taxes in full or in doing so, will severely compromise their financial condition. While the Offer is by no means a tax reprieve, it is also not unnatural to find taxpayers clamoring to file their OIC claims. However, the IRS is known to reject more than 80% of the claims and while claimants can file multiple claims, it is worthwhile to also acquaint oneself with the greatest pitfall of doing so. And for this, it is essential that you first learn about the 10-year statute of limitations on the IRA collecting debts.

Time Limits

The Statute of Limitations is a collection of rules and regulations that binds all taxation-related actions that you or the IRS can undertake. For instance, you have three years to claim a refund on your taxation amount and the IRS has three years to carry out an audit of your tax returns or determine additional tax liabilities.

Noteworthy in this context is that as per these rules, the IRS has ten years to collect all outstanding tax liabilities plus any interest on this amount and other penalties, from an individual. This time period is measured from the day the tax dues for an individual or a business taxpayer have been finalized. The tax debts can take many forms—a balance that is due from a tax return, the amount assessed from an auditing process, or an amount from a proposed assessment that has been finalized. After these ten years are over, the IRS cannot legally collect any amount of the tax debt and thus has to write off the balance on this amount. This is known as the ten-year statute of limitations on IRS collecting tax debts.

How OIC Applications Affect the Statute

It is however, not known to many a taxpayer who has filed an OIC that the filing process suspends this ten-year period of collecting taxes when the IRS is processing the OIC claim. This means that now the IRS has additional time at its disposal to collect the taxes if the OIC is rejected. In IRS jargon, this is known as “tolling the statue of limitations.” The clock hands stop every time an Offer in Compromise is filed. So, taxpayers who file multiple OICs in an attempt to better their taxation and financial situations are actually unknowingly doing more harm than good. This is regarded as the greatest disadvantage of filing for an Offer in Compromise.

But unfortunately, as discovered by the Government Accountability Office (which does not have a good reputation right now at all and is under fire for fraud and wasting American tax dollars), about half of the OIC claims filed are repeat offers. So, it is imperative that you file a repeat offer only if you are absolutely sure that you have presented your case such that the IRS the next time around won’t have any cause to reject it. But then, even with the most competent tax professional preparing your case, this cannot be guaranteed. The IRS is known to employ the strictest of methods to evaluate each and every case and assess a financial situation. You probably run less risk of jeopardizing your financial condition if you go by this age-old adage, “Better safe than sorry” when contemplating filing an OIC.

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