UPDATED: April 2024
The tax code has time limits for both you and the IRS. This is known as the Statute of Limitations. For example, you generally have three years to claim a tax refund, and the IRS typically has three years to audit your tax returns.
There’s also a limit on how long the IRS can collect unpaid taxes. This is the 10-year Collection Statute of Limitations (CSED). It starts from the date your tax assessment becomes final, which can be from a tax return, audit, or finalized proposed assessment. After ten years, the IRS can no longer legally collect the tax debt and must write it off.
Catch-22: OIC and the CSED
An OIC can be a helpful tool for taxpayers who can’t pay their full tax bill. However, filing an OIC tolls (suspends) the CSED. This means the 10-year clock stops ticking while the IRS considers your offer.
Here’s the catch: if your OIC is rejected, the CSED restarts from the date the offer is denied. This can give the IRS more time to collect the debt. So, filing multiple OICs without a strong case can actually extend the IRS’s collection window.
Is an OIC Right for You?
While the CSED can be a tempting reason to file an OIC, it’s crucial to weigh the pros and cons carefully. Here are some things to consider:
- Strength of your OIC: Only file an OIC if you have a compelling case for why settling your debt benefits the IRS.
- Alternatives: Explore other options like installment agreements or Currently Not Collectible (CNC) status before filing an OIC.
- Tax professional help: Consider consulting a tax professional to assess your situation and determine the best course of action.
Remember, the CSED offers some protection, but it shouldn’t be the sole reason to file an OIC. Focus on building a strong case for settlement and explore other options before submitting an OIC.
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