Man held liable for IRS debt after 30 years: Tips to avoid the same fate

The statute of limitations generally spans three years, but there are exceptions.

Unless expecting a refund, dealing with the Internal Revenue Services (IRS) is rarely enjoyable. This was particularly true for a man who recently battled the IRS in court over a tax debt from the 1980s. Unfortunately for him, he lost. Fortunately for you, lessons can be learned from his tale.

IRS debt and the statute of limitations

The case noted above, Beeler v. Commissioner, involved payroll taxes, a mistaken release of a tax lien and multiple judgments. It was a pretty unique set of circumstances, and the ruling holding the taxpayer accountable for a thirty year old debt is not unheard of. A variety of circumstances can lead to similar rulings. Yet, the holding to require payment after such a large time period caught the attention of the national media, including Forbes.

The article in Forbes noted that the statute for limitations for an audit or assessment by the IRS is generally three years after the due date of the return or the date that the return was filed, whichever is later. However, the statute of limitations for the IRS to collect is longer, generally 10 years.

Although these are the general rules, there are exceptions. For example, there is no statute of limitations for failures to file tax returns.

IRS debt and payment options

If an audit or other occurrence results in tax debt, options are available. Three examples include:

  • Payment plans. In some cases, the IRS allows for payment plans for those who are financially unable to immediately pay a tax bill.
  • Offers in compromise. For others, an offer in compromise may be a valid option. This allows the settling of a tax debt for less than the owed amount. The IRS states that after considering facts and circumstances, it "generally approves an offer in compromise when the amount offered represents the most we can expect to collect within a reasonable period of time."
  • Currently Non Collectable Status. The IRS places certain delinquent tax cases in a "currently-not-collectable" ("CNC") status, after its agents have determined that there is no ability to collect the taxes from the delinquent taxpayer. If at any point in this process the taxpayer can demonstrate that the payment of the back taxes, either through voluntary or enforced means, would create an "economic hardship" on the taxpayer, then the IRS will close the collection case by placing the taxpayer's account in "CNC" status. This simply means that the IRS inputs a computer code on the taxpayer's account that reflects the fact that the taxpayer cannot afford to pay the back taxes and meet his or her minimum monthly living expenses, but the balance will remain due, just not collectable at this time. It is important to recognize that what the taxpayer may view as a hardship, the IRS may view as just an economic or personal inconvenience.
  • Bankruptcy. For those who are unable to make a payment, bankruptcy may be an option. It is important to note that not all forms of tax debt can be relieved through a petition for bankruptcy relief and certain requirements must be met to qualify.

Determining the best option can be difficult. As a result, it is generally wise to seek legal counsel for guidance.

IRS debt and legal counsel

If the IRS is requesting additional information, conducting an audit or otherwise claiming that a tax debt is owed, an experienced IRS tax lawyer can help. This legal professional can both review the situation to ensure the IRS is not violating your rights and provide guidance on various payment options that could lessen the burden.

Keywords: tax law bankruptcy