When Does An IRS Tax Lien Expire
By Robert S. Schriebman, SJD
The IRS has a right to file a Notice of Federal Tax Lien (NFTL) against any taxpayer, business or individual, who owes the IRS more than $10,000. Under Internal Revenue Code Section 6502, the IRS has 10 years to collect that tax deficiency. Before the end of the 10-year period set forth in the statute the IRS can take the taxpayer to federal court and obtain a judgment for the unpaid taxes. At that time California law comes into play and the IRS can record the judgment effectively as a new tax lien for successive 10-year periods. However, it is rare for the IRS to go the judgment route. So I will spend the rest of this paper discussing the normal expiration of a standard NFTL – the basic 10-year period.
Logic would tell you that if the IRS has 10 years to collect what is owed to them the lien should expire and be gone at the end of that 10-year period. Unfortunately logic does not always rule the day. Tax liens an be extended either voluntarily or by operation of law, and these extensions can take you by surprise. There are several ways liens can be extended beyond 10 years:
1. The most understandable way a lien can be extended is voluntarily by the taxpayer expressly agreeing to an extension by signing IRS Form 900. Recently a case came out where the court held that a 29-year extension was considered reasonable and valid. Frankly, I found this case to be shocking!
2. Submitting and negotiating an Offer in Compromise (OIC) also extends the statute of limitations for collection. There is a lot of advertising on television these days from companies offering to solve all your tax problems with an IRS OIC. What these companies fail to tell you is that very few OICs get accepted by the IRS. They also fail to tell you that virtually every OIC submitted to the IRS, even if it is not accepted, extends the statute of limitations for collection. Taxpayers who submit several OICs during the time they owe taxes can add years to the IRS’s ability to collect the tax and to the life of the tax lien.
3. Bankruptcy filings such as Chapter 7 also give the IRS much more time to collect the tax and extend the life of the tax lien. The usual rule of thumb is that the tax lien is extended by the time of the bankruptcy proceeding plus 6 months.
4. When you owe the IRS you will receive a series of collection notices, each one stronger than the preceding notice. The final notice and demand is sent by certified mail and informs you that the IRS is going to take immediate collection action or file a lien against you – but you have a right to hearing. This hearing is known as a Collection Due Process (CDP) hearing. Hearing application forms are usually supplied with this notice. If you fill out the forms and timely send them to the IRS, you will be entitled to a CDP hearing. While this process is pending the IRS is prohibited from taking enforced collection action against you. It is not uncommon for the hearing process to drag on for up to 2 years. While this appears to be a great way of getting the IRS off your back for awhile, there is a price to pay for this breather. A CDP proceeding tolls or stops the running of the collection statute and extends the life of the tax lien for the entire period in which the CDP matter is pending plus 90 days.
As you can see, there are subtle ways that the life of a tax lien can be extended way beyond its statutory life of 10 years. The best was to find out when a tax lien expires is to contact the IRS and ask them to provide you with an account transcript for the year or years involved. From the transcript it will be possible to accurately calculate the expiration date of your tax lien.
In another article I will discuss how to get the tax lien off your credit report.
© Copyright 2011. No part of this article may be taken and used in any way whatsoever
without the express written consent of Robert S. Schriebman
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure”, both published by Commerce Clearing House.