Business & Financial Solutions
TAX HELP SERVICE AND PREPARATION
Many Maryland taxpayers struggling with tax debt wonder: “Will this debt haunt me forever?” When it comes to federal tax debt, there’s good news – the IRS doesn’t have unlimited time to collect. However, Maryland state tax debt is a different story. Understanding these different statutes of limitations on tax debt can help you make informed financial decisions.
The statute of limitations on federal tax debt refers to the time period during which the IRS can legally pursue collection actions against a taxpayer. Once this period expires, the IRS can no longer garnish wages, levy bank accounts, or place liens on property to collect the debt.
For most federal tax debts, the IRS has 10 years from the date of assessment to collect. The assessment date typically occurs shortly after you file your tax return or after the IRS completes an audit.
Your assessment date is crucial for calculating when your federal collection statute expires. You can find this information by:
Unlike federal tax debt, Maryland state tax debt has no statute of limitations. This means the state of Maryland can continue collection actions indefinitely until the tax debt is fully paid or otherwise resolved. This makes addressing Maryland state tax issues particularly urgent for taxpayers.
The key differences between federal and Maryland state tax debt collection:
Business and Financial Solutions has helped many clients who were surprised by Maryland’s persistent collection efforts on very old tax debts. The state can:
While the federal 10-year rule seems straightforward, several actions can extend or suspend the statute of limitations:
When you file for bankruptcy, the IRS collection statute is suspended for the duration of the bankruptcy proceeding plus an additional six months. This means if your bankruptcy case lasts one year, your collection statute will be extended by 18 months.
Submitting an Offer in Compromise (OIC) to settle your tax debt for less than the full amount suspends the statute of limitations while the IRS reviews your application, typically adding 6-12 months to your collection timeframe.
Filing for a Collection Due Process hearing after receiving a Notice of Federal Tax Lien or Notice of Intent to Levy suspends the statute until the hearing process concludes and any appeals are completed.
Entering into an installment agreement doesn’t automatically extend the statute, but signing certain types of installment agreements may include a waiver that extends the collection period.
If you leave the United States for a continuous period of at least six months, the statute of limitations is suspended for the duration of your absence.
Understanding these time limitations provides strategic options for managing tax debt:
For some Maryland taxpayers with limited assets and income, waiting for the federal statute to expire might be a viable strategy. However, this approach:
Given that Maryland state tax debt never expires, Business and Financial Solutions often advises clients to:
For federal tax debt, the approaching end of the collection statute can provide leverage when negotiating with the IRS. As the deadline nears, the IRS may be more willing to:
For Maryland state tax debt, since there is no expiration date, negotiation strategies focus on demonstrating financial hardship and securing manageable payment arrangements.
The IRS uses an internal system to track Collection Statute Expiration Dates (CSEDs) for each tax assessment. However, mistakes can happen. Our Business and Financial Solutions tax professionals in Frederick, Rockville, McLean, and Plano have identified numerous cases where:
Having a tax professional review your specific situation can help ensure the IRS respects the legal limitations on collections.
When the federal collection statute expires:
It’s important to note that the statute’s expiration doesn’t remove the tax debt from your record – it simply prevents the IRS from collecting it.
There are critical situations where the 10-year federal statute doesn’t protect taxpayers:
If the IRS can prove you filed a fraudulent tax return, there is no statute of limitations on collection.
The statute of limitations doesn’t begin until a return is filed. For unfiled returns, the IRS can pursue collection indefinitely.
If the IRS challenges the original assessment through certain legal proceedings, the statute may be extended.
At Business and Financial Solutions, our experienced tax professionals in Frederick, Rockville, McLean, and Plano specialize in resolving complex tax debt issues. We can:
Our personalized approach ensures we find the solution that best fits your specific financial situation and goals.
If you have older tax debts, consider these proactive steps:
The statute of limitations on federal tax debt provides important protection for Maryland taxpayers facing IRS collections. However, the lack of a statute of limitations for Maryland state tax debt means these obligations require immediate attention.
At Business and Financial Solutions, we’ve helped hundreds of Maryland, Virginia, and Texas clients successfully navigate tax debt issues, including many cases involving statute of limitations considerations. Our team of tax professionals is ready to review your situation and help you determine the best path forward.
Don’t let tax debt uncertainty continue to cause stress and financial limitations. Contact our team at Business and Financial Solutions today for a confidential consultation about your specific tax situation.
Generally, the IRS cannot collect tax debt after the 10-year statute of limitations expires. However, certain actions like bankruptcy filings, submitting an Offer in Compromise, or requesting a Collection Due Process hearing can extend this period.
No, Maryland state tax debt has no statute of limitations. The state can continue collection actions indefinitely until the debt is fully paid or otherwise resolved.
When the federal statute of limitations expires, the IRS is required to release any federal tax liens. However, the release may not happen automatically, and you may need to request the release if it doesn’t occur in a timely manner.
There is no statute of limitations for the collection of tax debt related to unfiled returns. The 10-year period only begins once a return is filed and the tax is assessed.
In many cases, it makes sense to prioritize Maryland state tax debt since it has no statute of limitations and the state typically employs more aggressive collection tactics. Business and Financial Solutions can help you develop a strategy based on your specific situation.
