Jul 28, 2008

Q & A: Statute of Limitations

QUESTION: I was in a failed business with a partner whom I thought was taking care of our taxes (it's a long story). Lo and behold he took care of his taxes but not mine…..In 1998 I had taxes of $16,000, met with the IRS and completed the work sheet showing expenditures and allowances. IRS deemed me unable to pay taxes…2 years ago I called the IRS for the yearly sit down and was told I was no longer on the collections list…I know for a fact the balance is $4,200 dollars (not including penalties and interest)…… I obviously have not collected a refund of any sort since 1998….. My question: No tax lien has ever been placed against me, nothing shows up in my credit report, it has been over 10 years since the tax assessment, statute of limitations is 10 years. I was just curious that if I have passed the 10 years for collections on back taxes and the IRS is not attempting to collect, what would happen if I were to purchase a home? Should I attempt an offer in compromise of the $4,200?

ANSWER: Great questions. First, you should not try an Offer in Compromise as it will extend the collection statute of limitations (10 year statute) and, if unsuccessful (and most are)- it would put you back into enforced collections. It appears that your statute has expired (although the date is real close- I would want to make sure by getting an official IRS transcript- use a professional to do this as to not raise the ire of the IRS).

For $16,000, the IRS has some discretion on filing a tax lien. Normally, if you were considered noncollectable, they would file a tax lien- however, since this was years ago (1998-the IRS procedures were sporadic until 2005) they probably did not file a lien. The key question is whether the statute has expired.

For your sake, I hope it has...then your refunds will come to you each year....I hope you filed an extension for 2007 so that the refund would be later in the year- after the collection statute has expired- and you will get your refund.

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