Expats and IRS tax collection statute limitations

If you owe the IRS money, it’s very easy to feel that the odds are stacked against you. The IRS is the most powerful collection agency in the world and Congress has repeatedly given the IRS new tools to collect what they feel they’re owed. As an attorney that works each day to negotiate the resolution of IRS tax liabilities, there are several tools that we use to keep the IRS honest and help balance the scales in favor of our clients during negotiations.


One of the most important tools we have is the Collection Statute Expiration Date, or what we in the industry call the “CSED.” Generally speaking, the CSED requires the IRS to collect on a tax debt within 10 years from the time it was assessed or lose out on the ability to collect on that liability forever.

Better three hours too soon than a minute too late.


The CSED is a powerful tool that cuts both ways; while it is responsible for much of the aggressive collection action the IRS takes towards taxpayers, it also motivates the IRS – whose natural state of negotiation can best be described as a sort of petulant torpidity – to come to the negotiating table in good faith, knowing full well that the clock is always ticking on their ability to collect.


Except the clock isn’t always ticking


There are several instances where the IRS’s collection window is suspended, or “tolled.” In most of the instances where the CSED is tolled, the tolling is temporary, such as when the IRS is reviewing a submitted offer in compromise. The IRS is barred from taking collection action when they’re reviewing the offer, so it makes sense that they would want that time back in instances where an offer was rejected or defaulted.


There’s one instance, however, where the CSED may be tolled indefinitely, and that’s when a taxpayer is outside of the country for six months or more. The Internal Revenue Code provides that when a taxpayer is outside of the United States for a continuous period of six months, the window for the IRS to collect is tolled until at least six months after the taxpayer has returned to the United States. See 26 U.S. Code § 6503(c).



With a large number of US citizens deciding to live overseas long-term or even permanently, the natural implication of this code section is that the CSED is likely to be suspended, to quote the Internal Revenue Manual, “for a very long time.” While most of the instances that would result in the tolling of the CSED are also accompanied by a halting of collection action by the United States, the tolling of a CSED for taxpayers abroad does not halt IRS collection action.


For whom the bell tolls


As many expats are probably aware, just because you’re outside of the country does not mean that the IRS will not do everything within its power to collect what’s owed to them. Expats who left the country after generating a liability will never be able escape the collection authority of the IRS so long as they remain outside of the country, and unless they reach out and negotiate a resolution with the IRS, their assets — especially those that remain in the United States — could be under threat of levy for the entire duration that they remain overseas.


This indefinite tolling of the CSED has become increasingly troublesome with the recent passage of HR-22 (aka the FAST Act), that allows the US Government to revoke or refuse to reissue US passports to US citizens that owe in excess of $50,000 (including interest and penalties). If you’re a US citizen that left the country 20 years ago with a $15,000 liability, the interest that has accrued in the interim leaves you with a balance of over $50,000 and places you at risk of passport revocation.


The IRS does provide some relief to international tax debtors, but only those that they’ve deemed to have been cooperative with their attempts to collect. By cooperative they mean those taxpayers that have “fully responded to the IRS and provided full information to the IRS with respect to collection of the assessment.” See IRM Those that are deemed to have been compliant and arrange to pay the IRS back will generally face a maximum CSED adjustment of 16 years from the date of assessment or 5 years following their reentry to the country, whichever comes first.


The best thing you can do is to act now


The bottom line is that leaving the country and ignoring the IRS is not a viable way to avoid the payment of taxes owed to the United States. At some point the IRS will try to collect, and even if you believe that all of your assets are outside the reach of the IRS, there is now one very valuable asset that will always be within their reach if you owe over $50,000 – your United States passport.


Your best bet in avoiding the nasty consequences of carrying an IRS tax liability while overseas is always to reach out to the IRS with the help of an experienced tax attorney who can negotiate the repayment or settlement of your liability. There is always a way to get back into compliance with the IRS and, because of the indefinite tolling of the CSED for taxpayers outside the US, it’s never too late to try. There will never be a better time to start than today. If you need assistance, contact us. We're here to help.