One of the most frequent questions I am posed by clients is how long the IRS has to engage in collection activities. Most clients are aware of the “10-year rule” but other than its name, have little to no knowledge as to how it actually works or how the collection statute relates to the IRS’s ability to impose liens.
The keys to remember are the following: First, the IRS generally has 10 years to begin collection activities from the date of the assessment. However, this period can be extended (often unwittingly) if the taxpayer files for bankruptcy, applies for an offer in compromise or enters into an installment agreement, amongst other things. Second, whenever there is an assessment against a taxpayer, an IRS tax lien is automatically created; however, in order for this lien to be public and to provide the IRS proper security, the IRS must actually file a Notice of Federal Tax Lien. Whenever such a lien notice is filed, it will indicate the date of the assessment and then the date that the IRS must re-file the tax lien–otherwise the lien will “self-release”. Generally, if the IRS is going to re-file the tax lien they must do so within 30 days after the end of the 10 year collection period. Now, a federal tax lien remains in place for so long as the IRS has the ability to collect on the amount owed. The tricky part for the IRS, however, is that if the IRS collection period is extended (say by way of an installment agreement) the IRS is supposed to refile the Notice of Federal Tax Lien so that its security interest is maintained and protected. If the IRS doesn’t re-file, the IRS will still be able to engage in collection activities and will still have a general tax lien in place, however, until re-filed the IRS will not have priority (and if re-filed late will only have priority over later creditors).