Generally the IRS has ten years from the date tax is assessed to collect the unpaid liability. Once a statutory expiration date is reached, the IRS must then abate the tax and release any liens filed against the taxpayer's property. This action is rarely automatic. Frequently the IRS will continue collection activity after a statute has expired, either out of administrative backlog or a perception of taxpayer ignorance. An important taxpayer “tip” in handling any outstanding tax liability that spans multiple tax years, is to designate any voluntary payments to the most recent assessments. The reason being that these assessments have the longest statutory time frame subject to collection activity. Earlier assessments have shorter statutory time periods. If a taxpayer does not make a designation of a voluntary payment, the IRS will always apply the payment to the tax period with the shortest time remaining under collection statutes. This is in the best interest of the government not the taxpayer. Frequently the IRS will apply voluntary payments this way out of default regardless of any taxpayer designation. It’s important to document any designation clearly on the payment.
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