How the IRS decides which tax year to collect from first

When you owe taxes for several years, the IRS doesn’t treat all debts identically. The agency follows internal allocation rules and legal limits that typically result in older assessed liabilities being addressed before newer ones. Three legal and operational principles drive that outcome:

  • The Collection Statute of Limitations (generally 10 years from assessment) can make older liabilities time‑sensitive.
  • IRS payment‑application rules allocate undesignated payments to the oldest assessed tax periods first.
  • Enforcement tools (liens, levies, refund offsets) are tied to the taxpayer’s balance by assessment date and priority.

These rules affect practical outcomes: which year a payment reduces, whether a notice of federal tax lien attaches to a specific assessment, and how the IRS treats refunds and payment plans.

Sources: IRS collection overview and guidance on the Collection Statute Expiration Date (CSED) explain the legal backdrop for collection timing and limits (see IRS Collections pages and Collection Statute materials at irs.gov).

Key rules and terms to know

  • Collection Statute Expiration Date (CSED): Under Internal Revenue Code section 6502, the IRS generally has 10 years from the date of assessment to collect a tax. After the CSED has passed, the IRS can no longer take enforced collection action on that assessment unless certain events (e.g., bankruptcy, a Form 910 change) extend the period. For practical steps to verify a CSED, taxpayers should review their account transcript or correspondence from the IRS. (See IRS: Collection Statute Expiration Date.)

  • Payment application: When you send a payment and do not specify which year it should apply to, the IRS will usually apply that payment to the oldest outstanding assessed balance first. This convention reduces the risk that a very old debt will go uncollected before the CSED expires.

  • Notice of Federal Tax Lien (NFTL): A lien arises when the IRS assesses a tax and files a public lien. Liens secure the government’s interest in a taxpayer’s property and are indexed to specific assessments and tax periods.

  • Levy and wage garnishment: Levies are targeted at particular assets (bank accounts, wages) but operate against the taxpayer’s assessed liabilities. The IRS uses levy after notices and demand for payment are sent.

Authoritative references: IRS Collections Overview (irs.gov/collections) and the Taxpayer Advocate Service explain how enforcement tools fit into the collection lifecycle.

How payments are allocated in practice

If you mail a single payment and don’t designate a tax year, the IRS’s standard practice is to apply the payment to the oldest assessed liability first. That means:

  • A payment may wipe out a 2015 balance before it reduces a 2020 balance if the 2015 assessment remains unpaid.
  • Interest and penalties on older assessments usually continue to accrue until the older balances are satisfied.

If you want a payment applied to a specific year, designate it clearly when you submit the payment (e.g., include a written note and use the proper payment voucher). Even then, the IRS may reallocate a payment if it determines the designation conflicts with statute or existing agreements.

Practical tip: Check your IRS account transcript online or request it by mail. The transcript shows assessment dates and current balances and helps you confirm whether a payment was applied as you intended.

How enforcement actions reflect priority

  • Liens: The IRS may file a Notice of Federal Tax Lien for the total assessed and unpaid liability. The lien attaches to all property and rights to property belonging to the taxpayer at the time of the filing and subsequent acquisitions, but the debt behind the lien is tied to specific tax periods by assessment date. The NFTL preserves the government’s priority over later creditors.

  • Levies and wage garnishments: When the IRS levies a bank account or issues a wage levy, the levy is applied to the taxpayer’s balance generally with reference to the oldest assessments. For example, a levy that collects funds will satisfy the earliest amounts first.

  • Refund offsets: If you are due a federal refund, the Treasury Offset Program may apply that refund against any outstanding federal debts (including older tax years, past-due child support, or student loans). Offsets generally go to satisfy assessed debts and often reduce the oldest outstanding liability.

Caveat: Some tax types—most notably trust fund recovery penalties, certain employment tax assessments, or secured claims—have distinct administrative and legal treatment. The IRS also has internal priorities for certain programs (e.g., unpaid employment taxes may trigger more immediate enforcement) but, absent a special statutory rule, payments and collections trace to the assessment dates.

Common scenarios and what they mean for taxpayers

Scenario 1 — Multiple old years, one recent year:
If you have unpaid taxes for 2016–2019 and an assessed 2022 liability, the IRS will typically apply undirected payments to 2016 first. That can make older years urgent if a CSED is approaching.

Scenario 2 — Employer withholding vs. self‑employment tax:
Trust fund taxes (withholding) carry serious trust‑fund penalties for responsible parties and can lead to separate assessments (and sometimes criminal exposure). While the IRS enforces these vigorously, the basic allocation rules remain assessment‑driven: payments apply to older assessments unless otherwise designated.

Scenario 3 — Refund due with unpaid balances:
A refund will usually be offset to satisfy assessed liabilities. The offset reduces the oldest assessed liability unless the refund is designated or a different statutory priority applies.

How to check priorities on your account (step‑by‑step)

  1. Request an account transcript from the IRS (online or by Form 4506‑T) to see each assessment date, balance, and CSED.
  2. Review notices: IRS notices will identify the tax period and show amounts assessed for that year.
  3. If you’re unsure how a past payment was applied, request a payment history (the account transcript includes payments and how they were allocated).
  4. If the CSED is near or passed for an older assessment, consult a tax professional immediately — collection opportunities may be limited for that year.

Taxpayer Advocate Service resources and IRS collections pages provide step‑by‑step guides and should be referenced when planning next steps (see the Taxpayer Advocate Service for practical help and irs.gov for official notices).

Practical strategies to manage multiple‑year tax debts

  • Address the oldest assessment first when possible. That often stops interest/penalty accumulation on a debt that could become uncollectible after its CSED expires.

  • Consider an Installment Agreement that covers all unpaid tax periods. The IRS commonly requires unresolved prior years be included in a payment plan.

  • If collection would create economic hardship, apply for Currently Not Collectible (CNC) status after submitting your financial information. CNC can pause enforced collection while preserving assessed liability.

  • Evaluate Offer in Compromise (OIC) only after running the numbers. OIC eligibility and evaluation depend on the taxpayer’s total financial picture and how reasonably collectible the IRS considers your liabilities to be. See FinHelp’s guide: What Is an Offer in Compromise? Eligibility, Process, and Alternatives and How to Prepare a Strong Offer in Compromise Package for tactical steps when an OIC might make sense.

(Internal links: “What Is an Offer in Compromise? Eligibility, Process, and Alternatives”: https://finhelp.io/glossary/what-is-an-offer-in-compromise-eligibility-process-and-alternatives/ and “How to Prepare a Strong Offer in Compromise Package”: https://finhelp.io/glossary/how-to-prepare-a-strong-offer-in-compromise-package/.)

Mistakes to avoid

  • Don’t ignore IRS notices. Silence increases the risk of lien filings, levies, and accelerated collection.
  • Don’t assume the IRS will treat recent debts first; in most cases, the opposite is true.
  • Don’t overpay one year without clear instruction if you want another year reduced. Use clear payment designations and retain proof.

When to involve a professional

In my practice I see three reasons to bring in a CPA, EA, or tax attorney: (1) the CSED looks like it may expire soon, (2) you’re facing liens or levies and need to negotiate an installment agreement or lien withdrawal, or (3) you’re considering an Offer in Compromise or bankruptcy as a last resort. Professional representation can ensure payments are applied correctly and that collection alternatives are pursued effectively.

For practical guidance on preparing an OIC or alternatives, see FinHelp’s resources on Offers in Compromise and alternative relief strategies.

Final checklist for taxpayers with multiple years owed

  • Pull your IRS account transcript to see assessments and CSEDs.
  • Confirm how prior payments were applied.
  • Prioritize the oldest assessed debts when budgeting a repayment plan.
  • Explore installment agreements, CNC status, or OIC if you lack ability to pay in full.
  • Get professional help if liens, levies, or criminal exposure are possible.

Disclaimer

This article is educational and does not substitute for personalized tax advice. Laws and IRS procedures change; for tax guidance specific to your situation consult a qualified tax professional or the IRS. See IRS official pages (irs.gov) and the Taxpayer Advocate Service for authoritative guidance.

Sources and further reading

If you need help interpreting your IRS account transcript or evaluating options, consult a credentialed tax practitioner.