What is the Statute of Limitations on Your Taxes?
Have you received a notice from the IRS stating you have a balance due from a prior tax period? It can be confusing, but it’s important to review and understand how long the IRS has to claim the amount due. Determining the statute of limitations (SOL) on your taxes can be deceptively complicated. Below is some information to make it a little more easy to understand.
The first thing to understand is that the IRS makes a distinction between when taxes are filed and when they are assessed. Taxes count as “filed” when they are electronically submitted to the IRS or postmarked (if they are being sent through the postal service.) However, since the IRS had taken five to six weeks to process these taxes (and more recently 3-6 months), they are not counted as “assessed” until a taxpayer’s liability is recorded and signed by a Secretary of the Treasury assessment officer.
This begins collection proceedings. The IRS is allowed up to three years from the time a return is filed to assess taxes unless there is a special circumstance, such as if the taxpayer understates their gross income. In these cases, the period is extended to six years.
Collections may be enforced any time up until the Collection Stature Expiration Date (CSED.) A ten-year timeline exists for collection of assessed taxes. In cases where an amended return is filed or a return is audited and found to be incorrect, there can be multiple CSEDs for a single tax year.
For example, if you file your return and report your gross income as $150,000, collections on that return have a CSED date of ten years from when the taxes were assessed. However, if the return is audited a year later and the gross income amount is corrected to $170,000, the CSED on the additional $20,000 starts from the time the audit assesses the additional taxes.
Special Cases
If you fail to file a tax return, the IRS may file a Substitute for Return (SFR) on your behalf. In this case, the CSED is determined by the date that the IRS assesses taxes on the SFR. If the taxpayer files their own return after an SFR has been prepared, the statute of limitations will begin at the time their return is signed by an assessment officer, but the CSED date will remain ten years from when taxes on the IRS’s SFR were assessed.
False or fraudulent returns are not subject to a CSED. The IRS has burden of proof in these scenarios but can begin collections proceedings at any time.
Suspension of the Statute of Limitations
There are also some circumstances in which the Statute of Limitations can be suspended, such as when:
The taxpayer files for bankruptcy
A Collection Due Process Request is filed
An Offer in Compromise is filed
An Innocent Spouse Request is Filed
A proposed installment agreement is pending
The taxpayer lives outside the U.S. for 6 or more months
The taxpayer is on active duty in the military
A soldier or civilian aiding the military is in a combat zone
The taxpayer submits Form 911, Request for Taxpayer Advocate Service Assistance
If you are still unsure about the statute of limitations or CSED of your return, please consult your tax and legal professionals for more information.
