An Important Note on the Statute of Limitations

The IRS statute of limitations is dependent upon 2 main factors: 1) was a tax return filed or not; and 2) how accurate was the return?

Filed Tax Returns - 3 to 6 years on assessment & 10 years on collection

In general, the statute of limitations on a filed tax return is 3 years. This means that the IRS has 3 years to dispute a filed tax return from either the due date of the return or the date on which it was filed, whichever is later. This limitation acts as a double edged sword, however, as the taxpayer only has 3 years to claim a potential refund if they are so entitled. In the instance that a taxpayer made a substantial omission (more than 25%) of gross income on a tax return, the statute of limitations is extended to 6 years for the IRS.

Once the IRS has determined that additional taxes are due (or if the taxpayer failed to pay the tax liability stated on the return), the IRS has 10 years to collect the amount. Generally, the IRS will employ such tools as levies and wage garnishments to accomplish this task.

False, Fraudulent, or Missing Returns - Unlimited

There is no time limitation on when the IRS can assess a tax liability on a tax return that wasn't filed. This means that if a taxpayer failed to pay their taxes for 20 years, the IRS would be able to go back to each of those years and assess a tax liability on each one (versus the 3 - 6 years available to the IRS if a return had been filed).

In addition to failing to file a return, the IRS can ignore the statute of limitations if they can establish that a taxpayer either filed a false or fraudulent return or willfully attempted to evade tax. Any such findings will also result in heightened penalties and interest or even criminal prosecution. Voluntarily coming forward would, however, be viewed favorably by the IRS and would likely result in a less harsh penalty.

Disclaimer
Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.