Determining the statute of limitations (SOL) on your taxes can be deceptively complicated. Luckily, in their recent article “How the IRS Determines Statute of Limitations on Collections,” CPA Practice Advisor outlined general guidelines for how SOL is defined and enforced. A summary of their findings in layman’s terms can be found below.
General Practices
It is first important to note 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 takes five to six weeks to process these taxes, they are not counted as “assessed” until “a taxpayer’s liability is recorded and signed by an assessment officer in the office of the Secretary of the Treasury in accordance with rules or regulations prescribed by the Secretary.” This begins IRS 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 $100,000, 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 $120,000, 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.
