IRS STATUTE OF LIMITATIONS FOR COLLECTIONS, REFUNDS AND AUDITS

Published by John Holmes at March 30, 2018

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The term statute of limitations is defined as the time frame for which a legal entity can bring legal action towards specific parties. In the case of federal taxes, there are clearly defined time frames concerning the collection of taxes due, audits, and the issuing of refunds. Below is a brief overview of the statue itself and its associated time frames.   

  1. Tax Collection:

    the IRS has the ability to enforce the collection of taxes that have been assessed within a period of 10 years. The wording here is important as this timeframe applies to existing assessed taxes. The assessment of taxes is a period of up to three years after the due date of the associated tax returns or the filing of documentation (whichever date is later). Note that this time frame can be extended to six years in cases where more than 25 percent of your gross income for the period is not properly claimed on the return.    

  2. Tax Refunds:

    when filing taxes for previous tax years there is a grace period where refunds are still available. This period is three years from the date of the original tax deadline for the year in question (plus requested filing extensions) or two years from the date the original taxes were paid whichever comes later. There are exceptions, for example, if you are physically or mentally incapacitated in such a way that you could not file your taxes the time frame does not apply.

  3. Audit Timelines:

    the IRS has the ability to audit your taxes for a period of three years. This time frame is relatively simple as this three-year period begins when you file your taxes (unless you filled them early in which case the IRS still has until the official filing date). A period of six years, however, does apply in these two instances:   if more than 25 percent of your gross income was not properly reported or income related to undisclosed foreign assets exceeding a value of $5,000 was not reported.

  4. Other Considerations:

    in cases of outright fraud or an attempt to file fraudulent tax returns, the above statute of limitations does not apply and the collection time frame and associated penalties can be assessed indefinitely. Also, in extreme cases, federal criminal charges could be filled.   

Conclusion

As noted above the IRS is strict in its collection and assessment of taxes. Many people miss tax filings for both personal and business reasons. It is important to remember that the IRS is willing to work with you, and their chief concern is having information properly filled and any past due tax returns and associated fines paid. If you have past tax returns that have not been properly filed, you should contact a skilled a tax professional as soon as possible. Delay only increases related fines and reduces the chances of receiving any possible refunds that may be owed. Contact us today at Fricke & Associates, LLC for more information.  

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