Statute of Limitations: How Long Am I on the Hook for a Tax Assessment?


Gavel, tax deadline, statute of limitationsTaxpayers often wonder what is the statute of limitation for a tax assessment? Or, they ask, “How long does the IRS have to question and review my tax returns?” For most taxpayers who reported all their income, the IRS has three years from the date of filing the returns to examine them. This period is termed the statute of limitations. But wait – as in all things taxes, it is not that clean cut. Here are some complications:

You File Before the April Due Date

If you file before the April due date, the three-year statute of limitations still begins on the April due date. So filing early does not start an earlier run of the statute of limitations. For example, whether you filed your 2014 return on February 15 or April 15, the statute would not start running until April 15.

You File After the April Due Date

The assessment period for a late-filed return starts on the day after the actual filing.  Regardless if being late was due to a taxpayer’s delinquency, or under a filing extension granted by IRS.

For example, say your 2014 return is on extension until October 15, 2015, and you actually file on September 1, 2015. The statute of limitations for further assessments by the IRS will end on September 2, 2018. So the earlier you file those extension returns, the sooner you start the run of the statute of limitations.

If you want to be cautious you may wish to secure verification of when the return was filed. For electronically filed returns, you can get confirmation from the IRS when you file electronically. If you file a paper return, proof of mailing can be obtained from the post office at the time you mail the return.

You File an Amended Tax Return

If after filing an original tax return you discover you made an error, an amended return is used to make the correction to the original. The filing of the amended tax return does not extend the statute of limitation unless the amended return is filed within 60 days before the limitations period expires. If that happens, the IRS generally has 60 days from the receipt of the return to assess additional tax.

You Understated Your Income by More Than 25%

When a taxpayer under-reports his or her gross income by more than 25%, the three-year statute of limitations is increased to six years.

To determine if more than 25% has been omitted, capital gains and losses are not netted. Only gains are taken into account. These “omissions” do not include amounts for which adequate information is given on the return or attached statements. For this purpose, gross income, as it relates to a trade or business, means the total of the amounts received or accrued from the sale of goods or services, without reduction for the cost of those goods or services.

You File Three Years Late

Suppose you procrastinate. You file your return three years or more after the April due date for that return. If you owe money, you will have to pay what you owe plus interest and late filing and late payment penalties. If you have a refund due, you will forfeit that refund, You may also get stuck with a $135 minimum late filing penalty. No refunds are issued three years after the filing due date.

10-Year Collection Period

Once an assessment of tax has been made within the statute of limitation period, the IRS may collect the tax by levy or court proceeding started within 10 years after the assessment. Or, within any period for collection agreed upon by the taxpayer and the IRS before the expiration of the 10-year period.

Do Not Discard Your Tax Records

Remember not to shred or throw away your tax records until after the statute has run its full course. When disposing old tax records, be careful not to discard records that prove the cost of items that have not been sold. For example, you may have placed home improvement records in with your annual receipts for the year the improvement was made. You do not want to discard those records until the statute runs out for the you sold the home. The same applies to purchase records for stocks, bonds, reinvested dividends, business assets, or anything you will sell in the future and need to prove the cost.

Are You Behind On Your Tax Filing? Any questions on the statute of limitations?

We understand. Some people would rather get a root canal before sorting through the paperwork to file their taxes. If you are behind on filing your returns and would like to get caught up, please give Alex a call at 781-848-7200. If you discovered you left out something from your original tax return and would like to file an amended return, WorthTax can help with that as well.

Perhaps you know someone who may benefit from this information, please feel free to share:
Linkedin - Joseph Cahill / WorthTaxTwitter - Joseph Cahill / WorthTax / WorthTaxPrepFacebook - Joseph Cahill / WorthTaxGoogle+ - Joseph Cahill / WorthTaxalignable_logo - Joseph Cahill / WorthTax


– – – – –
photo credit: 3D Judges Gavel via photopin (license)

For more information, call Alex Franch at 781.789.7200. WorthTax has locations in Norwell, Dedham, and Weymouth, Massachussetts.
Alex Franch

Mr. Franch is a Tax Specialist and Partner at Joseph Cahill & Associates / WorthTax. He has a diverse background including a Bachelor of Science from Boston College in Mathematics and extensive military service. Mr. Franch is an Enrolled Agent and has eight years of tax preparation experience. He has been serving individuals, families, and businesses for several years with tax and financial planning strategies and is a junior partner with the firm. Mr. Franch is licensed by the Financial Industry Regulatory Authority (FINRA) with a Series 6, 63, 65, and 7, and by the Commonwealth of Massachusetts Division of Insurance.

Leave a Comment