Three-Year Statute of Limitations
Normally, the IRS has three years from the time you file your tax return to assess tax. The statute of limitations on assessment begins to run on the day after you file your tax return. Thus, the day of filing is excluded from the computation of the three-year period. For example, if you file your 2011 Form 1040 on April 17, 2012, the IRS must assess any deficiency on or before April 17, 2015.
The timely mailing of a return is treated as timely filing, that is a return timely mailed to the IRS, even though received by the IRS after the return’s due date, is considered delivered to the IRS on the date of the postmark stamped on the envelope.
A return filed early is considered filed on the due date of the return. If your file the return after the original due date, the assessment period starts after the date the return is received by the IRS. If you have filed an extension to file your return, the extended due date does not shorten the assessment period.
Form 1040 Illustration
Taxpayer files his Form 1040 return for 2010 on March 25, 2011. The return is considered filed on April 15, 2011, and therefore, the IRS has until April 15, 2014, to assess a tax deficiency. If the return was extended to October 15, 2011, and was filed on that date, the period of assessment would run from October 15, 2011, to October 15, 2014.
Employment and withholding tax returns that are filed before April 15 of the succeeding calendar year are considered filed on April 15. Returns filed after April 15 of the succeeding calendar year are considered filed on the actual date received by the IRS.
Form 941 Illustration
ABC Corp. timely filed Forms 941 (Employer’s Quarterly Federal Tax Return) for the four quarters of 2010 on April 30, July 31, and October 31, 2010, and January 31, 2011. All four returns are considered filed on April 15, 2011, which means that the IRS has until April 15, 2014 to assess a tax deficiency for any of the four quarters.
Six-Year Statute of Limitations
The statute of limitations is extended to six years when the taxpayer omits gross income in excess of 25% from the tax return. The extended statute gives the IRS additional time to identify and assess a tax deficiency in situations where the taxpayer’s return gives no indication as to the existence of the omitted income. The limitations period is extended with respect to the taxpayer’s entire tax liability for the year, not just the omitted items of income.
Gross income from a business equals the total sales price before subtracting the cost of sales, returns or allowances.
No Statute of Limitations
The IRS is permitted to assess tax at any time if the taxpayer fails to file a tax return or files a fraudulent tax return. A fraudulent return is filed when a taxpayer intends to evade tax. The IRS has the burden of proving the taxpayer’s intent to evade tax.
If you need to know whether the statute of limitations on assessment is still open for a given tax year or you need tax help in preparing unfiled back tax returns you should consult a CPA or tax attorney with experience in such matters.