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IRS Statute of Limitations
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IRS Statute of LimitationsDaniel Dobbs2025-03-07T14:53:33-08:00
Issues with the statute of limitations can be pivotal in tax cases.
If you can successfully assert a defense, based on the statute of limitations, you win!
The IRS has 3 years from the date you file a tax return to audit you, but there are special rules that can extend the purgatory period.
First, the 3 years is doubled to 6, if more than 25% of your income is omitted. It’s doubled if you fail to disclose a foreign account.
The IRS has no time limit if you haven’t filed a tax return for a that specific year.
There’s also no time limit on fraud, which is the IRS’s greatest trump card.
Fortunately, the IRS has a high burden to show fraud.
Here are the “Timing Rules
Extend: The IRS may contact you (usually after 2 years from the filing date), asking you to extend the statute. Decline their offer gracefully!
Refunds: If you pay estimated taxes or have excess withholding but fail to file a return, you generally only have two years (not three) to get it back.
Amend: To amend, it must be 3 yrs. from the original filing date.
If the amended return shows an increase in taxes owed, submit it within 60 days. The IRS has only 60 days to make additional assessments.
State Statutes: Most states have the same 3- 6 year statutes as the IRS.
IN CALIFORNIA, THE BASIC TAX STATUTE OF LIMITATIONS IS 4 YEARS.
If the IRS adjusts your federal return, you must file an amended return in California with the State Franchise Tax Board. If not, the California statute never expires.
Partnerships: Partnerships and LLCs generally don’t pay tax themselves, even though they file tax returns. Instead, their partners or members pay the tax. Statute issues come up frequently with partnerships.
For example, what happens when a tax notice is sent to a partnership but not to its individual partners?
There are numerous special rules for partnerships. Partnerships have a specific “tax matters partner” who gets notice.
John Doe Summons: Another set of rules says the statute of limitations may be “tolled” (held in abeyance) by an IRS John Doe summons, even if you have no notice.
For example, if a promoter has sold you on a tax strategy that appears to be an unlawful shelter, the IRS will issue a summons to the promoter asking for the names of all his clients and partners.
While the promoter fights from turning over those names, the statute of limitations clock for his clients is stopped.
Of course, the difference between winning and losing can depends on “hard copy” records; so just in case …keep an extra years worth …they won’t take up much space in your storage.
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