The statute of limitation is the date after which the IRS may not assess additional tax. The standard statute of limitations is three years and starts on the LATER of the original due date of the return or the date the return is filed. For individual tax returns, this means the statute doesn’t start running until 4/15 if filed before the deadline and starts the date the return is filed if filed after.
The IRS religiously tracks statute expiration dates and Revenue Agents are strongly cautioned not to miss statute expirations when conducting an audit. Internally, the IRS tracks the statute expiration using the term “ASED”, which stands for Assessment Statute Expiration Date.
There are two other instances in which the statute may be longer than three years. They are –
- Six-year statute for omissions of income greater than 25%
- No statute in cases of fraud
If the IRS determines that more than 25% of the total income received by a taxpayer during their tax year was not reported, the IRS has six years to assess additional tax for that year. Here’s an example –
Bob filed his 2012 tax return in March of 2013 and reported $70,000 of gross receipts for his Schedule C business. During 2018 and after the three-year statute has expired for his 2012 return, Bob’s 2016 tax return was selected for audit. During that audit, the IRS determined he had underreported his Schedule C gross receipts for 2016 and decided to look at earlier years because they believed he had a habit of underreporting income.
When they looked at Bob’s bank statements for 2012, they realized he should have reported $100,000 of gross receipts when he only reported $70,000. Even though the normal three-year statute of limitations for the 2012 return expired April 15, 2016, the IRS can rely on the six-year statute of limitations because they established that Bob omitted more than 25% of his income for the year.
While at the IRS, I relied on a six-year statute in one of my cases. After opening an exam of the tax years within the three-year statute and finding substantial underreported gross receipts in each of those years, we determined we had sufficient reason to look at earlier years and rely on the six-year statute.
Once we had examined those earlier years, we determined that there was an omission of income greater than 25% and could rely on the six-year statute.
In any instance where the IRS can prove the taxpayer committed tax fraud, the statute of limitations is unlimited.
How Does Filing An Amended Return Affect The Statute of Limitations?
Filing an amended return does not, I repeat, does not extend the statute of limitations for that tax year. I made the following table to illustrate what the IRS may do with an amended return depending on when it is filed and whether or not more tax is being paid or a refund is being claimed.
|Circumstance||Refund Claimed||Additional Tax Owed|
|Filed before the statute expiration – Assumes the IRS has enough time to conduct an audit before the statute of limitations expires.||The IRS can either process the return and issue the refund or audit the amended return. If they audit the return they can not only examine what was being changed but anything else on the return they want. They are free to not only deny the refund claim but also assess additional tax.||The IRS can either process the return and collect the additional tax or audit the amended return. During the audit they can assess even more or less tax than the amended return shows.|
|Filed after the statute expiration||The IRS may not issue a refund if not claimed within three years after the original due date or two years after the tax was paid, whichever was later.
If outside the three-year assessment statute but within the two years of payment, the IRS could theoretically audit the amended return and make sufficient adjustments to disallow any refund claim but not cause more tax to be owed.
|The IRS may not process the amended return that attempts to assess additional tax once the statute of limitations has expired. Even though the taxpayer is requesting it, once the statute expires the IRS is simply not allowed to assess more tax.|
|Filed immediately before the statute expiration – Assumes the IRS does not have enough time to conduct an audit before the statute of limitations expires.||The IRS can either process the return and issue the refund or select the return for examination.
If selected for examination, the IRS would be unable to increase the total tax shown on the return. This means they can audit anything on the return but make changes to the extent of keeping the tax to where it was on the original return.
It’s possible they accept the changes made by the taxpayer but find other items to adjust on the return that offset any refund.
|The IRS may process the amended return and assess the additional tax.|