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For many people accused of wrongdoing, statutes of limitations are their saving grace. The highest stakes with respect to statutes of limitations involve criminal charges, but most civil actions also have limiting statutes.
A statute of limitations is the maximum amount of time allowed to start legal proceedings against a party accused of wrongdoing. The clock begins ticking on the statute of limitations immediately after a triggering event, which is usually an offense or violation. The IRS must respect a variety of statutes of limitations regarding tax assessments, collections, and criminal charges.
Civil – Three-Year Statute of Limitations
Fortunately for taxpayers, the IRS has only three years to begin an examination, or audit, of a specific tax year. The clock starts ticking on the three-year statute of limitations as soon as taxes are filed, which is generally April 15 (or October 15 if an extension is filed) of the following year. The federal tax deadline was pushed to July 15 in 2020 and May 17 in 2021 due to COVID-19.
No matter when you actually file your federal tax return, the statute of limitations for audits does not begin until the last day the IRS is accepting returns. Some exceptions exist, however, for the three-year statute of limitations.
Civil and Criminal – Six-Year Statute of Limitations
Sometimes, the IRS has six years to audit a taxpayer’s return. This can happen when the taxpayer substantially understated his or her income. That means the taxpayer is alleged to have underreported 25 percent or more of the actual gross income.
The IRS also has six years to audit a tax return if the taxpayer did not report more than $5,000 of income related to undisclosed foreign assets.
If the IRS alleges that a taxpayer committed a crime, it has six years to bring charges from the date the tax return was filed. If a tax return is not filed, the statute of limitations does not begin to run, so it never ends.
Collections – 10-Year Statute of Limitations
Contrary to popular belief, taxpayers do not carry IRS debt for the rest of their lives. The IRS has 10 years to collect outstanding tax liabilities from the date the tax is assessed by the IRS. After 10 years, the tax debt, interest, and penalties will essentially disappear. Similar to other IRS statutes of limitations, though, the 10-year period may be suspended or extended by a variety of things including leaving the country or applying for an Offer in Compromise.
Civil Fraud – No Statute of Limitations
If the IRS can prove you committed fraud on a tax return after an audit, there is generally no statute of limitations. However, the IRS has the burden to prove civil fraud by the taxpayer.
The three- or six-year statutes of limitations do not begin until you have actually filed your return. The clock will not start ticking for a return that is never filed.
Conclusion
The good news for taxpayers is that the IRS generally cannot wait around for decades and suddenly decide to audit a tax return from 20 years ago. The bad news is that the IRS still has plenty of time to examine your tax documents, levy penalties, reassess tax debt, and collect the money it owes.
A skilled attorney can help exploit the various statutes of limitations and present an aggressive defense against tax-related charges. The statutes of limitations described in this blog can be modified by countless factors. Don’t try to figure things out on your own—contact Weisberg Kainen Mark, PL today.
Weisberg Kainen Mark, PL
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