How does the Statute of Limitations affect tax obligations with the IRS?

Under section 6501(a) of the Internal Revenue Code (Tax Code) and section 301.6501(a)-1(a) of the Income Tax Regulations (Tax Regulations), the IRS is required to assess tax within 3 years after the tax return was filed with the IRS. Similarly, under 301.6501(a)-1(b) of the Tax Regulations no proceeding in court by the IRS without assessment for the collection of any tax can begin after the expiration of 3 years.

Under section 6501(e) of the Tax Code and section 301.6501(e)-1 of the Tax Regulations the statute of limitations is 6 years if the taxpayer omits additional gross income in excess of 25% of the amount of gross income stated in the tax return filed with the IRS.

If the tax return was prepared by the IRS under the authority of section 6020(b) of the Tax Code the statute of limitations does not apply. See section 6501(b)(3) of the Tax Code and section 301.6501(b)-1(c) of the Tax Regulations.

The statute of limitations does not apply in the case of a false tax return or fraudulent tax return filed with the IRS with intent to evade any tax. See section 6501(c)(1) of the Tax Code and section 301.6501(c)-1 of the Tax Regulations.

For assessments of tax or levy made after November 5, 1990, the IRS cannot either collect or levy any tax 10 years after the date of assessment of tax or levy. See Section 6502(a)(1) of the Tax Code and section 301.6502-1 of the Tax Regulations. Court proceedings must also be started by the IRS within the 10 year statute of limitations. Section 301.6502-1(a)(1) of the Tax  Regulations.

For assessments of tax or levy made on or before November 5, 1990, the IRS cannot either collect or levy any tax 6 years after the date of assessment of tax or levy. See section 6501(e) of the Tax Code. However, if the 6 year period ends after November 5, 1990, the statute of limitations is 10 years. In order to come under the 6 year statute of limitations, the 6 year period must end prior to November 5, 1990.

The 10 year statute of limitations can be extended by agreement between the taxpayer and the IRS provided the agreement is made prior to the expiration of the 10 year period. See section 6501(c)(4) of the Tax Code and section 301.6501(c)-1(d) of the Tax Regulations.

Make sure you understand the starting date for the running of the statute of limitations, any exceptions to the tolling of the statute of limitations, the last day that the IRS can audit a tax return, and the last day that the IRS can collect overdue tax on a tax return.

Statute of Limitations on Taxpayer to Claim a Tax Refund

A taxpayer may file a claim for a tax refund of an overpayment of any tax within 3 years from the time the tax return was filed with the IRS or 2 years from the time the tax was paid to the IRS, whichever period is the last. If no tax return was filed with the IRS, the claim may be made within 2 years from the date that the tax was paid to the IRS. See section 6511(a) of the Tax Code.

Under section 6511(d)(1) of the Tax Code a taxpayer may file a claim within 7 years if the tax refund pertains to a bad debt under section 166 or 832(c) or in connection with a loss from a worthless security under section 165(g).