Monday, July 25, 2011

Watch the Statute of Limitations

In tax controversy matters is it important to be aware of the statute of limitations. Set forth below are some basic rules for dealing with the statute of limitations (SOL). The references are to the applicable sections of the Internal Revenue Code.

A. General Rules
    1. SOL - The IRS has 3 years from the time the tax return is filed to assess. Section 6501.
    2. Notice and Demand- Upon an assessment being made, the IRS has 60 days to notify the taxpayer of the assessment and demand the amount assessed. Section 6303(a).
B. Determination of the SOL
   1. Due Date - The due date of an individual return is April 15th (or the following Monday if April 15th falls on a Saturday or Sunday). Section 6072(a).
     2. When a Return is Deemed Filed - Sections 6501(b) and 7502(a) (2).
         a. A return filed on or before the due date is deemed filed as of the due date.
         b. A return filed after the due date is deemed filed as of the postmark date.
         c. Quarterly returns are deemed filed on April 15th of the following year.
     3. Returns Mailed to the Wrong IRS Service Center - A return must be filed at the service center where the taxpayer has been instructed to file the return, or otherwise probably will not be considered filed, thus causing the SOL to be indefinite. Section 6091.
     4. Unsigned Returns - Unsigned returns are considered not filed with an indefinite SOL, and the IRS has no duty to alert the taxpayer of an unfiled return. Section 6061.
     5. Fraudulent and Unfiled Returns - With intentionally false and fraudulent and unfiled tax returns, the SOL is indefinite. Section 6501.
     6. Partners - Late partnership returns do not affect the filing date of partners' individual tax returns. Section 6229.
C. Suspension of SOL with 90-Day Letters and Tax Court Cases
    1. 90-day Letters - The SOL is suspended from the date of issuance of a 90-day letter, and during that period the IRS cannot assess the deficiency. Section 6503(a)(1).
   2. Pending Tax Court Case - No assessment can be made during the time a Tax Court case is pending. The SOL is suspended during this period. Section 6213(a) and 6503(a)(1).
    3. Final Tax Court Decision
       a. Tax Court decisions are not final until the appeal period has expired. The time to make an assessment is suspended during this period. Section 7481.
       b. The appeal period runs 90 days after the Tax Court decision is entered. Section 7483.
       c. The SOL is suspended an additional 60 days after the appeal period ends. Section 6503(a)(1).
D. Collection SOL - The SOL on collection of an assessment runs 10 years from the assessment date. Section 6502(a).
E. Criminal Cases - The SOL for prosecution of criminal cases is 6 years.