There are also statutes of limitations in tax cases, just as in “slip and fall” cases. Statutes of limitation are similar to fairness doctrines since they require that you take appropriate action within a predetermined period of time or you won’t be allowed to seek the relief you intend. In the aftermath of moving, memories fading, and documents disappearing, statutes of limitation require that you take action quickly. There is a discussion in this section about the tax statute of limitations.
Tax assessments are generally subject to a ten-year statute of limitations period from the date they are assessed. A tax practitioner who is new to the IRS collection process may not be aware of the impact the statute of limitations (SOL) can have on their case and dismiss its relevance because it is years into the future. The assumption can, however, be erroneous in some circumstances. A taxpayer who cannot afford to pay in full may consult a tax professional or review their payment options on the IRS website if they have an outstanding balance. In the same vein, an equal number of people will avoid dealing with their outstanding tax liabilities until their financial situation becomes dire and the IRS orders their employer to garnish their wages because of their outstanding tax obligations. Understanding the history of statute of limitations can be very beneficial on this case.
The IRS must assess tax in order to initiate collection proceedings. The limitation period for collection begins when the assessment occurs. According to rules or regulations prescribed by the Secretary of the Treasury, an assessment is made when a taxpayer’s liability is recorded and signed by an assessment officer in the Treasury’s office. For an income tax return to be assessed, the gross income and deductions must be reported and the gross income and deductions must be calculated “with such uniformity, completeness, and arrangement that the physical task of handling and verifying returns may be readily accomplished.” Taxes due must typically be assessed by the IRS within 3 years of the filing date. Under certain circumstances, the statute of limitations on tax assessments can be extended. When taxpayers understate gross income by 25% or more on their return, for example, the statute of limitations on assessment can be extended to six years for the reasons mentioned above.
A Collection Statute Expiration Date or CSED is the date that ends the determination period for enforcement of collections under the Internal Revenue Manual (IRM). Tax years can have multiple assessment dates and CSEDs. After an audit or amended return has been filed, and additional tax has been assessed, the ten years will begin from the date that additional tax is assessed. The IRS accounts transcripts display CSED codes of penalties. A penalty’s CSED can be the same as its tax underlying, but it is not always the case. Taxes, depositories, delinquencies, several civil penalties, fraud penalties, and negligence penalties are some penalties that carry their own CSED dates.
In order to understand the difference between assessed and filed, a clear distinction must be made. An IRS return is filed after it is submitted. Tax returns filed electronically are generally considered filed as of the date the return is submitted electronically to the IRS. Paper returns, which are mailed, are generally filed as of the day they reach the post office. In person filed returns are considered filed when they are delivered to an IRS service center.
An assessment date is usually a few weeks after a taxpayer files their return on time by the original due date. Tax returns are processed by the IRS within five to six weeks after they are filed. Returns filed by the extended due date or later are also subject to the same rule. For those who file their personal income tax returns on or before April 15, the assessment date for any unpaid taxes will be sometime around the end of May and start of June.