Many who file taxes fear that they will be contacted by the IRS years down the line and be subject to an audit and punishing back taxes and penalties. The good news is that in many cases, the IRS cannot keep you on the hook forever. Instead, there is an IRS statute of limitations which limits the time frame that the IRS has to go after you as well as collect taxes from you. Like a criminal case, the statute of limitations means that the government cannot take action against you after a certain date. There are various different time limitations when it comes to taxes.
First, it is important to note that when dealing with statutes of limitations, the date starts to run from each different tax return that you file. In other words, the deadline that the IRS has to collect your taxes starts from each return year and will be different for your 2019 and 2020 tax returns. The year in which the tax was due starts the statute of limitations for each tax return.
Here is some information regarding each of the IRS deadlines.
Tax Collections
The statute of limitations for tax collections is ten years. The IRS has ten years to collect taxes from you after you are assessed. The IRS can no longer attempt to collect any money from you for these particular taxes after that time period is done. However, if you have taxes assessed in different years, the IRS can still make collection efforts for taxes that are still not ten years old. This statute of limitations only operates on a particular tax year’s obligation as opposed to your entire tax burden. It is also critical to understand that this limitation is ten years from the date that taxes were assessed. By way of explanation, if you had back taxes for 2015 assessed in 2019, the IRS would have until 2029 to collect these taxes. As a result of this, the IRS will never allow an installment agreement to extend beyond ten years.
There are a couple of different exceptions to this rule. First, if the IRS’ collection efforts are suspended in any way, the period for which they are halted is added on to the statute of limitations. Bankruptcy is one event that can suspend collection efforts. Second, in a settlement with the IRS, taxpayers can voluntarily waive the statute of limitations. Oftentimes, the IRS will request that this be waived.
Deadline for Audits
When it comes to audits. the IRS has three years to audit you from the date that you file your return. Most people breathe a large sigh of relief when that three year period has passed and that particular year’s tax return is no longer subject to audit. However, with the IRS, nothing is as black-and-white as it seems. The IRS will often contact a taxpayer prior to the expiration of that particular deadline and seek to gain an extension for the deadline. Many people feel compelled to go along with whatever the IRS requests in order to stay on the good side of a government agency that has enormous power.
There is another exception to the three year limit on audit. If the IRS believes that you have committed some sort of tax fraud, or have significantly under-reported your income, it will have longer than three years to subject you to an audit. If you have under-reported your income by 25 percent or more, the deadline for audit is extended to six years. This is intended to act as a deterrent to those who would seek to hide their income from Uncle Sam. If the IRS believes that your under-reporting was fraudulent, then there is no statute of limitations on the audit. In that case, the IRS is unfettered. In addition, if you fail to file a tax return, the IRS can also take action against you in perpetuity, meaning it has no time limit on its enforcement powers.
A qualified tax professional can provide you with more detailed advice on time limitations the IRS is subjected to.
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