Just as taxpayers have deadlines for filing and paying taxes, the IRS also has deadlines for collecting taxes. These are statutes of limitations, or the time in which the IRS must act. Put another way, the statute of limitations is similar to a game clock: Once it goes off, the game is over, and the score is set. 

The three most important statutes of limitations for the IRS are:

•         When they can assess tax
•         When they can collect tax 
•         When taxpayers can claim a tax credit or refund

Assessing Tax

The IRS has three years to assess tax once a taxpayer submits their tax return. The formal term for this period of time is the Assessment Statute Expiration Date (ASED).

ASED applies when the IRS believes a taxpayer owes additional tax. In this situation, the IRS will send a notice to a taxpayer informing them they owe additional tax plus any penalties or interest.

For ASED, the three-year statute of limitations doesn't apply when:

•         A taxpayer chooses not to file a mandatory tax return
•         The IRS and taxpayer agree to extend the ASED time limit
•         A taxpayer reported 25 percent or less of their income on their tax return, in which case the ASED statute of limitation is six years
•         A taxpayer filed a false or fraudulent tax return

Collecting Tax

The IRS has ten years to collect unpaid taxes. This period of time is known as the Collection Statute Expiration Date (CSED).

Claiming a Refund or Credit

Known as the Refund Statute Expiration Date (RSED), this is the deadline by which a taxpayer must claim a refund of credit.

The RSED is the latter of either:

•         Three years from the date a taxpayer filed their tax return 
•         Two years from the date a taxpayer paid their tax

For taxpayers who do their taxes early, the good news is that, for RSED purposes, the date the taxes were due is what counts, not the date the return was actually filed.

Similar to ASED, RSED has exceptions to its statutes of limitations. These include:

•         The taxpayer and IRS agree, in writing, to extend the time limit to assess tax
•         A taxpayer is affected by a presidentially declared disaster, which adds one year to the statute of limitations
•         A taxpayer services in a designated combat zone or contingency operation
•         A taxpayer has a bad debt deduction, or worthless security loss will have seven years to file

 If If you need help, call Senior Tax Partner, Tax Controversy Attorney, and former IRS attorney Brandon A. Keim at (602) 200-7399 or contact him online to discuss your options.