Understand the Statute of Limitations and the IRS

IRS Statute of Limitations Believe it or not, there is a statue of limitations in place which governs how long you have to claim a tax refund, the time frame in which the IRS can audit a tax return, and how long the IRS has to collect back taxes. While you never want to take a chance with anything related to your taxes, you may find yourself in a position where the statue of limitations works either for or against you.

Claim your Refund in Three Years or Less

Does the IRS owe you a tax refund? If so, you only have three years to claim this money unless you filed a fraudulent return or understated taxes by 25 percent or more. The statue of limitations begins on the original due date of your return. For instance, your 2006 return was due on April 15 or 2007 which means you have until 2010 to file and receive a refund. If you do not file by April 15, 2010, in this example, your tax refund will expire and you will no longer be able to claim the money.

Three Years To Audit Your Tax Return

Generally, the IRS has three years from the date you filed to audit your tax return which is called the Assessment Statute Expiration Date (ASED). Unless the IRS is suspicious that you committed tax fraud or you understated taxes by 25% or more, the statue of limitations does not allow a return to be audited after three years. If you understated taxes by 25% or more than the audit deadline is six years. Sticking with the example above, the IRS would have three years to audit your 2006 tax return or until April 15, 2010. The moment this day comes and goes the IRS can no longer audit you. The only exceptions, are noted above, is if they feel you committed fraud over the years or understated taxes by more than 1/4.

More information on IRS Audits

10 Years to Collect a Tax Liability

According to the statue of limitations, the IRS has 10 years to collect outstanding tax liabilities from the date taxes are assessed (which is known as the CSED or Collection Statute Expiration Date). The "10 year clock" begins to tick from the day the original liability was finalized (calculated and entered into the IRS system). Most commonly this is the result of taxes owed on a tax return, but could include other situations such as debt turned up by an audit. The IRS has 10 years to collect the back taxes, as well as interest and penalties.

What are the chances of the IRS overlooking my situation and not collecting on a tax liability? The answer is simple: not very good. You may get lucky, but remember, the IRS is closely watching what you do. If you owe them money, no matter how much or little, there is close to 100 percent chance that they will collect it within 10 years.

As a taxpayer it is important to be aware of the statue of limitations and how it can affect you.


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