The three statutes of limitations taxpayers should know

1. Refund statute of limitations

What is it?

The refund statute of limitations is the time period you have to request a refund for a certain tax period. The refund statute expiration date (RSED) is the last day that you can request a refund for a tax period.

How long is it?

In general, you must file a claim for credit or a refund within three years after you filed the return or two years after you paid the tax, whichever is later. If you file more than three years after the due date of your return (including extensions), you risk forfeiting your refund.

What if I miss it?

If you are due a refund and file a claim after the RSED, you will lose your refund and your ability to have the refund offset against tax balances from other years or credited to a future year.

Implications for back tax returns

When processing late returns, IRS systems will automatically deny refunds for returns filed three years after the due date (original due date or extended due date). Taxpayers will generally see a code, TC 820, on their account transcript with the amount of their refund as a “credit transfer” with no associated tax period. Taxpayers will receive IRS Letter 105C, Claim Disallowance - Full, which states that the taxpayer isn’t entitled to their refund because they filed the claim after the RSED.

The IRS may determine that you are due a refund during a non-filer investigation. You must file the return to receive the refund. The IRS will not file a substitute for return when it would result in a refund. In practice, the IRS generally does not pursue taxpayers with missing returns that would result in refunds. In addition, most automated non-filer assessments, done through the IRS Automated Substitute for Return program, or ASFR, begin enforcement two to three years after the filing due date and often past the RSED.

2. Assessment statute of limitations

What is it?

The assessment statute of limitations is the time period the IRS has to assess, or charge, additional taxes. The assessment statute expiration date (ASED) is the last day that the IRS must assess additional taxes (through an audit or other adjustment) for a given tax period.

How long is it?

The assessment statute of limitations is generally three years from the due date of your tax return, or the date you filed the return, whichever is later.  There are exceptions to the general rule. For example, the statute of limitations is six years if you omitted more than 25% of your gross income from a tax return, and there is no statute of limitations if you filed a false or fraudulent return. In addition, the IRS and taxpayers may extend the statute of limitations by signing an agreement.

What if the IRS misses it?

The IRS can't assess taxes on a given form or tax period after the ASED.

Implication for back tax returns

Only filed tax returns have an ASED. If you don’t file, you don’t have an ASED for that year. Also, if the IRS files a return for you (called a substitute for return, or SFR), the assessment statute doesn’t start.

If you agree with an SFR and sign a waiver of restrictions on assessment (Form 870 or Form 4549), that still does not constitute a filed return, so the assessment statute doesn’t begin. However, if you prepare and file an original return, the assessment period will start.

3. Collection statute of limitations

What is it?

The collection statute of limitations is the time period the IRS has to collect on a tax balance owed for a given tax period. The collection statute expiration date (CSED) is the last day for the IRS to collect on a back tax balance owed. Once this date expires, the IRS writes off any remaining balance the taxpayer owes.

How long is it?

The collection statute of limitations is generally 10 years from the date the IRS assessed the tax. However, you or the IRS can extend the 10-year timeframe if certain things happen, like when you file for an offer in compromise, start certain types of litigation, request a Collection Due Process hearing, etc.

What if the IRS misses it?

Once the CSED passes, the IRS writes off any remaining balance the taxpayer owes.

Implications for back tax returns

The IRS has 10 years from the assessment date to collect. However, the CSED can be extended for various reasons.

If the IRS files an SFR for you, the SFR assessment date starts the collection statute of limitations. Taxpayers who later file a tax return may create a second CSED if the IRS assesses additional taxes with the taxpayer’s filed return.

Statutes of limitations can get complicated when it comes to back tax returns, so it’s a good idea to work with a qualified Tax Pro to understand your deadlines and how long the IRS has to complete certain actions.

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About the Author

Jim Buttonow, CPA, CITP, is the Senior Vice President for Post-Filing Tax Services at Jackson Hewitt. He’s been a leader in helping taxpayers and tax professionals resolve tax problems with the IRS, where he had worked for 19 years in various compliance-enforcement positions. Prior to his current role, Jim’s consulting practice focused on the areas of tax controversy and tax administration, which included leading product development on tax problem software for tax professionals, testifying before Congress, advocating for IRS transparency and efficiency, and proposing innovative large-scale solutions for taxpayers and tax professionals. Jim is also the author of Tax Problems and Solutions Handbook, a publication aimed at helping tax pros work more effectively in post-filing matters and resolving their clients’ most common tax problems.

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