The Many Limits of Tax Statute of Limitations
All things must process in a timely manner when it comes to the IRS and taxes. For this purpose, the tax code has imposed a set of laws, known as the tax Statute of Limitations (SOL). Under this, there are certain time limits on different tax-related actions that you and the IRS can take. This depends on a number of factors. Here’s some advice from our Michigan Tax lawyer, Venar R. Ayar on significant information to keep in mind when it comes to the statute of limitations.
Tax Statutes of Limitations Key Notes
- When claiming a refund, the tax statute of limitations expires three years from the due date of the return, even if you file before the due date. Filing an extension may extend the period for claiming refunds. As soon as the refund expires, you cannot get it back.
- For the IRS to examine or audit your tax return, make changes or assess any additional tax liabilities, the SOL is three years from the due date of the return or the day you actually filed your return, whichever is later.
- If you fail to file a return, file a false or fraudulent return or are willfully attempting to evade tax, the statute of limitations doesn’t exist at all. In these types of cases, the tax may be assessed or collected at any time.
As For Tax Statute of Limitations & Collections
- The IRS has 10 years to collect outstanding tax liabilities. This is measured from the day a tax liability has been finalized. A tax liability can be finalized in a few ways. It could be a balance due on a tax return, an assessment from an audit, or a proposed assessment that has become final. The IRS may then declare 10 years to collect the full amount, plus penalties and interest. If the IRS does not collect in ten years, the remaining balance on the account disappears forever, because the tax statute of limitations has expired. An option you can take for this is to get a partial-pay installment agreement, whereby the payments are low enough that the full amount of tax due will never be paid, and the balance will be forgiven at the end of the 10- year period.
- In Michigan, the state generally has 6 years to collect a tax debt. However, unlike the IRS, the statute of limitations for the state is renewed every time the taxpayer reaffirms their debt—either by signing an acknowledgement (required to set up a payment plan or to get non- collectible status,) or by making a voluntary payment.
- If you set up an installment agreement with the state and make payments toward that agreement, the tax SOL will never run. This is because it starts over every month when you send in a check—a huge difference between the state and IRS.
- Keep in mind, that although the IRS only generally has 10 years to collect a tax, they still have an option of taking proof of the tax deficiency to court and getting a judgment to collect. This will give you 10 years from the date of the judgment to collect. Essentially, turning a 10-year statute of limitations into a 20-year statute. Then again, getting a judgment takes an attorney’s time and costs the government in fees, so the IRS generally only does that in cases where the taxpayer has substantial assets and the IRS feels like they will be able to collect down the road.
Although these guidelines have specific date and time requests, know that these periods referenced are generally speaking. Certain events can extend these statutes of limitations. In order to determine the expiration date of a particular tax assessment, an in- depth review of the IRS or State transcripts needs to happen to determine if anything took place that would have extended this time limit. When it comes to tax statutes of limitations, things can get a little confusing. It’s best to read up and ask questions so that you know what you’re up against when submitting your taxes. For more information on the SOL, and specific laws in Michigan, feel free to give us a call, or send us an e-mail here.
Michigan tax lawyer, Venar R. Ayar, founder of Ayar Law, holds ten years of experience as an accounting specialist and tax lawyer. He earned his Juris Doctor at the University of San Diego School of Law, receiving a Master of Laws in Taxation—the highest degree available in tax. His main focus has become Michigan tax resolution as well as IRS tax resolution, including individual and business tax matters; tax planning, tax compliance and white-collar criminal defense. His business background has helped him to become personable and understanding in his work. Representing clients before the IRS, Ayar’s practice and experience has proved him as an honest and dedicated leader in the realm of Michigan tax lawyers. Click here to contact your Michigan tax lawyer, Venar Ayar.