As with most criminal violations, the IRS has established certain time periods within which they can review, analyze, and the resolve any issues they might have with a given taxpayer. According to the IRS, the Internal Revenue Code requires that they have a certain amount of time to assess, credit, refund, and collect taxes. Once this allotted time period has expired, the IRS can no longer allow the taxpayer to file a claim in order to get a refund or assess the taxpayer for additional tax payments.
In most instances, the IRS statute of limitations runs for three years after the taxpayer has filed his or her return or the filing’s due date. According to the IRS, a tax return is considered to be filed on its due date provided it was filed on or before its actual due date. Under the same rules, an assessment occurs once an IRS officer has signed a certificate of assessment that lists the amount the taxpayer owes.
The IRS statute of limitations can be extended further if the taxpayer has made a major omission of more than 25 percent of his or her gross income when filing the appropriate tax forms. In the event this happens, the IRS can extend the statute of limitations for up to six years from the date the taxpayer filed his or her taxes or from when they were deemed to have been filed.
Collection of Taxes
When it comes to the IRS collecting taxes, the statute of limitations is a little longer. In this situation, the IRS has up to ten years to file a suit against the taxpayer to collect previously assessed taxes. Bear in mind that the IRS has deep pockets and huge resources at hand to help them pursue the collection of taxes owed, up to and including applying levies against personal property such as houses, cars, equities, and many other assets of value. They can also garnish one’s wages until the debt has been satisfied if payment is evaded.
Keep in mind, that if a taxpayer fails to pay the full amount of taxes owed, the IRS will not only be collecting the amount of taxes owed, they will also be seeking interest and penalties that can add up quickly. The amount or quantity of penalties assessed will depend on the severity of the mistake made when the taxes were filed. It’s also important to note that in certain instances, omissions or erroneous filings may actually be considered to be a crime, which may also result in the said taxpayer being charged with a crime.
No Statute of Limitations
If the IRS can prove a taxpayer filed a false return, committed fraud, or is responsible for a missing tax return, the whole game and all the rules change dramatically. The same applies if the IRS can prove a taxpayer is willfully attempting to evade paying taxes. Under these circumstances, the IRS codes state there are no limitations to how long they have to act.
In such a case, a taxpayer may be subjected to higher interest rates and even larger penalties. On top of this, a guilty party can also be prosecuted, face significant fines, and may even be sentenced to prison time. Surprisingly, despite all these severe penalties and high risks, thousands of people fail to pay their taxes or attempt to cheat the system every year.
The good news is that the IRS would much rather attempt to work out a settlement with the taxpayer rather than end up going to court. Therefore, if one falls behind on any tax filings, don’t delay. The best place to start is talking to the IRS and negotiating a repayment plan both parties can live with.