Statute of Limitations for Tax Refunds, IRS Audits, and Collections
3 years to claim a refund, 3 years to be audited, and 10 years to pay tax debts
By William Perez,  Guide
The IRS has three years to give you a refund, three years to audit your tax return, and ten years to collect any tax due. Together, these laws are called the statute of limitations. They put time limits on various tax-related actions that you and the IRS can take.
You have 3 years to claim a tax refund.
This is measured from the original deadline of the tax return, plus three years. For example, your 2010 tax return is due on April 15th, 2011. Add three years to this filing deadline, and you have until April 15th, 2014, to file your 2010 tax return and still get a tax refund. If you file your 2010 return after April 15th, 2014, then your refund "expires." It goes away forever because the statute of limitations for claiming a refund has closed.
If you already filed a tax return, you can claim any additional refunds by sending in corrections with an amended return. Amended returns claiming additional refunds must be filed with the IRS before the statute of the limitations expires three years from the original April 15th due date.
Filing an extension may extend the period for claiming refunds. Under code section 6511(b)(2)(A), the IRS can issue refunds for a particular year if you requested an extension and subsequently file a tax return within three years from the extended deadline.
The IRS has 3 years to audit your tax return or to assess any additional tax liabilities.
This is measured from the day you actually filed your tax return. If you filed your taxes before the deadline, the time is measured from the April 15th deadline. We could utilize the same example as in the refund situation: the IRS has until April 15, 2014, to audit a 2010 tax return filed on or before April 15, 2011. After the three-year audit time period has expired, the IRS cannot initiate an audit of your tax return unless there is a suspicion of tax fraud. Most state tax agencies follow the federal three-year period for auditing tax returns; however some states have a longer statute of limitations.
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 number of ways. It could be a balance due on a tax return, an assessment from an audit, or a proposed assessment that has become final. From that day, the IRS has ten years to collect the full amount, plus any penalties and interest. If the IRS doesn’t collect the full amount in the 10-year period, then the remaining balance on the account disappears forever because the statute of limitations on collecting the tax has expired.
Example of the Refund Statute of Limitations Works in Real Life
Let’s provide an example of how time limits effect federal tax refunds are based on a real-life scenario. Mr. Smith wants to file 6 years of tax returns: 2004 through 2010. In all those years he has refunds. If he files by April 15th, 2011, Mr. Smith will receive refunds for the years 2007 through 2010 as those years are still open under the 3-year time limit. Refunds from earlier years 2004, 2005, and 2006, however, have expired and the IRS won’t send him a refund check.
When a refund has expired, that refund money disappears forever. In IRS terminology, an expired refund is considered an "excess collection". That refund money cannot be sent to the taxpayer as a check. Nor can the refund money be applied as a payment towards another tax year for which a person might still owe the government. Nor can be refund be applied to another year as an estimated payment.
Using Time Limits to Plan Your Taxes
It is in your best interest to file your tax returns at your earliest possible convenience. First, you can claim refunds. Second, it starts the clock ticking on the 3-year statute for audits and the 10-year statue for collections.
There’s some unique planning opportunities as well if there are multiple tax years involved, as refunds that are still allowed under the 3-year time limit can be utilized to pay off other tax debts owed to the IRS or applied to your current year’s estimated taxes.
Tax Law References
·         Internal Revenue Code, Section 6501 (3-year audit statute),
·         Section 6502 (10-year debt collection statute), and
·         Section 6511 (3-year refund statute).
For more information on how the IRS manages these statute of limitations, see Internal Revenue Manual, 25.6.1, Statute of Limitations.
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IRS Statute of Limitations for Income Tax
by Kendra James, Demand Media

The statute of limitations restricts the time the Internal Revenue Service has to examine a timely filed income tax return.

tax time image by Tom Oliveira from
·         IRS Income Tax Questions
The Internal Revenue Service, the body designated to oversee the administration of tax laws in the United States, collects revenues on behalf of the Department of Treasury. The IRS is known for requiring submissions of annual income tax returns and is responsible for encouraging compliance with tax laws. Compliance is accomplished by selecting returns to undergo a detailed review, or audit, of information provided on a return. However, the IRS is limited to the amount of time available to select a return for audit.
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According to the IRS, the role of the entity is to help the large majority of compliant taxpayers with the tax law while ensuring that the minority who are unwilling to comply pay a fair share. Income tax audits aid in compliance and the collection of revenues. In fact, the Federal Tax Handbook notes that the IRS audits approximately 1 percent of all individual income returns filed. The statute of limitations controls the amount of time the IRS has to assess tax and limits the taxpayer’s time to file a claim for an income tax refund.
Generally, all taxes must be assessed within three years after the date the return was filed. However, the length of time is extended to six yeas for taxpayers that fail to report more than 25 percent of total income. Furthermore, the statue of limitations is extended indefinitely for years when a taxpayer failed to file a required return, filed a fraudulent return or attempted in any way to evade tax. Also, a taxpayer has three years to request a refund of overpaid taxes. However, a taxpayer who claims the IRS cannot assess additional tax because of the expiration of the statute of limitations must raise the issue and prove tax can no longer be assessed.
The statute of limitations helps taxpayers determine the minimum length of time to store records used to prepare annual income tax returns. A taxpayer generally needs to keep records, such as 1099 interest and dividend reports and receipts to support deductions, for at least three years. Failure to produce these documents during an audit or claim for refund, increases the chance the taxpayer may have an additional income tax liability.
The statute of limitations is extended when the taxpayer and the IRS agree in writing to extend the assessment period. A taxpayer may want to extend the assessment period to include additional deductions on a previously filed income tax return. To consent to extend the limitation period the taxpayer files Form 872 any time before the expiration of the assessment period.
The IRS may impose interest and penalties on tax assessed during the limitations period. A taxpayer assessed additional taxes for a prior year return is required to pay the tax liability in addition to interest and penalties imposed from the original due date of the return. Also, failure to report income earned illegally, indefinitely extends the statute of limitations.
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About the Author
Kendra James has written business-related articles since 2001. Her work has appeared in eHow and the "Montgomery Advertiser," as well as being utilized by regional accounting firms in Florida and Alabama. James is a certified public accountant. She holds a Masters of Science in accountancy from the University of Central Florida.


Expert View
Even The IRS Has Time Limits
Robert W. Wood,10.08.09,
It pays to know how long the IRS has to audit you.
If you are a fan of Law & Order as I am, you may have a negative reaction when a suspect claims the law can’t touch him because of the statute of limitations. By relying on a technicality that hinges on the mere passage of time, it’s almost as if the suspect is admitting he did it.
In any tax dispute, you’ll want to make good substantive arguments. Still, don’t discount the importance of the statute of limitations.
Digg It!
If you face a tax audit and can legitimately point to the statute of limitations to head off trouble and expense, you should. Why should you have to prove you were entitled to a deduction (or have to find and produce yellowed receipts) if it is simply too late for the IRS to make a claim?
Given the importance of the statute–both to heading off audit trouble and to knowing when you may be able to throw some of those receipts away–it is surprising how few taxpayers are statute savvy.
Fortunately, in this part of the tax law, the rules for corporations, partnerships, nonprofit organizations and individuals are consistent. Here’s what you need to know.
Normally, the IRS Has Three Years
The overarching federal tax statute of limitations runs for three years after you file a tax return. If your tax return is due April 15, but you file early, the statute runs exactly three years after the due date. If you file late and do not have an extension, the statute runs three years following your actual (late) filing date.
Sometimes, the IRS Gets Six Years
The statute is six years if your return includes a "substantial understatement of income." Generally this means you’ve left off 25% or more of your gross income, but exactly what that means is currently the subject of litigation. The IRS is now arguing in court that anything on your tax return that has the effect of a 25% understatement of gross income gives it an extra three years. Still, most court decisions conclude that overstating deductions is not the same as omitting income.
The IRS has asserted it has six years to go after basis over-statements. Here’s what that means: Suppose you sell a piece of property for $3 million, claiming your basis (what you’ve invested in the property) was $1.5 million, when your basis was really only $500,000? You pay tax on $1.5 million of gain, when you should have paid tax on $2.5 million. Your basis over-statement probably means a six-year statute applies.
However, the IRS recently lost tax cases on this point in both the Ninth and Federal Circuits. Bakersfield Energy Partners v. Comm’r, 568 F.3d 767 (9th Cir. 2009), and Salman Ranch Ltd. v. U.S., 573 F.3d 1362 (Fed. Cir. 2009). That made lots of taxpayers happy. In an attempted end-run around the courts, though, the IRS has just issued temporary regulations confirming its own view. (See IRS Temporary Regs., T.D. 9466, Sept. 25, 2009.) That was a controversial move, and we can expect more skirmishes.
Nevertheless, as a practical matter, resort to the six-year statute is rare. Usually, the IRS invokes it when an audit of one year (open under the three-year statute) extends to connected issues in earlier years. Still, the IRS has ramped up focus on the six-year statute.
Sometimes, the IRS Has Forever
What if you never file a return or file a fraudulent one? Law & Order fans will understand what I mean when I say this is the tax equivalent of murder–the statute of limitations never runs out. The IRS has no time limit if you never file a return or if it can prove civil or criminal fraud.
Amending Tax Returns
Taxpayers must abide by a time limit too: If you want to amend a tax return, you must do it within three years of the original filing date. You might think that amending a return restarts the three-year statute, but it doesn’t. However, where your amended return shows an increase in tax, and you submit the amended return within 60 days before the three-year statute runs, the IRS has 60 days after it receives the amended return to make an assessment. This narrow window can present planning opportunities. An amended return that does not report a net increase in tax does not trigger an extension of the statute.
Claiming a Refund
The adage about possession being 9/10ths of the law applies to taxes too–getting money back from the IRS is hard. If you pay estimated taxes or have tax withholding on your paycheck but fail to file a return, you generally have only two years (not three) to try to get it back. Suppose you make tax payments (by withholding or estimated tax payments) but haven’t filed tax returns (shame on you!) for three or four years? When you file those long-past-due returns, overpayments in one year may not offset underpayments in another.
Beware of State Tax Statutes
Some states have the same three- and six-year statutes as the IRS. But some set their own time clocks, giving themselves even more time to assess extra taxes. In California, for example, the basic tax statute of limitations is four years. However, if the IRS adjusts your federal return, you are obligated to file an amended return in California. If you don’t, the California statute will never run out.
Extending the Statute
The IRS must normally examine a return within three years. However, the IRS may contact you about two and a half years after filing, asking you to extend the statute of limitation. Some taxpayers just say no, but that usually leads the IRS to send a notice assessing extra taxes, without taking the time to thoroughly review your explanation of why you don’t owe more. So in most cases, you should agree to the requested extension. You may, however, be able to limit the scope of the extension to certain tax issues, or limit the time (say, an extra year). You should seek professional tax help if you receive such an inquiry.
Statute Traps
Statute of limitation issues come up frequently, and the facts can become confused. As but one example, consider what happens when a tax notice is sent to a partnership but not to its individual partners. The audit or tax dispute may be ongoing, but you may have no personal notice of it.
Also watch for cases where the statute may be "tolled" (held in abeyance) by an IRS John Doe summons, even though you have no notice of it! This comes up, for example, if an accountant or other promoter has sold you on a tax strategy. The IRS may issue the accountant a summons asking for all the names of his client/customers. While he fights turning those names over, the statute of limitations clock for his clients is stopped.
My Kingdom for a Horse!
Keep scrupulous records, including proof of when you mailed your returns. The difference between winning and losing, or getting a good or mediocre settlement (the vast majority of IRS disputes are settled) often depends on records. The statute usually begins to run when a return is filed, so keep certified mail or courier confirmation.
If you file electronically, keep all the electronic data, plus a hard copy of your return. (Incidentally, I do not advise clients to file electronically until the tax law mandates it.) As for record retention, you can destroy receipts and back-up data after six years. Never destroy old tax returns. Also, as you’re destroying old receipts, if they relate to basis in an asset, keep them. For example, receipts for home remodeling 10 years ago are still relevant as long as you own the house. You may need to prove your basis when you later sell it.
Robert W. Wood is a tax lawyer with a nationwide practice ( The author of more than 30 books including Taxation of Damage Awards & Settlement Payments (4th Ed. 2009, he can be reached at
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