Statute of Limitations
Federal Tax Matters
Gary D. Borek, P.C.
February 7, 1996
I. Statute of Limitations for Assessment of Tax
A. Assessment Required, IRC 6501(a).
1. Assessment of tax is prerequisite to collection of tax.
2. Assessment occurs when authorized IRS employee signs Form 23-C.
3. IRS cannot assess a tax after the statute of limitations on assessment has expired even if the taxpayer agrees to the assessment. Rev. Rul. 72-42, 1972-1 C.B. 398.
B. Three-Year Rule, IRC 6501.
1. Three years from latter of:
a) Due date of return; or
b) Date return is filed.
2. A timely mailed return is treated as filed on the due date of the return even if it is received by the IRS after the due date. IRC 7502.
3. Amended returns do not extend the original 3-year period. Zellerbach Paper Co. v. Helvering, 293 U.S. 172 (1934).
C. Consent Exception to Three-Year Rule.
1. Three-year rule can be extended by agreement. IRC 6501(c)(4).
2. Must be in writing.
3. Must be signed by taxpayer (or authorized representative) and IRS before expiration of original three-year rule or prior timely consent to extend.
4. Exception - statute of limitations on assessment of estate tax cannot be extended by agreement. IRC 6501(c)(4).
D. Suspension of Three-Year Rule.
1. Timely issuance of proper and valid notice of deficiency. IRC 6503(a)(1).
2. Application for Taxpayer Assistance Order. IRC 7811(d).
3. Bankruptcy petition. IRC 6503(h).
4. Receivership. IRC 6036 and 6872.
5. Summons issued by IRS to third-party. IRC 7609(a), 7609(e)(1), and 7609(f).
6. Designated summons issued by IRS to corporate taxpayer. IRC 6501(k).
E. Six-Year Exception to Three-Year Rule, IRC 6501(e).
1. Income Tax - underreporting of more than 25% of the gross income stated on the original return.
2. Estate Tax - underreporting of more than 25% of the gross estate.
3. Gift Tax - underreporting of more than 25% of gifts for taxable period.
4. Filing of correct amended return does not shorten the six-year rule if it applied to original return. Houston v. Commissioner, 38 T.C. 486 (1962).
F. Fraud Exception to Three-Year Rule.
1. The three-year rule does not apply to the assessment of taxes (and associated interest and penalties) attributable to a false or fraudulent return. IRC 6501(c)(2).
2. In 1995 the Tax Court held that IRS could assess tax, penalty, and interest for the years 1964 to 1970 because taxpayer had filed false or fraudulent returns for those years. Levitt v. Commissioner, T.C. Memo 1995-464 (1995).
3. Filing of non-fraudulent amended return does not eliminate fraud exception to three-year rule. Badaracco v. Commissioner, 464 U.S. 386 (1984).
4. IRS has burden of proving fraud before fraud exception to three-year rule can be applied.
II. Statute of Limitations for Criminal Prosecution
A. General statute of limitations for criminal offenses arising under Internal Revenue Code is three years. IRC 6531.
B. A six-year statute of limitations applies to:
1. Willfully attempting to evade or defeat any tax. IRC 7201.
2. Willfully failing to pay any tax or file any tax return. IRC 7203.
3. Filing a false return. IRC 7206(1).
4. Aiding or abetting the preparation of a false return, claim, or other document. IRC 7206(2).
5. Submitting false documents. IRC 7207.
6. Interfering with the administration of the tax laws. IRC 7212(a).
7. Unlawful acts of IRS employees. IRC 7214(a).
C. Note - six-year statute of limitations for criminal tax evasion under IRC 7201 begins running on the day the last affirmative act is committed. U.S. v. Beacon Brass Co., Inc., 344 U.S. 43 (1952).
III. Statute of Limitations for Collection of Tax from Taxpayer
A. The assessment of a tax imposes a lien on all of the taxpayer's tangible and intangible real and personal property. IRC 6321.
B. Under IRC 6502(a), the IRS has ten years from the assessment date to:
1. Collect the tax by administrative means (seizures, levies, offsets); or
2. Institute a suit for collection or a judgment.
C. If IRS commences timely suit to collect tax or obtain a judgment, then it may continue its efforts to administratively collect the tax beyond the ten-year period. IRC 6502(a).
IV. Collection of Tax from other than Taxpayers - Transferee Liability
A. IRS has one year after expiration of statute of limitations to administratively assess transferee liability. IRC 6901(c).
B. Alternatively, IRS can commence an action to impose transferee liability under state of federal fraudulent conveyance acts. IRS position is that there is no statute of limitations with respect to such actions.
V. Miscellaneous Time Limitations
A. Ninety days to file petition in Tax Court. IRC 6213(a).
B. Party claiming an interest in property levied upon by IRS must file administrative claim or commence wrongful levy action in federal district court within nine months of date of levy. IRC 6532(c).
C. Refund claims must be filed
within three-years of date of return, or, if no return filed,
within two years of date of payment of tax. IRC 6511(a).
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