October 9, 2014

One important thing to note about nearly every law is that they have a specific window of enforcement.  The IRS is no different, having a statute of limitations on tax assessments.

Statute of Limitations: A type of federal or state law that restricts the time within which legal proceedings may be brought.

Statue of Limitations Start Date

Knowing how long a statute of limitation is is one thing, but in order to properly calculate that, you need to know when the clock actually starts, and the answer might surprise you. If you file your taxes on time, the clock doesn’t start the date you file or the date they inform you that your file is received. Rather, it starts on April 15th.

If you file late and do not have an extension, the clock starts on the date you file. If you do have an authorized extension, your filing is considered on-time and, so long as you follow all the requirements of the extension, the clock reverts back to April 15th.

Usually, the Statute Is Three Years

In general, with an exception we’ll mention later, the statute of limitations for tax assessments is exactly three years from the start of the clock. That’s either April 15th, or when you file late without an authorized extension.

Sometimes, It’s Longer

Normally, statute of limitations laws are quite clear, but this one has a slight complication. If your filing has a “substantial understatement of income,” then the statute of limitations is extended to six years. The start date is still determined the same way. What ‘substantial understatement of income’ means exactly is not entirely clear, and is currently being determined by a civil lawsuit, but in general it refers to shorting your income by 25% or more. We, of course, recommend honesty in your tax filings.

If your filing includes fraud, the statute of limitation doesn’t just extends the limitations, but it actually removes them. The IRS thus has forever to determine wrong-doing. The IRS has filed against not just taxpayers, but also against Estates for fraudulent tax returns.

So, the Moral Is…

To summarize, if you follow the law and file on time, not only does your statue of limitations extend three years from April 15th, but you also save yourself from invasive audits later on. File early and accurately, and you have nothing to worry about regardless of the statute.