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Statute of
Limitations Rules

Master the time deadlines the IRS faces when assessing taxes and the windows taxpayers have for filing refund claims.

CPA Regulation (REG)

What Is the Statute of Limitations?

The statute of limitations is a legally mandated deadline that restricts how long the IRS has to audit a return, assess additional tax, or collect tax owed. It also governs how long a taxpayer has to claim a refund.

Why SOL Rules Matter on the CPA Exam

✓ Taxpayer Protection
Prevents the IRS from pursuing old returns indefinitely, giving taxpayers certainty.
★ IRS Enforcement
Gives the IRS a fair window to detect errors, omissions, and fraud on filed returns.
★ Refund Deadlines
Taxpayers must act within strict time limits or permanently lose the right to a refund.

Key Terms You Must Know

1
Assessment: The IRS's formal recording of a tax liability on its books. This is what the statute limits.
2
Filing Date: The date a return is filed, or the due date (whichever is later). The clock starts here.
3
Gross Income Omission: Omitting more than 25% of gross income stated on the return. Triggers an extended period.
4
Claim for Refund: A taxpayer's formal request to recover overpaid tax (Form 1040-X or Form 843).

The Three Assessment Periods

3 Years General Rule 6 Years >25% Omission Unlimited Fraud / No Filing IRC §6501(a) IRC §6501(e) IRC §6501(c) Clock starts: later of filing date or due date Early filing? Clock starts on the original due date (e.g., April 15)

The 3-Year General Rule

Under IRC §6501(a), the IRS must assess any additional tax within 3 years after the return was filed (or the due date, whichever is later).

The 6-Year Extended Period

Under IRC §6501(e), the assessment period extends to 6 years when a taxpayer omits from gross income an amount that exceeds 25% of the gross income stated on the return.

★ What Counts?
Only omissions from gross income count: unreported wages, business receipts, capital gains, etc.
★ What Doesn't?
Overstated deductions or credits do not trigger the 6-year rule under the general income tax SOL.

The Unlimited Period: Fraud and Non-filing

Under IRC §6501(c), there is no statute of limitations when a taxpayer files a fraudulent return with intent to evade tax, or when a taxpayer fails to file a return entirely.

1
Fraudulent return: A return filed with willful intent to evade tax. The IRS can assess at any time.
2
No return filed: If a taxpayer never files, the clock never starts. The IRS can assess forever.

Assessment vs. Refund Deadlines

Assessment (IRS) Refund Claim (Taxpayer)
Purpose IRS assesses additional tax Taxpayer claims overpayment
General Period 3 years from filing/due date Later of 3 years from filing or 2 years from payment
Extended 6 years (>25% omission) N/A
Unlimited Fraud / no filing N/A (no refund on unfiled return)
Key Code IRC §6501 IRC §6511

Refund Claim: The Two-Pronged Test

Under IRC §6511, a taxpayer must file a refund claim by the later of two dates:

Prong 1
3 years from the date the return was filed (or the due date, whichever is later).
Prong 2
2 years from the date the tax was actually paid.

How to Apply the Rules

1
Identify the issue: Is the IRS assessing tax, or is the taxpayer claiming a refund?
2
Find the start date: Later of the actual filing date or the original due date.
3
Check for exceptions: Is there a >25% gross income omission? Fraud? No return filed?
4
Select the correct period: 3 years (general), 6 years (omission), or unlimited (fraud/non-filing).
5
Calculate the expiration date: Add the period to the start date. If a refund claim, use the later of 3 years from filing or 2 years from payment.

Example 1: Standard 3-Year Assessment

1
Start date: Later of Feb 20, 2023 (filing) or Apr 15, 2023 (due date) = April 15, 2023.
2
Exception check: No omission >25%, no fraud, return was filed. General rule applies.
3
Expiration: April 15, 2023 + 3 years = April 15, 2026.

Example 2: 6-Year Omission Rule

1
25% test: \( 25\% \times \$200{,}000 = \$50{,}000 \). The omission of \( \$60{,}000 \) exceeds this threshold.
2
Period: The 6-year rule under §6501(e) applies because \( \$60{,}000 > \$50{,}000 \).
3
Expiration: April 15, 2022 + 6 years = April 15, 2028.

Example 3: Refund Claim Deadline

1
Prong 1: 3 years from filing = April 15, 2021 + 3 = April 15, 2024.
2
Prong 2: 2 years from payment = April 15, 2021 + 2 = April 15, 2023.
3
Deadline: The later of the two prongs = April 15, 2024. Since March 1, 2024 is before this date, yes, the refund claim is timely.

Common Mistakes to Avoid

✕ Starting the Clock Too Early
If a return is filed before the due date, the clock starts on the due date, not the filing date. Many students forget this.
✕ Confusing 25% Test Basis
The 25% omission is measured against gross income reported on the return, not total actual income or AGI.
✕ Mixing Assessment and Refund
Assessment SOL (§6501) is for the IRS. Refund SOL (§6511) is for the taxpayer. They use different formulas.

Complete Summary Table

Scenario Period Code Section
General assessment 3 years §6501(a)
>25% gross income omission 6 years §6501(e)
Fraud / willful evasion Unlimited §6501(c)(1)
No return filed Unlimited §6501(c)(3)
Refund claim (general) Later of 3 yrs from filing or 2 yrs from payment §6511(a)
Collection after assessment 10 years §6502(a)

Question 1 of 5

A taxpayer filed their 2022 federal income tax return on March 10, 2023. The return was not fraudulent and did not omit any income. What is the last date the IRS can assess additional tax?

Question 2 of 5

A taxpayer reported gross income of \( \$120{,}000 \) on their return. The IRS discovers they omitted \( \$35{,}000 \). Which assessment period applies?

Question 3 of 5

Under what circumstances is there no statute of limitations for the IRS to assess tax?

Question 4 of 5

A taxpayer filed their 2021 return on April 15, 2022 and paid all tax due on that date. On May 1, 2025, they discover they are owed a refund. Is the refund claim timely?

Question 5 of 5

A taxpayer reported gross income of \( \$80{,}000 \) and omitted \( \$18{,}000 \). The return was filed on time with no fraud. Which assessment period applies?