Apply Statute Of Limitations Rules
Help Questions
CPA Tax Compliance & Planning (TCP) › Apply Statute Of Limitations Rules
Under IRC Section 6501(a), the general statute of limitations for the IRS to assess additional tax is:
4 years from the end of the taxable year.
5 years from the date the tax was paid.
2 years from the date the return was filed.
3 years from the later of the date the return was filed or the return's original due date.
Explanation
The general assessment period is 3 years from when the return was filed or its due date, whichever is later. Answer A is correct. 2 years (B) is not the standard assessment period. 5 years from payment (C) is not the general rule. 4 years from year-end (D) is not the standard.
The statute of limitations for the IRS to assess tax is extended to 6 years when:
The taxpayer omits from gross income an amount exceeding 25% of the gross income reported on the return.
The taxpayer is under criminal investigation.
The taxpayer fails to pay estimated taxes.
The taxpayer claims a refund that is later disallowed.
Explanation
Under Section 6501(e), the 6-year limitations period applies when a taxpayer omits more than 25% of gross income from the return. Answer C is correct. Estimated tax failures (A) don't extend the SOL. Criminal investigations (B) have separate rules. Refund disallowance (D) doesn't extend the assessment SOL.
The statute of limitations for assessment is unlimited (i.e., there is no limitations period) when:
The taxpayer is a foreign national with U.S. source income.
The taxpayer has foreign bank accounts that were not disclosed.
The taxpayer files a false or fraudulent return with intent to evade tax, or fails to file a return at all.
The taxpayer owes more than $100,000 in back taxes.
Explanation
The statute of limitations is unlimited for fraud (filing a false return with fraudulent intent) or for failure to file a return - the IRS may assess tax at any time. Answer B is correct. Tax amounts (A) don't affect the SOL. Foreign status (C) doesn't create an unlimited period. Foreign accounts (D) may extend reporting obligations but don't create unlimited assessment SOL.
A taxpayer filed their 2020 Form 1040 on March 15, 2021, before the April 15, 2021 due date. The general 3-year assessment period expires on:
April 15, 2024 - the assessment period runs from the later of the filing date or the due date, so the due date of April 15, 2021 controls.
March 15, 2024, three years from the date of filing.
March 15, 2024 - the IRS has until three years from the filing date since it was filed early.
December 31, 2023, three years from the end of the tax year.
Explanation
The 3-year period runs from the later of the filing date or the due date. Since the due date (April 15, 2021) is later than the filing date (March 15, 2021), the period expires April 15, 2024. Answer D is correct. The filing date (A, C) is earlier and therefore not controlling. Year-end (B) is not the correct starting point.
The statute of limitations for a taxpayer to file a claim for refund is:
5 years from the end of the taxable year.
3 years from the date the tax was paid.
The later of 3 years from the date the return was filed (with a return filed before the due date treated as filed on the due date) or 2 years from the date the tax was paid.
1 year from the date the return was filed.
Explanation
Under Section 6511(a), the statute of limitations for a refund claim is the later of: (1) 3 years from the date the return was filed (a return filed before its due date is treated as filed on the due date for this purpose), or (2) 2 years from the date the tax was paid. Answer C is correct. 1 year (A) is too short and not the statutory period. 3 years from the payment date alone (B) omits the 'later of' component and the filing-date starting point. 5 years from year-end (D) is not the standard.
A taxpayer and the IRS may agree to extend the statute of limitations for assessment by:
Executing a written consent on Form 872 (Consent to Extend the Time to Assess Tax), which extends the limitations period for a specific period - this is commonly requested during an audit to allow additional time to resolve issues.
The taxpayer filing an amended return within the limitations period.
The IRS unilaterally extending the limitations period by issuing a formal notice.
The taxpayer's attorney sending a letter to the IRS requesting an extension.
Explanation
The SOL can be extended by mutual written consent using Form 872. This is a bilateral agreement. Answer B is correct. Amended returns (A) don't extend the SOL. Attorney letters (C) are not the proper form. The IRS cannot unilaterally extend the SOL (D).
The statute of limitations for the IRS to collect tax after assessment is:
Unlimited - the IRS may collect assessed taxes at any time.
6 years from the date of assessment.
3 years from the date of assessment.
10 years from the date of assessment - the IRS has 10 years to collect through levy, seizure, or court proceeding.
Explanation
Under Section 6502, the IRS has 10 years from the date of assessment to collect the tax through enforcement actions. Answer A is correct. 3 years (B) is the assessment SOL, not collection. 6 years (C) is not the collection period. Collection is not unlimited (D) - the 10-year period applies.
A taxpayer omits income from their tax return. The 6-year extended SOL under Section 6501(e) applies only to omissions that exceed:
$10,000 of unreported income.
25% of gross income reported on the return - adequate disclosure of an item on the return prevents the 6-year SOL from applying to that item.
$50,000 in absolute terms.
10% of gross income reported on the return.
Explanation
The 6-year SOL requires an omission of more than 25% of gross income reported on the return. Adequate disclosure on the return prevents the 6-year rule from applying to that item. Answer C is correct. Dollar thresholds (A, D) and 10% (B) are not the standard.
Which of the following suspends or tolls the statute of limitations for assessment?
The taxpayer's request for an installment agreement.
The taxpayer's filing of a Tax Court petition.
The taxpayer's failure to pay the assessed tax liability.
The issuance of a statutory notice of deficiency (90-day letter) - the SOL is suspended for the period the taxpayer has to file a Tax Court petition plus 60 days.
Explanation
Under Section 6503(a), the statute of limitations for assessment is suspended during the period after the IRS mails a statutory notice of deficiency in which the IRS is prohibited from assessing the tax, plus 60 days. Answer B is correct. Filing a Tax Court petition (A) occurs in response to the notice of deficiency and prolongs the prohibition on assessment, but the notice itself is what triggers the tolling. An installment agreement request (C) tolls the collection SOL, not the assessment SOL. Failure to pay (D) does not suspend or toll the assessment statute.
A taxpayer who has not filed a return for 5 years may be assessed tax for:
Only the most recent 3 years - the IRS is barred from assessing tax for older years.
The years for which the IRS has records of income - other years are presumed to be zero income.
Only the current year.
All 5 unfiled years - the statute of limitations does not begin to run until a return is filed, so unfiled years remain open indefinitely.
Explanation
The SOL never begins for unfiled returns - it only starts running once a return is filed. All unfiled years remain open for assessment indefinitely. Answer A is correct. The 3-year bar (B) requires a filed return to start running. Only the current year (C) is incorrect. The SOL is not limited to documented income years (D).