Topical Index to Chapter 3 Statute of Limitations

Transcription

1 Topical Index to Chapter 3 Statute of Limitations 3.01 Limitation Code Sections 6501 Assessment 3 years 6502 Collection 10years 6511 Refund filing 2-3 years 6672/ 6501 Trust funds 3 years 1311 Mitigation 6901 Transferee liability 1 year 6531 Criminal liability Absolute bar to IRS Action Agents Monitor Extensions permitted for assessment Limited extensions for collection Refund statute extended in limited financial disability situation Mitigation lifts limitations in specific cases only Double deduction Double inclusion type situations 3.02 Statute on Assessment Assessment defined General rule 3 years 7502 Timely mailing/filing rule Private overnight carriers approved Exceptions to 3 year assessment statute: No Return unlimited statute Fraudulent Return unlimited statute Omission of 25% of Gross Income 6 year statute applies W-2, 1099 not considered returns for limitation period Extensions of assessment statute Forms 872, 872-A Contractual must be done by both parties before expiration

2 Avoid open-ended Forms 872-A, 872-T Strategy Circumstances where extension should be given Circumstances where extension should not be given Likely IRS action where extension refused Potential for restricted consents Circumstances which automatically suspend statute Transcript can disclose expiration date 3.03 Statute on Collection year statute IRS Arm-twisting Limitation on extension Installment agreement exception Tax judgment suits Revenue officer monitors Code 53 Suspension of statute Offers in compromise Bankruptcy Taxpayer out of country Appeals Review 3.04 Statute on Claims for Refund year-3 year rule Loss of refunds Automatic extension if return filed under filing extension Financial disability gives limited extension 6511(h) Physician s statement Protective claims to toll statute Minimum requirements IRS Procedure for claim handling Statute on commencing lawsuit 6 Month minimum wait 2 Year limitation from claim disallowance 3.05 Statute on Trust Fund Recovery 6672 Penalty must be assessed 3 years from April 15th following

3 close of tax year 6501(b)(2) Extension permitted Form 2750 Appeal procedure 3.06 Mitigation Circumstances for mitigation of statute of limitations Offset of tax liabilities Equitable recoupment 3.07 Transferee Liability Collection tool Burden of proof on IRS 1 year limitations 3 year maximum Notice of liability Tax Court review 3.08 Limitations Period for Criminal Prosecution years general rule Most tax crimes 6 years Date of offense controls 3 Statute of Limitations 3.01 THE STATUTES OF LIMITATIONS IN TAX MATTERS There are few subjects more critical for a practitioner to understand than the statute of limitations. The bar it raises can prohibit forever both IRS and practitioner action. A misstep here makes malpractice more likely. Monitoring the statute of limitations and making strategic planned moves can bring a client s matter to a successful conclusion notwithstanding the substantive issues involved. In any matter assigned to a practitioner, whether for consultation or resolution, the issue of the statute of limitations should be considered and

4 disposed of first. There is little point to pontificating on the substantive law and assuring a client of the strength of prior tax cases or IRS rulings to later discover that the statute of limitations prevents any of the sought redress. It may be an uncomfortable and difficult pill to swallow when a practitioner realizes that the client s delay in addressing the problem may foreclose him or her from ever reaching the correct tax result, but delay by the practitioner may be unforgivable. The chief statutes of limitations that affect individual and business taxpayers are: The statute of limitations on assessment 6501; The statute of limitations on collections 6502; The statute of limitations on claims for refund 6511; The statute of limitations on the assessment of civil liability for failure to pay over trust fund taxes 6672 and 6501; The special rules for suspension of the statute of limitations 1311 to 1314, inclusive; The statute on transferee liability 6901; and The statute on criminal liability The statute of limitations can be raised at any point in the proceedings when the practitioner becomes aware of its expiration. Good practice does require monitoring closely the statute of limitations. IRS Agents are trained to make the expiration date of a statute of limitations a priority in every file. Agents will carefully monitor and seek to extend statutes of limitations where the law permits. Exhibit 3-1 Major Statutes of Limitation Action Period Assessment years from filed date of return or 6 years, if more than 25% omission of gross income (not deduction) or No limitations period if no return filed or fraudulent return filed Collection years from assessment Criminal years from criminal act Refund Claim 6511 Later of 3 years from date return filed or 2 years from date tax paid Trust Fund

5 Recovery Penalty Notice must be sent within 3 years of the April 15th following the close of the employment tax year Transferee Liability 6901 Within 1 year from close of statute of limitations against prior transferor or preceding transferee Mitigation Can open closed year to avoid unjust results but must meet specific criteria; permits filing refund claim or mailing of statutory notice otherwise time barred. The statute of limitations on assessment is generally three years and IRS Agents can seek extension by requesting Form 872 to a date certain or Form 872-A open-ended until terminated before the expiration period has passed. All extensions of the statute of limitations are a matter of negotiation with the IRS Agent involved. Numerous extensions can be granted in the assessment area and are permitted by law. Since the IRS Restructuring and Reform Act of 1998, extensions of the collection statute of limitations, which is generally 10 years, have been drastically limited. The law now provides that the IRS can only seek an extension when there is in place an installment agreement that would extend beyond the normal 10-year expiration date. The previous practice of keeping collection cases open for decades has now been reversed by statute. The IRS is free, however, to sue pursuant to an assessment and to obtain a judgment which is enforceable for the period of judgments within the state. Very few assessments are brought to judgment, given manpower and time considerations. Actions for such judgment are brought in the federal district court. Previously granted extensions expired on December 31, The general statute of limitations for refund claims under Section 6511 requires the taxpayer to request a refund within two years of the time a tax is paid or three years from the time a return is filed, or if no return is filed, within two years of the time the tax was paid. The taxpayer is then further limited in the amount of the refund that can be received to payments made within each of the jurisdictional periods. The statute of limitations under Section 6511 for the filing of refund claims and the payment of refunds to taxpayers has been the subject of much controversy dealing with incompetent or deceased taxpayers who fail to file timely requests for refunds or returns requesting such payments. Section 6511 has now been amended to permit a narrow extension of the statute of limitations for filing refund claims when taxpayers are shown to be financially disabled and there is no person acting on behalf of the taxpayer thereafter. This is not a blanket extension of the statute of limitations on refund