Statute of Limitations for Tax Refunds, IRS Audits, and Collections

from About.com

The IRS has three years to give you a refund, three years to audit your tax return, and ten years to collect any tax due. Together, these laws are called the statute of limitations. They put time limits on various tax-related actions that you and the IRS can take. 

You have 3 years to claim a tax refund.

This is measured from the original deadline of the tax return, plus three years. For example, your 2010 tax return is due on April 15th, 2011. Add three years to this filing deadline, and you have until April 15th, 2014, to file your 2010 tax return and still get a tax refund. If you file your 2010 return after April 15th, 2014, then your refund "expires." It goes away forever because the statute of limitations for claiming a refund has closed. If you already filed a tax return, you can claim any additional refunds by sending in corrections with an amended return. Amended returns claiming additional refunds must be filed with the IRS before the statute of the limitations expires three years from the original April 15th due date.
Filing an extension may extend the period for claiming refunds. Under code section 6511(b)(2)(A), the IRS can issue refunds for a particular year if you requested an extension and subsequently file a tax return within three years from the extended deadline.

The IRS has 3 years to audit your tax return or to assess any additional tax liabilities.

This is measured from the day you actually filed your tax return. If you filed your taxes before the deadline, the time is measured from the April 15th deadline. We could utilize the same example as in the refund situation: the IRS has until April 15, 2014, to audit a 2010 tax return filed on or before April 15, 2011. After the three-year audit time period has expired, the IRS cannot initiate an audit of your tax return unless there is a suspicion of tax fraud. Most state tax agencies follow the federal three-year period for auditing tax returns; however some states have a longer statute of limitations.

The IRS has 10 years to collect outstanding tax liabilities.

This is measured from the day a tax liability has been finalized. A tax liability can be finalized in a number of ways. It could be a balance due on a tax return, an assessment from an audit, or a proposed assessment that has become final. From that day, the IRS has ten years to collect the full amount, plus any penalties and interest. If the IRS doesn't collect the full amount in the 10-year period, then the remaining balance on the account disappears forever because the statute of limitations on collecting the tax has expired.

Example of the Refund Statute of Limitations Works in Real Life

Let's provide an example of how time limits effect federal tax refunds are based on a real-life scenario. Mr. Smith wants to file 6 years of tax returns: 2004 through 2010. In all those years he has refunds. If he files by April 15th, 2011, Mr. Smith will receive refunds for the years 2007 through 2010 as those years are still open under the 3-year time limit. Refunds from earlier years 2004, 2005, and 2006, however, have expired and the IRS won't send him a refund check. When a refund has expired, that refund money disappears forever. In IRS terminology, an expired refund is considered an "excess collection". That refund money cannot be sent to the taxpayer as a check. Nor can the refund money be applied as a payment towards another tax year for which a person might still owe the government. Nor can be refund be applied to another year as an estimated payment.

Using Time Limits to Plan Your Taxes

It is in your best interest to file your tax returns at your earliest possible convenience. First, you can claim refunds. Second, it starts the clock ticking on the 3-year statute for audits and the 10-year statue for collections. There's some unique planning opportunities as well if there are multiple tax years involved, as refunds that are still allowed under the 3-year time limit can be utilized to pay off other tax debts owed to the IRS or applied to your current year's estimated taxes.

Tax Law References

• Internal Revenue Code, Section 6501 (3-year audit statute),
• Section 6502 (10-year debt collection statute), and
• Section 6511 (3-year refund statute).

For more information on how the IRS manages these statute of limitations, see Internal Revenue Manual, 25.6.1, Statute of Limitations.

Back Taxes Resources

• Back Taxes Essentials
• IRS Assessments
• IRS Penalties

Tax Debt Resources

• Installment Agreements
• Offer in Compromise
• Partial Payment Agreements

Internal Revenue Code References

• IRC 6501 (3 Years to Audit)
• IRC 6502 (10 Years to Collect Debt)
• IRC 6511 (3 Years to Claim Refund)

How Long Can the IRS Collect Back Taxes or Audit My Tax Return?

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Many people incorrectly believe that the IRS can collect back taxes until the day you die. Some believe the IRS can collect taxes even after you are dead.

Fortunately, the law isn't that bad. The statute of limitations limits the time during which an action can be brought by the IRS for a tax audit and the time for IRS tax collection activities. Generally, there is a 3-year statute of limitations for the IRS auditing a tax return and a 10-year statute of limitations for the IRS collecting tax.

You should be aware that the states may be very different. California, for example, has NO statute of limitations on the collection of back taxes.

Under section 6501(a) of the Internal Revenue Code (Tax Code) and section 301.6501(a)-1(a) of the Income Tax Regulations (Tax Regulations), the IRS is required to assess tax within 3 years after the tax return was filed with the IRS. Similarly, under 301.6501(a)-1(b) of the Tax Regulations no proceeding in court by the IRS without assessment for the collection of any tax can begin after the expiration of 3 years.

Under section 6501(e) of the Tax Code and section 301.6501(e)-1 of the Tax Regulations the statute of limitations is 6 years if the taxpayer omits additional gross income in excess of 25% of the amount of gross income stated in the tax return filed with the IRS.

If the tax return was prepared by the IRS under the authority of section 6020(b) of the Tax Code the statute of limitations does not apply. See section 6501(b)(3) of the Tax Code and section 301.6501(b)-1(c) of the Tax Regulations.

The statute of limitations does not apply in the case of a false tax return or fraudulent tax return filed with the IRS with intent to evade any tax. See section 6501(c)(1) of the Tax Code and section 301.6501(c)-1 of the Tax Regulations.

For assessments of tax or levy made after November 5, 1990, the IRS cannot either collect or levy any tax 10 years after the date of assessment of tax or levy. See Section 6502(a)(1) of the Tax Code and section 301.6502-1 of the Tax Regulations. Court proceedings must also be started by the IRS within the 10 year statute of limitations. Section 301.6502-1(a)(1) of the Tax Regulations.

For assessments of tax or levy made on or before November 5, 1990, the IRS cannot either collect or levy any tax 6 years after the date of assessment of tax or levy. See section 6501(e) of the Tax Code. However, if the 6 year period ends after November 5, 1990, the statute of limitations is 10 years. In order to come under the 6 year statute of limitations, the 6 year period must end prior to November 5, 1990.

The 10 year statute of limitations can be extended by agreement between the taxpayer and the IRS provided the agreement is made prior to the expiration of the 10 year period. See section 6501(c)(4) of the Tax Code and section 301.6501(c)-1(d) of the Tax Regulations.

Make sure you understand the starting date for the running of the statute of limitations, any exceptions to the tolling of the statute of limitations, the last day that the IRS can audit a tax return, and the last day that the IRS can collect overdue tax on a tax return.

Statute of Limitations on Taxpayer to Claim a Tax Refund

A taxpayer may file a claim for a tax refund of an overpayment of any tax within 3 years from the time the tax return was filed with the IRS or 2 years from the time the tax was paid to the IRS, whichever period is the last. If no tax return was filed with the IRS, the claim may be made within 2 years from the date that the tax was paid to the IRS. See section 6511(a) of the Tax Code.

Under section 6511(d)(1) of the Tax Code a taxpayer may file a claim within 7 years if the tax refund pertains to a bad debt under section 166 or 832(c) or in connection with a loss from a worthless security under section 165(g).

This information is brought to you by Online Tax Pros. We help you make filing your online taxes easy.

Denver council defies mayor and chooses 3.5 percent tax on retail pot

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By Jeremy P. Meyer
The Denver Post

Posted:   08/26/2013 12:01:00 AM MDT

Updated:   08/26/2013 05:59:01 AM MDT

In a tight vote last week, the Denver City Council defied Mayor Michael Hancock's request to ask voters to approve a sales tax rate for retail marijuana that begins at 5 percent.

The council, in a 7-6 vote, chose 3.5 percent, siding with Auditor Dennis Gallagher. The auditor sent each council member two letters within a few weeks of each other, pleading with them to pick 3.5 percent over 5 percent.

The council makes its final vote Monday but cannot change the ballot language because not enough time remains to get the measure onto November's ballot. In the same measure, however, voters will be asked to permit the council to change the rate at any time to as high as 15 percent.

"My goal was to buffer the city as much as we can to make sure we have the ability to respond," Hancock said. "I was at 5. But I am not disappointed. We laid out what we thought would be the best reason. But the City Council sees 3.5 percent as the best way to get a yes vote."

Chief financial officer Cary Kennedy said the 3.5 percent tax is expected to bring in $3.4 million a year to pay for regulation, enforcement and education around the new industry. At 5 percent, the tax would have brought in an estimated $4.8 million, she said.

Nevertheless, the conflict is pronounced because Hancock and Gallagher were on opposite sides of the issue.

It appears Gallagher won.

Hancock said he isn't upset about the council's decision to go with a 3.5 percent rate over 5 and doesn't think he lost to Gallagher.

"This was never me versus Dennis Gallagher," he said. "But his weighing in was absolutely unprecedented. Very unusual. But, I guess, at the end of the day he is a citizen of Denver and has every right to weigh in."
Gallagher, whose office lambasted the administration for shoddy regulation of the medical marijuana industry in a scathing audit, argued that anything more than 3.5 percent would be shot down at the polls, he said.
"In 12 years, I have gotten four letters from the auditor, and two of them are about this marijuana tax," Councilman Charlie Brown said. "What is going on?"

The council cannot change the rate now because the ballot must be set by the end of August and there isn't enough time on the council's schedule to hold two votes before then.

Councilman Chris Nevitt, who introduced the amendment to change the rate to 3.5 percent from 5, said he would like to see a zero percent tax rate.

"We're sending huge price signals and we don't know how people will react," Nevitt said.
"That strikes me as dumb. I am perfectly happy to pass a bill. But the thing is, I don't want to tax it at all until the marketplace settles."

No other industry has taxes to pay for social issues, he said.

"We are reinforcing the pariah vision of this industry," he said. "It will become a simple ordinary industry like any other in Colorado, just like brewing and distilling and bicycle manufacturing."

Brown, who chairs a committee working on the city's regulation on retail marijuana, said he was sickened to see the beginning rate cut to 3.5 percent.

"It's silly to think they won't vote for 5 percent," he said. "This isn't a food tax. It's a sin tax. Ninety percent of the people who vote for this won't buy the product.

"What I have been hearing is if we are going to have marijuana, at least we should tax it. I am extremely disappointed that we lowered the rate that could cost the city about $2 million a year."

Jeremy P. Meyer: 303-954-1367, jpmeyer@denverpost.com or twitter.com/jpmeyerdpost

Leave a comment if you want to voice your opinion. This news is brought to you by Online Tax Pros, your source for filing your online taxes. I hope the government gets wise and taxes marijuana so we can build up our economy. The war on drugs isn't working, and we are spending too much trying to ban pot.

Lerner used personal email for IRS business, say lawmakers

Alexis Levinson

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The Oversight Committee wants Internal Revenue Service official Lois Lerner to turn over emails sent from her personal account that they say may pertain to her official duties at the IRS.

A letter sent Tuesday by Oversight Committee Chairman Darrell Issa and Rep. Jim Jordan, the chairman of the Subcommittee on Economic, Job Creation and Regulatory Affairs, requests that Lerner turn over emails sent to or from her personal “msn.com” email address that might pertain to their investigation into the IRS’s inappropriate scrutiny of groups based on their political leanings.

Lerner headed the unit of the IRS charged with dealing with those tax-exempt organizations.

“Through the course of the investigation, we have learned that you sent documents related to your official duties from your official IRS e-mail account to an msn.com e-mail account labeled ‘Lois Home,’” the letter says. “This raises some serious questions concerning your use of a non-official e-mail account to conduct official business.”

Issa and Jordan requested that she turn over any such emails sent between January 1, 2008 and now related to her official duties that might be in personal email accounts, saying that such documents might be relevant to their ongoing investigation.

The use of a personal email, the congressmen write, also raises issues of compliance with the Freedom of Information Act and “frustrates congressional oversight obligations.”
The investigation has faded from the center stage over the past several weeks, but new revelations are reviving the scandal.

Ways and Means Committee chairman Dave Camp and Subcommittee on Oversight Chairman Charles Boustany sent a letter Monday requesting that the IRS cease flagging organizations with phrases like “tea party” in the title for increased scrutiny, after an interview with an IRS employee two weeks ago suggested that such criteria was still being used.

Democrats said Republicans had not given all the context in releasing a piece of the interview transcript. Democratic ranking member Sander Levin said they were “trying to twist the facts to fit their political narrative” in a statement.

Read more: http://dailycaller.com/2013/08/13/lerner-used-personal-email-for-irs-business-say-lawmakers/#ixzz2c2l6qt18

Have you planned for these 7 tax law changes?

By Robert Klein

About Robert

Robert Klein, CPA, PFS, CFP®, RICP®, CLTC, MBA, MST is the founder and president of Retirement Income Center, a retirement income planning firm located in Newport Beach, Calif.  The firm specializes in innovative, conservative income management strategies in addition to offering traditional investment management services designed to help clients achieve their retirement income planning goals. Bob is also the sole proprietor of Robert Klein, CPA, which he founded in 1989. In addition, he is the writer and publisher of Retirement Income Visions, a weekly blog featuring innovative strategies for creating and optimizing retirement income, and previously wrote and published Financially InKlein’d. Bob has been quoted and featured in various publications, including The Wall Street Journal, Yahoo! Personal Finance, InvestmentNews, Financial Advisor Magazine, Bankrate.com, AnnuityNews, Wells Fargo Small Business Roundup Newsletter, and Wealth Manager Magazine. Bob can be reached via his website, Retirement Income Center, LinkedIn and Twitter: @IncomePlanner.

Seven significant new income tax law changes went into effect at the beginning of the year as a result of two pieces of legislation: The 2010 Health Care Reform Act and the American Taxpayer Relief Act of 2012. 

Although the new laws are primarily designed to increase taxes for those with higher levels of income, everyone with earned income is affected. With the first seven months of 2013 behind us, have you begun planning for these changes? 

Increased Social Security tax

At a basic level, anyone with earned income has seen a reduction in take-home pay this year as a result of the first tax law change. The employee Social Security tax rate, which was reduced from 6.2% to 4.2% in 2011 and 2012, is back to 6.2%. 

Combined with the increase in the maximum Social Security wage base from $110,100 in 2012 to $113,700 in 2013, maximum Social Security tax withholding has increased from $4,624.20 in 2012 to $7,049.40 in 2013. This has resulted in a total paycheck reduction of $2,425.20 for individuals reaching the maximum wage base.

Six changes for high income levels

There are a total of six changes to be aware of once your income exceeds the $200,000 single or $250,000 married filing joint (MFJ) levels. Two of the changes begin at these levels, two at $250,000 (single) or $300,000 (MFJ), and two at $400,000 (single) or $450,000 (MFJ), with different definitions of income associated with each change. 

A summary of the six changes, which are also included on the 2013 Individual Federal Income-Based Tax Law Changes spreadsheet, including the income types and applicable income threshold amounts, follows: 

1. Medicare earned income tax increase

The Medicare tax on earned income increased from 1.45% in 2012 to 2.35% in 2013 on earned income exceeding $200,000 (single) or $250,000 (MFJ) if modified adjusted gross income (MAGI) also exceeds these threshold amounts. While the percentage increase of 0.9% is about half of the Social Security tax rate increase of 2%, unlike the calculation of Social Security tax which is capped at a maximum wage base, there's no limit on the amount of wages that are subject to the Medicare tax.

2. New Medicare investment income tax

The Medicare investment income tax is a brand new tax that penalizes individuals with MAGI exceeding $200,000 (single) or $250,000 (MFJ) with taxable interest, dividends, and capital gains, as well as rental, royalty, and nonqualified annuity income, otherwise known as "investment income." A surcharge of 3.8% is assessed on the lesser of net investment income or MAGI in excess of the applicable threshold amounts.

 

3. Itemized deductions limitation  

Repealed in 2010, the itemized deductions limitation was reintroduced this year to the dismay of individuals with adjusted gross income (AGI) exceeding $250,000 (single) or $300,000 (MFJ). It reduces otherwise allowable itemized deductions by 3% of the amount by which AGI exceeds the threshold amounts with some exceptions. 

4. Personal exemption phase out

Also repealed in 2010, the personal exemption phase out reduces the personal exemption amount of $3,900 per individual in 2013. The amount of the reduction is 2% for each $2,500 in excess of AGI threshold amounts of $250,000 (single) or $300,000 (MFJ). 

5. Income tax bracket increase

Individuals with taxable income (TI) of $400,000 (single) or $450,000 (MFJ) will see an increase of 4.6% in their top tax bracket, with the 2012 top bracket of 35% increasing to 39.6% in 2013 on income exceeding these thresholds. 

6. Long-term capital gains and qualified dividends tax rate increase

The federal income-tax rate on long-term (assets held longer than one year) capital gains and qualified dividends increased from 15% to 20% for individuals with TI exceeding $400,000 (single) or $450,000 (MFJ). 

When applicable, any one, let alone a combination, of the foregoing seven income tax law changes can result in a sizable increase in your 2013 federal income tax liability compared with 2012. 

If you haven't had a 2013 income tax projection prepared to determine the potential impact of the various changes on your tax situation, now's the time to get it done. Trust me; you don't want to wait until your 2013 tax returns have been prepared to unveil the damage.

Source:http://www.marketwatch.com/story/have-you-planned-for-these-7-tax-law-changes-2013-08-07

IRS gets help from DEA and NSA to collect data

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The Internal Revenue Service reportedly received incriminating information on US citizens from the Drug Enforcement Agency, with the assistance of the National Security Agency, before concealing the paper trail from defendants.
Details of a Drug Enforcement Administration (DEA) program that provides tips to the Internal Revenue Service (IRS) and then advises them to “recreate the investigative trail” were published in a manual used by IRS agents for two years, Reuters revealed.

The practice of concealing the source of information has attracted the scrutiny of legal experts and is now under review by the US Justice Department.

A brief entry in the Internal Revenue Manual instructed agents of the US tax agency to omit any reference to information provided by the DEA's Special Operations Division, especially with regard to “affidavits, court proceedings or investigative files.”

The entry was published and posted online in 2005 and 2006, and removed in early 2007.  An IRS spokesman had no comment on the entry or on why it was removed from the manual, Reuters reported.

The IRS publication provides some further detail on the parallel construction concept.

"Special Operations Division has the ability to collect, collate, analyze, evaluate, and disseminate information and intelligence derived from worldwide multi-agency sources, including classified projects," the IRS manual says. "SOD converts extremely sensitive information into usable leads and tips which are then passed to the field offices for real-time enforcement activity against major international drug trafficking organizations."

According to the document, IRS agents are directed to use the intelligence as a starting point for unearthing new, "independent" evidence: "Usable information regarding these leads must be developed from such independent sources as investigative files, subscriber and toll requests, physical surveillance, wire intercepts, and confidential source information. Information obtained from SOD in response to a search or query request cannot be used directly in any investigation (i.e. cannot be used in affidavits, court proceedings or maintained in investigative files)." 

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In addition to the IRS, the Special Operations Division cooperates with a number of government agencies, including the Federal Bureau of Investigation, the National Security Agency and the Central Intelligence Agency.

The way the intelligence-gathering system worked is as follows: The Special Operations Division of the DEA channels secret data from overseas NSA intercepts, domestic wiretaps, informants and a large DEA database of telephone records to authorities nationwide to assist them with criminal investigations of US citizens, according to the Reuters report.

The DEA telephone database is different from the NSA database that was revealed by former NSA contractor Edward Snowden, who is now living in Russia under asylum.

The DEA, which works behind the scenes to investigate drug dealers, money launderers and other criminals, argues that the practice does not violate the law and has been in “near-daily use since the 1990s.” The agency said the reason it directs federal agents to recreate the investigation trail is to “protect sources and methods, not to withhold evidence.”

Judicial hurdles ahead

Legal experts, however, say that concealing potential evidence from defendants violates the US Constitution. According to documents and interviews obtained by Reuters, federal agents use a procedure called "parallel construction" to conceal the tracks of the investigative trail. For example, agents could say that an investigation was launched due to a traffic violation as opposed to an SOD tip.

House Intelligence Committee Chairman Mike Rogers expressed concern with the parallel construction program.

"If they're recreating a trail, that's wrong and we're going to have to do something about it," Rogers, a former FBI agent, said on the Mike Huckabee Show radio program. "We're working with the DEA and intelligence organizations to try to find out exactly what that story is."

Spokespeople for the DEA and the Department of Justice declined to comment.

Sen. Rand Paul, a member of the Homeland Security and Government Affairs Committee, said he was troubled that DEA agents have been "trying to cover up a program that investigates Americans."

"If the Constitution still has any sway, a government that is constantly overreaching on security while completely neglecting liberty is in grave violation of our founding doctrine," Paul added

The NSA database contains data about every telephone call made inside of the United States. This information, according to a NSA official, as quoted by Reuters, “is not used for domestic criminal law enforcement.”

The DEA database, or DICE for short, consists largely of phone log and internet data gathered legally by the DEA through “subpoenas, arrests and search warrants nationwide.” DICE has on file “about 1 billion records,” which are stored for about one year before being destroyed, DEA officials said. 
Robert Bridge, RT
Source:http://rt.com/usa/dea-nsa-irs-snowden-216/

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Online Tax filing is one of the fastest and most affordable ways to file your income tax return. When you file through Online Tax Pros, there is notification on your account regarding the status of your return within 48 hours. We make it happen for you quickly and easily at an affordable price. You may even qualify to file your taxes online for free.

These posts are for informational use only to educate people about their online income taxes and the financial world around them. If you found this helpful, share the original article or this one, and help spread the word! Give us a comment if you want to share your opinion on this story.

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Busted tax lawyer offers free legal advice to cops to avoid rap: law-enforcement sources

By NATASHA VELEZ and JAMIE SCHRAM
Source: http://www.nypost.com/p/news/local/highway_bribery_SmznPk9nyjtjunKNyDqPmN

Here’s some free legal advice for this “knucklehead” city tax lawyer: Don’t bribe cops!

BMW-driving attorney John Todorovich was busted for driving with a suspended license in Brooklyn last Thursday — then allegedly tried to bribe cops into letting him go by offering their entire precinct free legal tax and real-estate advice, law-enforcement sources said yesterday.

“He had to bribe the officer, then he had to bribe the officer and a sergeant, then he had to repeat the bribe to the cop with [the Internal Affairs Bureau] recording it. What a knucklehead,” said one police source of Todorovich, 60.

JOHN TODOROVICH
Hangdog mug shot.

 

The tax and real-estate lawyer, who works in Times Square and lives in Westchester, was pulled over in Bushwick by Officer Joseph Curto, when he noticed Todorovich’s inspection sticker was expired, sources said.

Curto discovered that Todorovich’s license had been suspended eight times and was currently revoked, the sources said.

Todorovich was hauled into the 83rd Precinct station house in Bushwick, where he allegedly told Curto he was a lawyer and if Curto dropped “all the charges against him, he would provide free legal services to the officer and the other officers at the 83rd Precinct,” a law-enforcement source said.

Todorovich was caught on tape repeating the bribe, sources said.

The suspect’s own lawyer, Don Savatta, denied that any bribe was offered.

“The tape’s going to show that this is absolutely ridiculous,” he told The Post.

With Online Tax Pros you can electronically file taxes online directly from home using our professional online filing service. When you file through Online Tax Pros you are receiving the industry's highest standards for online taxes security, guaranteed error-free electronic tax filing calculations, and an easy way to prepare your taxes.

Online Tax filing is one of the fastest and most affordable ways to file your income tax return. When you file through Online Tax Pros, there is notification on your account regarding the status of your return within 48 hours. We make it happen for you quickly and easily at an affordable price. You may even qualify to file your taxes online for free.

These posts are for informational use only to educate people about their online income taxes and the financial world around them. If you found this helpful, share the original article or this one, and help spread the word! Give us a comment if you want to share your opinion on this story.

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