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What are the Time Limits for Assessing Additional Federal Tax and Filing a Refund Claim?

The Internal Revenue Service (IRS) must follow the “statute of limitations” as stated in Internal Revenue Code (IRC) Section 6501 to “assess” additional federal tax. Likewise, taxpayers must seek a tax overpayment or refund within the statutory period stated in IRC Section 6511. In this article, we’ll answer some of the most common questions regarding when the IRS can assess additional federal tax and when taxpayers must file a refund claim.

WHEN DOES THE STATUTE OF LIMITATIONS FOR ASSESSING ADDITIONAL TAXES START?

Typically, the period during which the IRS can seek additional tax starts when the taxpayer files their tax return. A taxpayer “self-assesses” when the amount of tax is stated on the return, but tax assessment can also occur when the IRS creates a “substitute for return” under IRC Section 6020. (For example, when the taxpayer fails to timely file a return.) Assessment merely means that the IRS records the tax liability on its official ledger for each taxpayer. An assessment is significant because it is legally considered a debt of the taxpayer for which the IRS can commence collection activities, like placing a lien and levy on property.

Self-Assessment Example: The taxpayer reports on a timely filed return a tax liability of $10,000 and submits payment of $5,000. The $10,000 tax is automatically assessed and constitutes a tax debt of the taxpayer, despite only a partial payment. In this case, the IRS would seek to collect the balance due ($5,000) from the taxpayer under the collection rules.

WHAT IS A TAX ASSESSMENT?

The IRS assesses tax by recording the amount owed in its official records. The assessment establishes the fact and amount of the tax liability that’s due to the IRS and starts the period during which the IRS can collect the amounts due and owing. Generally, the IRS may not lien or levy a taxpayer’s property until after an assessment is made.

There are three primary types of assessments:

  1. A “summary assessment” occurs automatically when the taxpayer reports an amount of tax on a return.
  2. A “jeopardy assessment” occurs when the IRS determines that the taxpayer may abscond with property that the IRS may need to lien and/or levy to satisfy a tax deficiency.
  3. A “tax deficiency assessment” occurs after the IRS determines the amount owed by the taxpayer and follows its procedures to permit the taxpayer to challenge its determination (usually after an audit).

STATUTORY NOTICE OF DEFICIENCY (THE 90-DAY LETTER)

If the IRS audits a return and determines that the taxpayer owes additional tax, it generally cannot assess the tax before sending the taxpayer a statutory notice of deficiency, or the so-called “90 day letter.” The letter must be sent by certified or registered mail to the last known address of the taxpayer (which is usually the address listed on the last return filed with the IRS). If the taxpayer does not file a timely petition with the US Tax Court in response to the 90-day letter, the IRS may then assess [...]

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