Tax Collection Statutes, Tax Audit Statutes and Refund Statutes

The IRS by law (Internal Revenue Code 6502) has a 10 year period with which to collect all unpaid taxes that you owe for any particular year or period. Once a tax liability has been finalized. Tax liabilities can be finalized on a balance due return( one that you filed), an assessment that the IRS made against you via an audit, or based on a proposed assessment, such as a potential Trust Fund Recovery Penalty (for non-payment of payroll taxes). If the IRS does not collect the total amount that you owe within a 10 year period, then the remaining outstanding balance disappears as the Statute for collection of this liability has expired. We recently had a client at our firm http://www.taxadvocacyllc.com/ who was not aware that the government has only 10 years to collect what he owed. We recognized that there were only 8 months left for the IRS to collect from this client.We immediately contacted the IRS and established an Installment Agreement for his outstanding liability (approx $ 40,000). The taxpayer paid the IRS $ 240.00 per month for a total of 8 months. (The client had come to Tax Advocacy because he had his wages levied.) We got an immediate release of the wage levy and the taxpayer made his monthly payments for 8 months. At the end of this period we contacted the IRS and and notified them that the collection statue had expired. Case closed!

We have been asked many times "how long should we keep our tax records?" The answer is: The IRS has 3 years to audit your tax return or assess any additional tax liabilities. Per Internal Revenue Code 6501, the 3 year clock begins on the 16th day of April for the year the return was due. As an example, a 2005 tax return was due on April 15, 2006. The 3 year audit assessment date begins on April 16, 2006. That simply means that the IRS has until April 16, 2009 to make an audit assessment or assess any additional liabilities against you. By law they cannot make an additional assessment against you as the result of an audit after that date.

By the same token, taxpayer's have 3 years after the due date of a tax return to claim their refund. (Internal Revenue Code 6511) As an example, let's say that your 2005 Individual Income Tax Return (form 1040) is due on April 15,2006. If you fail to file your refund due tax return by April 16, 2009 then you can say bye bye to the refund you are anticipating. We cannot stress enough to you that you need to become complaint with filing of your tax returns! You would be amazed at how many taxpayer's have lost refunds due to procrastination of filing their tax returns! For additional information check with http://www.irs.gov/ or, http://www.taxadvocacyllc.com/ .