IRS Statutes of Limitations for Tax Refunds, Audits, and Collections
The Internal Revenue Service gives itself plenty of time to make sure your tax situation is on the up-and-up. The tax code gives the IRS three years to audit your tax return and 10 years to collect any tax you might owe. It also sets a deadline for you—when you must file your return if you want to collect any refund that's owed to you.
All these limits are referred to as IRS statutes of limitations.
You Have 2 or 3 Years to Claim a Tax Refund
You have three years from the date of the original deadline for your tax return to claim any refund you might be entitled to. Your 2019 tax return is due on July 15, 2020, so you have until April 15, 2023 to file your 2019 tax return and still get any tax refund that's due to you. Just add three years to the filing deadline...unless you paid any taxes that were due on the tax return.
In this case, the statute of limitations would be only two years from the date you paid if this date is later than the three-year due date deadline.
Your refund expires and goes away forever if you wait longer than the deadline because the statute of limitations for claiming a refund will have closed.
Amended Returns and Extensions of Time to File
Amended returns claiming additional refunds must be filed with the IRS before the three-year statute of the limitations expires, which would be Oct. 15 if you filed an extension. This later date is the new due date after you ask for the extension.
The IRS can issue refunds for a particular year if you request an extension and subsequently file a tax return within three years from that extended deadline.
There are two additional exceptions to the three-year statute of limitations on refunds:
- Taxpayers have up to seven years to claim a refund resulting from deductions for bad debt or worthless securities.
- The three-year statute of limitations does not apply in situations where taxpayers are unable to manage their financial affairs due to physical or mental impairments.
What Happens to Your Refund If You Don't Collect?
The federal government keeps the money when a refund expires. This is considered an "excess collection" in IRS terminology. That refund money cannot be sent to the taxpayer, nor can it be applied as a payment toward a future tax year. It can't be applied to another year as an estimated payment.
The IRS Has 3 Years to Audit Your Tax Return
This deadline is measured from the day you actually file your tax return unless you filed your taxes before the deadline. In this case, the clock doesn't begin running until the actual due date, which will be July 15 in 2020 due to COVID-19. So even if you file your return in February 2020, the IRS has until April 15, 2023 to initiate an audit.
Your filing deadline would be Oct. 15 in this case as well if you ask for an extension of time to file. The IRS would have three years from the date you actually file. If you file in August, the three-year clock begins ticking in August.
Most state tax agencies follow the federal three-year period for auditing tax returns, but some states have longer statutes of limitations.
Exceptions to the 3-Year Rule
There are exceptions to the three-year federal rule on assessments and audits as well:
- The IRS has six years from the date a return is filed to audit a tax return and to assess additional tax if the taxpayer omits income that amounts to more than 25% of that which was reported on the tax return.
- The IRS also has six years to audit a tax return and assess additional tax on income related to undisclosed foreign financial assets if the omitted income is more than $5,000.
- The statute of limitations on audits and assessing additional tax can remain open indefinitely if the taxpayer files a false or fraudulent tax return.
The IRS Has 10 Years to Collect Outstanding Tax Debts
This deadline is measured from the day a tax liability has been finalized, which can happen in a number of ways. Your liability might be considered finalized because it's the amount of tax reported on a tax return that you've filed, because it's an assessment of additional tax from an audit, or because it's a proposed assessment that has become final.
The IRS has 10 years to collect the full amount from the day a tax liability is finalized, plus any penalties and interest. The remaining balance disappears forever if the IRS doesn't collect the full amount within the 10-year period because the statute of limitations has expired. You're off the hook.
The Statute of Limitations Can Be Suspended
The 10-year statute of limitations on collections can be suspended in the following situations:
- While the IRS is reviewing an offer in compromise, installment agreement, or a request for innocent spouse relief
- While a taxpayer is under the automatic stay of bankruptcy protection plus an additional six months
- For periods when the taxpayer resides outside the U.S. for at least six months
"Suspension" means that the clock effectively stops running during these times. For example, the IRS might take a month to evaluate your request for an installment agreement to pay a tax debt you owe. The month runs from June 1 to June 30 of 2019. The IRS has used up only 11 months of its statute of limitations in calendar year 2019 because the clock wasn't running in June. The 10-year statute of limitations is pushed back 30 days.
Using Time Limits to Plan Your Taxes
It's in your best interest to file your tax returns at your earliest possible convenience. First, you can claim any refund that is due you. Second, it starts the clock ticking on the three-year statute for audits and the 10-year statute for collections.
There are unique planning opportunities available to a filer if multiple tax years are involved because refunds that are still allowed under the three-year time limit can be used to pay off other tax debts owed to the IRS or applied to your current year's estimated taxes.
Cornell Law School Legal Information Institute. "U.S. Code Section 6511. Limitations on Credit or Refund," Accessed Nov. 13, 2019.
American Bar Association. "IRS Can Audit for Three Years, Six, or Forever: Here's How to Tell," Accessed Nov. 13, 2019.
Internal Revenue Service. "5.1.19 Collection Statue Expiration," Section 22.214.171.124.1. Accessed Nov. 13, 2019.