Filed Tax Return Enough to Trigger Assessment Statute of Limitation

Posted on October 18, 2017

When you file a tax return with the IRS, the mere act of filing causes the assessment statute of limitation to begin to run. The assessment statute of limitation bars the IRS from making any changes to your already-filed tax return after a period of time.

However, if the assessment statute of limitation is still open, the IRS can audit or make changes to your tax return. Typically, the IRS has three years from the date you file your tax return to audit that tax return or to propose changes. There are also ways that the IRS can argue that the assessment statute of limitation was extended, thereby giving the IRS more time to audit your tax return or to propose changes.

For example, if you have a 25% or more gross omission of income on your tax return, the assessment statute of limitation grows to six years. If you intentionally evade or defeat the tax on a tax return or commit fraud, the assessment statute of limitation never begins to run and the IRS can come after you at any time.

But what happens when you file the wrong tax return? Does the assessment statute of limitation begin to run?

In a recent case, the United States Tax Court held in favor of the taxpayer regarding the merger of two businesses. The new business filed a tax return listing the income and expenses of the old business and specifically notified the IRS that the new business was a continuation of the old business and included sufficient information to notify the IRS of this development.

Included with the tax return for the new business was a “pro-forma” tax return for the old business that included the old business’ EIN and address along with a checked box stating that it was the final return for the old business. The IRS took the position that the tax return for the old business was never filed and, as such, the assessment statute of limitation had never begun to run.

The Tax Court held in favor of the taxpayer, stating that the tax return was a valid return and, as such, the IRS was barred by the assessment statute of limitation for the tax return for the old business. Have you filed a tax return with the IRS that is now under audit or has the IRS proposed changes to that tax return? Contact us, we can help.