Posted by Income Taxes and Bookkeeping LLC

Understanding the Statute of Limitations

Understanding the Statute of Limitations

We consider a statute of limitations as a law that places the maximum period that the people involved in a dispute need to start a legal proceeding from when an offense commenced, which could be criminal or civil. However, the time frame that the statute gives a victim the chance to start legal action against the accused is not the same in every place and varies due to the type of offense. 


What is the Statute of Limitations?

The duration allowed for a statute of limitation usually depends on the nature and type of offense. Statutes of limitation, in many cases, have to do with civil matters. For instance, in a couple of states, the claim on medical malpractice has its statute of limitation as two years. This means within two years; one can sue for medical malpractice. Waiting for a day extra after the two-year limitation means one can no longer make the suing process. 

Usually, there is a statute of limitations with criminal offenses. Although the crime involved is a serious one like murder, there is no statute of the limitation period. This also applies to sex offenses or rape with minor, violent crimes like kidnapping, etc. 

Also, there is no statute of limitations for international law and crime against humanity, war crimes, etc. 


Understanding the Statute of Limitations on Tax Liability 

The federal government has mandated the Internal Revenue Service with the assignment of tax collection. According to tax laws, there is a specific time frame in which Uncle Sam can enforce the collection of taxes with decisive action. Anything outside this, the taxpayer will be exempted from paying the amount owed.

It is easy for people to understand how the Statute of Limitation applies to a taxpayer and their tax debt. 


Assessment

Uncle Sam only has three years from the exact date you filed your tax return to work on the extra tax owed. All returns that any taxpayer files before the tax deadline of April 15th are assumed filed on the exact date of April 15th for tax assessment purposes. 

Even though the assessment date should have been the date Uncle Sam got the tax return alongside the money owed or the date they got access to the extra tax owed. 


Collections

Uncle Sam has a statute of limitation of 10 years to collect any back tax pending with taxpayers. Should Uncle Sam access the tax the second time, the ten year statute countdown will begin at this period. 


Exceptions

There are cases when a statute of limitation might not exist. If a taxpayer does not file a tax return, or if they filed a fake tax return, Uncle Sam has the license to start the collection activity whenever it wants. In fraud cases, when the taxpayer intentionally wants to outsmart Uncle Sam, the IRS could commence a court order or have their assessment whenever they want.

In cases when information is absent from a tax return, which could trigger nothing less than a 25% reduction in the tax return, Uncle Sam has a six-year statute of limitation to make amends. 


Considerations

There are provisions for the IRS and the taxpayer to have an agreement. Such an arrangement might extend the statute of limitations. An example is the Partial Payment Installment Agreement (PPIA). With this, any taxpayer with colossal tax debt can pay less than the minimum monthly requirement amount. 

However, the taxpayer who agrees to a PPIA arrangement must consent to an extension of the statute of limitations for the tax period. 


Important Consideration 

Taxpayers should note that it is not part of Uncle Sam's responsibility to inform them of the time their statute will expire. As a result, they need to keep the date in mind. There are cases when the taxpayer will get a lien release letter mailed to them. 

This, however, does not happen in every case. 


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