CPA REG: Statute of Limitations for Tax Matters
Master the statute of limitations rules for tax assessments, refund claims, and collections for the CPA REG exam, including the standard periods and key exceptions.
Statute of Limitations in Tax: CPA REG Exam Guide
The statute of limitations defines the time periods within which the IRS may assess additional tax, the taxpayer may claim a refund, and the IRS may collect tax. These rules are tested frequently on the REG exam and involve several standard periods with important exceptions that candidates must know.
Standard Assessment Period
Under IRC Section 6501(a), the IRS generally has three years from the later of the date the return was filed or the due date of the return to assess additional tax. The due date for individual returns is generally April 15 (or the next business day). If a return is filed early, the statute begins running from the due date, not the filing date. If a return is filed late (after the due date), the statute runs from the actual filing date.
For example, if a calendar-year taxpayer files their 2024 return on February 1, 2025, the statute of limitations begins on April 15, 2025 (the due date) and expires on April 15, 2028. If the same taxpayer files on July 1, 2025, the statute begins on July 1, 2025, and expires on July 1, 2028.
Six-Year Assessment Period
The statute of limitations is extended to six years under IRC Section 6501(e) when the taxpayer omits from gross income an amount exceeding 25% of the gross income reported on the return. For this purpose, gross income is the total amount received before reductions for cost of goods sold. This extended period applies only to the omission, not to other items on the return. The taxpayer can avoid the six-year period by disclosing the omitted amount on the return in a manner adequate to apprise the IRS of the nature and amount of the item.
Unlimited Assessment Period
There is no statute of limitations in three situations. First, when a taxpayer files a false or fraudulent return with the intent to evade tax. The IRS may assess tax at any time for fraud. Second, when a taxpayer willfully fails to file a return, there is no limitation period because the statute never begins to run. Third, the assessment period remains open for claims involving a listed transaction that the taxpayer failed to disclose.
It is important to distinguish between civil fraud (which removes the statute of limitations for assessment) and negligence or non-willful errors (which do not extend the period). The burden of proving fraud rests with the IRS.
Refund Claim Period
Under IRC Section 6511, a taxpayer must file a claim for refund within the later of three years from the date the return was filed or two years from the date the tax was paid. The amount of the refund is limited by which period applies. If the claim is filed within the three-year period, the refund is limited to taxes paid within the three years preceding the claim plus the period of any extension. If the claim is filed within the two-year payment period (but not within the three-year filing period), the refund is limited to taxes paid within the two years preceding the claim.
This distinction is commonly tested. For example, if a taxpayer files a return on April 15, 2025, and pays tax on that date, they have until April 15, 2028, to claim a refund. If they wait until April 16, 2028, but paid estimated taxes within two years of the claim, the refund is limited to amounts paid within the preceding two years.
Collection Period
Under IRC Section 6502, the IRS generally has 10 years from the date of assessment to collect tax by levy or court proceeding. The assessment date is typically when the IRS processes the return or issues a formal assessment after an audit. The 10-year period can be extended by certain events, including the filing of a bankruptcy petition (which imposes an automatic stay), an offer in compromise, or a taxpayer's agreement to extend the period.
Extending and Suspending the Statute
Both the taxpayer and the IRS may agree to extend the assessment period using Form 872 (for a specific period) or Form 872-A (for an indefinite period that either party can terminate). The statute is also suspended during various events, including when the taxpayer is outside the United States for a continuous period of six months or more, during a pending Tax Court proceeding (plus 60 days), and during a pending bankruptcy proceeding (plus six months).
Exam Strategy
- The standard assessment period is three years from the later of the filing date or due date
- Omission exceeding 25% of gross income extends the period to six years
- Fraud and failure to file have no statute of limitations
- Refund claims must be filed within three years of filing or two years of payment
- The collection period is 10 years from assessment
- Returns filed before the due date are treated as filed on the due date
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