The IRS has three years to give you a refund, three years to audit your tax return, and ten years to collect any tax due. Together, these laws are called the statute of limitations. They put time limits on various tax-related actions that you and the IRS can take.
You have three years to claim a tax refund.
Taxpayers have until the later of three years from the date of the original deadline of the tax return or two years from the date the tax was actually paid to claim a refund of overpaid taxes from the IRS.
For example, your 2013 tax return is due on April 15th, 2014. Add three years to this filing deadline, and you have until April 15th, 2017, to file your 2013 tax return and still get a tax refund. If you file your 2013 return after April 15th, 2017, then your refund expires. It goes away forever because the statute of limitations for claiming a refund has closed.
If you already filed a tax return, you can claim any additional refunds by sending in corrections with an amended return. Amended returns claiming additional refunds must be filed with the IRS before the statute of the limitations expires three years from the original April 15th due date.
Filing an extension extends the period for claiming refunds. The IRS can issue refunds for a particular year if you requested an extension and subsequently file a tax return within three years from the extended deadline.
Exceptions to the 3-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 the situation where taxpayers are unable to manage their financial affairs due to physical or mental impairments.
Example of how the Refund Statute of Limitations Works
Mr. Smith wants to file six years of tax returns: 2008 through 2013. In all those years he has refunds. If he files all these returns by April 15th, 2014, Mr. Smith will receive refunds for the years 2010 through 2013, as those years are still open under the 3-year time limit. Refunds from the earlier years 2008 and 2009, however, have expired. The 2009 tax return was originally due on April 15, 2010, and three years from that date is April 15, 2013. Since Mr. Smith filed his 2008 and 2009 tax returns after April 15, 2013, those refunds are outside the statute of limitations for refunds. The IRS will not send him a refund check for those two years.
When a refund has expired, that refund money is kept by the federal government. In IRS terminology, an expired refund is considered an "excess collection". That refund money cannot be sent to the taxpayer as a check. Nor can the refund money be applied as a payment towards another tax year for which a person might still owe the government. Nor can be refund be applied to another year as an estimated payment.
The IRS has three years to audit your tax return or to assess any additional tax liabilities.
This is measured from the day you actually filed your tax return. If you filed your taxes before the deadline, the time is measured from its date, April 15th. Most state tax agencies follow the federal three-year period for auditing tax returns, however, some states have a longer statute of limitations.
Exceptions to the 3-year statute of limitations on assessments and audits:
- 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 income that 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 remains open indefinitely if the taxpayer files a false or fraudulent tax return.
The IRS has 10 years to collect outstanding tax liabilities.
This is measured from the day a tax liability has been finalized. A tax liability can be finalized in a number of ways. A tax liability can be finalized because it's the amount of tax reported on a tax return that is filed by the taxpayer. Or a tax liability can be finalized by an assessment of additional tax from an audit, or a proposed assessment that has become final. From the day that a tax liability is finalized, the IRS has ten years to collect the full amount, plus any penalties and interest. If the IRS doesn't collect the full amount in the 10-year period, then the remaining balance on the account disappears forever because the statute of limitations on collecting the tax has expired.
The ten-year statute of limitations on collections can be suspended in the following situations:
- While the IRS is reviewing an offer in compromise, installment agreement, innocent spouse relief, collection due processing hearing,
- While a taxpayer is under the automatic stay of bankruptcy protection plus an additional six months,
- For periods when the taxpayer resides outside the United States for at least six months.
For more information, see "Time Limits on IRS Collections" from legal publisher Nolo.com.
Using Time Limits to Plan Your Taxes
It is in your best interest to file your tax returns at your earliest possible convenience. Because, first, you can claim refunds. Second, it starts the clock ticking on the three year statute for audits and the ten-year statue for collections.
There are unique planning opportunities available to the filer, if multiple tax years are involved, as refunds that are still allowed under the three year time limit can be utilized to pay off other tax debts owed to the IRS or applied to your current year's estimated taxes.
Tax Law References
- Internal Revenue Code, Section 6501 (3-year audit statute),
- Section 6502 (10-year debt collection statute),
- Section 6503 (suspending the 10-year debt collection statute), and
- Section 6511 (3-year refund statute).
For more information on how the IRS manages these statute of limitations, see Internal Revenue Manual, 25.6.1, Statute of Limitations.