Statutes of Limitation


There are several statutory periods of time beyond which taxpayers or the IRS may not take certain actions. Those include statutes of limitation on assessment, collections, refund claims, liens, levies, petitions to redetermine tax, and petitions to challenge denial of requests for innocent spouse relief.

Assessment, §6201. Before tax is permitted to be collected, the tax must be “assessed” and a demand for payment must be mailed to the taxpayer. An “assessment” is made by an “assessment officer” signing the daily summary record of assessment. Form 23-C or RACS Report-006, “Summary Record of Assessment”. § 6203, Reg. § 301.6203.1. Proof of the assessment can be obtained from the IRS. Assessment must occur no later than three years after the return was filed. § 6501. Assessment may occur at any time if a fake return was filed, if no return was filed and if the taxpayer willfully attempted to evade tax.  In the case of a “substantial omission”, tax may be assessed at any time within six years after the return was filed.  A “substantial omission” is an omission of 25 percent or more of gross income stated on the return.

Prior to an assessment, the taxpayer usually receives various administrative notices, and then the taxpayer receives a statutory Notice of Deficiency, often referred to as a “90-day letter” or a “Statutory Notice”.

Administrative 30-day Letter. A pre-assessment 30-day letter precedes the Notice of Deficiency. It informs the taxpayer that a deficiency is being proposed, and it notifies the taxpayer that the taxpayer has 30 days to start the appeal process or pay the tax.  Because this is not a statutory notice, the IRS may grant the taxpayer’s request for an extension of time to reply to this notice.

Statutory Notice of Deficiency, § 6212, § 6213. If the IRS determines that there is a deficiency of tax, it is authorized to send a Notice of the Deficiency to the taxpayer. The taxpayer has 90 days from the date on the Notice of Deficiency to petition the U.S. Tax Court for relief or to pay the tax. The 90-day period does not expire on a weekend or a legal holiday.  Those days are not counted. A deficiency is defined in § 6211 as the excess of the tax imposed over the tax reported on the return or previously assessed. A Notice of Deficiency may be rescinded, but it is highly unusual for that to occur. It never may be extended by the IRS

Statutory Notice and Demand, § 6303. IRS must send the taxpayer a “Notice and Demand” for payment of the amount of unpaid tax within 60 days of making an assessment. If the IRS fails to comply with § 6303 the assessment will remain valid but the IRS will be barred from utilizing its lien and levy collection powers. This is one of the three notices that a taxpayer must receive before a levy.  The other two are contained in § 6330 and § 6331, discussed below.

Statutory Lien, § 6321 and § 6322. After tax is assessed there is an automatic statutory lien in favor of the IRS in an amount equal to the amount of assessed and  unpaid tax and the lien continues until the tax liability is satisfied or the lien becomes unenforceable by reason of the lapse of time.

Collection of Tax, § 6502. Tax may be collected by levy or by a proceeding in court within 10 years after assessment or, in limited circumstances, within a longer period agreed to in writing by the IRS and the taxpayer.

Statutory Notice of Lien, § 6320. IRS must notify taxpayer of the filing of a federal tax lien within 5 business days after the filing of the notice of lien. After this 5-day period the taxpayer has only 30 days to appeal the filing of the lien. If the IRS determines that it failed to properly provide a taxpayer with notice, it will promptly provide the taxpayer with a substitute notice and provide the taxpayer with an opportunity to appeal the filing of the lien.

Statutory Notice of Levy, § 6330 and § 6331, a levy is a non-judicial procedure that permits the IRS to collect. IRS must notify taxpayer of its intent to levy at least 30 days prior to the date of the first levy. Taxpayer can request “Collection Due Process” hearing only during this 30 day window (the hearing will toll the statute of limitations on levy actions, collections, prosecution of criminal matters, and all suits under § 6532 for the period of the appeal).

Statutory Notices of Liens and Levies, § 6320 (c) and § 6330 (d). Within 30 days after a “Notice of Determination denying the taxpayer’s challenge of a Notice of Lien or Levy, the taxpayer may appeal the denial to the U.S. Tax Court by filing a petition in U.S. Tax Court.

Statutory Notice of Determination Innocent Spouse Relief, § 6015. There is a right to petition the U.S. Tax Court after a denial of innocent spouse relief set forth in a Statutory Notice of Determination. The petition must be filed within 90 days after the IRS’s final determination of relief is mailed to the taxpayer by the IRS. A claim for relief under the innocent spouse rules must be made within two years from the date the IRS has commenced collection proceedings against the taxpayer.

Suspension of Statute of Limitations, § 6503. The statute of limitations on assessment, collections, etc…, may be suspended during the periods when the IRS is prohibited from making an assessment, from collecting taxes by levy or from proceeding in Court and for 60 days thereafter. The IRS cannot engage in collection activities while an offer in compromise is being considered. § 7122.

Credits or Refunds, § 6511. If tax has been paid, a taxpayer may file a claim for refund. A claim for a credit or refund must generally be filed within three years from the date the original return was filed or within two years from the date the tax was paid, if later. If no return was filed, the claim must be filed within two years from the date the tax was paid. If a claim for refund is denied by the IRS, the taxpayer can file a suit for refund in U.S. District Court or in Claims Court within two years after the denial of the claim for refund.

Section 6511 (d)(8) provides an exception to the general three year rule when a veteran receives a retroactive service connected disability rating determination.  When such a determination is made, the veteran’s previously reported taxable income is retroactively reduced. The exception to the stature of limitations provides that the three year period is extended under section 6511(d)(8)(A)(ii) and (B) for 1 year from the period beginning on the date of such determination but the exception will not apply to any tax year that is more than five years before the date of the determination. A copy of the determination letter from the Department of Veterans Affairs must be attached to the amended return (Form 1040X).  These returns cannot be e-filed.

Frivolous Hearing Requests, § 6702. The clinic will never submit a request for hearing under § 6320 or § 6330 to delay or impede the administration of tax laws.  To do so constitutes a “frivolous submission”, which will give rise to a $5,000 penalty being imposed by the IRS

Special Tax Considerations for Veterans

Disabled veterans may be eligible to claim a federal tax refund based on:

  • an increase in the veteran’s percentage of disability from the Department of Veterans Affairs (which may include a retroactive determination) or
  • the combat-disabled veteran applying for, and being granted, Combat-Related Special Compensation, after an award for Concurrent Retirement and Disability.

To do so, the disabled veteran will need to file the amended return, Form 1040X, Amended U.S. Individual Income Tax Return, to correct a previously filed Form 1040, 1040A or 1040EZ. An amended return cannot be e-filed. It must be filed as a paper return.  Disabled veterans should include all documents from the Department of Veterans Affairs and any information received from Defense Finance and Accounting Services explaining proper tax treatment for the current year.

Please note: It is only in the year of the Department of Veterans Affairs reassessment of disability percentage (including any impacted retroactive year) or the year that the CRSC is initially granted or adjusted that the veteran may need to file amended returns.

Under normal circumstances, the Form 1099-R issued to the veteran by Defense Finance and Accounting Services correctly reflects the taxable portion of compensation received. No amended returns would be required, since it has already been adjusted for any non-taxable awards.

If needed, veterans should seek assistance from a competent tax professional before filing amended returns based on a disability determination. Refund claims based on an incorrect interpretation of the tax law could subject the veteran to interest and/or penalty charges.

Other Resources:

Frequently Asked Questions Regarding Filing Amended Returns for Disabled Veterans

I’ve been told that my Form 1099-R is wrong and that I should file an amended tax return to get a refund because my pension income is actually not taxable. Is that right?

Under normal circumstances, the Form 1099-R issued to the veteran by the Defense Finance and Accounting Services correctly reflects the taxable portion of compensation received.

I received an email that states I’m due a refund from IRS, because I get disability compensation from the Department of Veterans Affairs. Do I need to file an amended tax return?

The Defense Finance and Accounting Services generally would not send an email to veterans advising them to file an amended return.

The Department of Veterans Affairs just sent me a determination letter that increased my disability percentage from 30% to 50%, retroactive to 2010. What should I do?

Because the redetermination is retroactive, your previously taxable pension income can now be reduced by the adjustment. You may file amended returns, Forms 1040X, for tax years 2010 and 2011.

Special statute of limitations. In most cases, under the statute of limitations a claim for credit or refund must be filed within 3 years from the time a return was filed. However, if you receive a retroactive service connected disability rating determination, the statute of limitations is extended by a 1 year period beginning on the date of the determination. This 1 year extended period applies to claims for credit or refund filed after June 17, 2008, and does not apply to any tax year that began more than 5 years before the date of the determination.

Example. You retired in 2006 and receive a pension based on your years of service. On August 1, 2012, you receive a determination of service connected disability retroactive to 2006. Generally, you could claim a refund for the taxes paid on your pension for 2009, 2010, and 2011. However, under the special limitation period, you can also file a claim for 2008 as long as you file the claim by August 1, 2013. You cannot file a claim for 2006 and 2007 because those tax years began more than 5 years before the determination.

Veterans who have questions on filing claims for refund and filing of amended returns are encouraged to seek assistance from a competent tax professional