There are three main time limits, or statute of limitations, that the IRS must follow in order
to legally administer and collect a tax. The three main statute of limitations are the on assessment, collection, and credits and refunds.
The statute of limitations on assessments is the time limit the IRS has in order to calculate and alert a taxpayer that they owe money to the IRS. Generally, the IRS has three years in order to assess a tax on a taxpayer, starting from when the tax return is filed. The date that a tax return is filed is the later of the due date of the tax return or when the tax return is filed with the IRS.
Although the statute of limitations on assessments is three years, there are some exceptions to this rule that can extend the three year limit. Some of these exceptions are (1) fraudulent tax returns, (2) an extension by agreement, (3) not filing a tax return, (4) amended tax returns, and (5) a notice of deficiency.
Secondly, the statute of limitations on collection is the time limit the IRS has in order to collect money from a taxpayer for a particular tax year. Generally, the IRS has ten years in order to collect a tax from a taxpayer. Once the ten years has expired, the IRS must forever stop all collection for that specific tax year.
Lastly, the statute of limitations on credits and refunds is the time limit a taxpayer has in order to be given a tax credit or to receive a tax refund. Generally, a taxpayer has three years from the filing date of the tax return or two years from when a tax is paid in order to make a claim for a credit or refund. Once this three year time limit has passed, the taxpayer is no longer able to receive a refund from the IRS. However, the taxpayer is still allowed to amend prior year returns in order to have the amount of tax, penalties, and interest reduced.
Although the statute of limitations on credits and refunds is three years, there are some exceptions that extend the time limit. Some of these exceptions are (1) the taxpayer is financially disabled, (2) there are bad debts or worthless securities, or (3) there are foreign tax credits. Also, a taxpayer may extend the time limit for claining a refund or credit by extending the statute of limitations on assessment.