SOL on tax assessments.

• Author: Grooms, W.M.
• Position: Statute of limitations

Tax professionals are constantly asked about the statute of limitations (SOL) applicable to a taxpayer's situation. Certainly, the answer to this question depends on which SOL is being referred to (there are many). Some of the more important SOLs deal with the time period during which the IRS may assess income tax against a taxpayer.

Like so many other Code matters, the timing and appropriateness of IRS assessments are subject to general rules, but include many exceptions.

The General Rule

Normally, the Service may assess tax against a taxpayer not later than three years from the latter of a return's due date for a given year or three years from the date the taxpayer filed the return.

In clarifying the timing of an assessment, directions are important. Sec. 6501 provides "except as otherwise provided in this section, the amount of any tax imposed by this title shall be assessed within 3 years after the return was filed (whether or not such return was filed on or after the date prescribed)" This is the three-year rule. However, if a taxpayer files a return early (e.g., April 1, for a calendar-year individual), does the three-year period began to run on that date or on the April 15 due date?

Sec. 6501(b)(1) answers this question:

[A] return of tax imposed by this title ... filed before the last day prescribed by law or by regulations promulgated pursuant to law for the filing thereof, shall be considered as filed on such last day.

If a return is filed early, it will be deemed filed on the last day for filing. Therefore, if a return was filed on April 1, the SOL will begin to run on April 15. As with many matters in the Code, exceptions exist. Sec. 6501(c) contains several exceptions to the three-year rule.

Exceptions to the Rule

Filing a false return. Sec. 6501(c)(1) states:

In the case of a false or fraudulent return with the intent to evade tax, the tax may be assessed, or a proceeding in court for collection of such tax may be begun without assessment, at any time.

Accordingly, if a return is "false or fraudulent," there is no stopping the tax from being assessed at any time--be it two or 22 years after the return was filed.

The Fifth Circuit has held that a statement "is materially false if it is shown to be capable of influencing a decision of the institution to which it is made" (Mann, 161 F3d 840 (1998)). When is a matter material? A district court has held that "material matters in income tax returns are those essential to the accurate computation of taxes." So, some guidance exists as to whether an item is false.

Generally a position is false without its being supported by an "evil" intention; according to the Fifth Circuit, it must...