How Does Underreporting Income Affect IRS Deadlines?

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How does underreporting income affect the IRS’s statute of limitations?

 Underreporting income can extend the Assessment Statute Expiration Date (ASED). If more than 25% of gross income is omitted, the IRS has six years to assess taxes instead of the usual three. In cases involving fraud or failure to file, the statute of limitations in IRS cases becomes unlimited. This extended window gives the IRS more time to assess additional taxes due to such errors or omissions.

Can the IRS extend the ASED by requesting more time?

The IRS cannot unilaterally extend the ASED. However, the ASED may be extended if you agree to do so by signing a consent form with the IRS. The statute of limitations for tax assessment may also be extended in certain circumstances provided by law. For example, if more than 25% of gross income is omitted from a return, the ASED is extended to six years. If a return is never filed or is fraudulent, there is no statute of limitations, and the IRS may assess tax at any time.

How does filing an amended return affect the ASED?

 Filing an amended return does not reset the ASED. The original ASED still applies, typically three years from the later of the return’s due date or filing date. However, there’s a notable exception: if you file an amended return that increases your tax liability and the IRS receives it within 60 days before the original ASED expires, the IRS is granted an additional 60 days from the date of receipt to assess the additional tax.

What is the statute of limitations for the IRS to collect taxes?

The IRS generally has 10 years from the date of assessment to collect taxes, this is called the Collection Statute Expiration Date (CSED). However, this period can be suspended or extended by events such as bankruptcy, installment agreement requests, or a Collection Due Process hearing. The time during these events is added to the 10 years, so the IRS may have more than 10 years to collect.

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