Back Taxes and the Statute of Limitations

The IRS is required to assess, refund, credit, and collect income taxes within a statutory timeframe known as the Statute of Limitations. When the Statute expires, the IRS is no longer allowed to release a refund, assess additional tax liability, or attempt to collect taxes in arrears.

When a refund is due, the Statute of Limitations allows a taxpayer to claim it within three years from the time the original return was filed, or two years from the date the tax was paid, whichever comes later. Thus, the IRS will accept and process income tax returns filed after the return's due date. However, if the Statute of Limitations expired and a late return result in an overpayment, the IRS will not release the tax refund.

In a similar way, the Statute of Limitations allows the taxing authorities a 3-year window to examine a return and assess additional tax. However, the Statute of Limitations is extended to 6 years in an event of 25 percent or more understatement of income and is further on continued indefinitely for fraudulent returns and non-filing of return.

Consequently, a delinquent return that results in an underpayment of income tax will be processed, and applicable penalties and interest will be applied, regardless of the return submission date. From that point onwards the IRS is granted additional ten years to enforce collection of the tax, including through liens, levies, and garnishments.

IRS Policy Statement 5-133

Many US citizens and permanent residents who are continuously living overseas are unaware that the requirement to file a tax return on an annual basis still stands. Therefore, a significant record of non-compliance with the tax laws is a common situation. A problem arises when a record of non-compliance results in an enforcement of delinquency procedures, litigation, or even a denial of reentry to the United States.

In such an event, the provisions of the IRS Policy Statement 5-133 may act for the taxpayer. The Policy Statement explicitly requires a managerial approval before enforcement of procedures that cover more than six tax years. Consequently, delinquent filers may regain compliance with the IRS once they file all tax returns due for the last six consecutive years. The relief applies only to taxpayers who did not willfully fail to fail income tax returns. To determine willfulness, the IRS will consider many individual factors, including a prior history of non-compliance with the tax law, source and amount of unreported income, class of taxpayer, ability to pay, and industry-specific data.

Back Tax Returns

Our Certified Public Accountants and IRS Enrolled Agents are available to file your back tax returns and represent your interests before the IRS. We have developed services to address prior year returns and related compliance specifically

  • Assistance with all tax law compliance issues
  • Preparation of all prior year individual and business tax returns
  • Preparation of delinquent state income tax returns
  • Amended tax returns, including amendments to IRS-prepared substitute for a return
  • Preparation and filing of Form 843 to claim refunds and abate late-filing penalties and interest
  • Representation during appeals and examinations
  • Tax advisory services

Should you wish to register for our back tax services, you may do so at any time. Did not find what you were looking for? Ask your questions and get a free quote with more information about how we can assist you further. You may also contact us directly.