3 Years to Claim a Tax Refund
You usually have three years from the original due date to file your tax return to claim any tax refund you are entitled to on that return, although there are some exceptions.
Exceptions to the 3-Year Tax Refund Rule
There are two main exceptions to the three-year time limit on tax refunds. You can get up to seven years to claim a refund due to bad debts or worthless securities. The three-year time limit does not apply if you are unable to manage your financial affairs due to a physical or mental disability.
What Happens to a Tax Refund If You Don’t Claim It?
The federal government retains the money if you are eligible for a tax refund and do not file a claim for it within the specified time limit. This is considered a “refund offset.” Refund money cannot be sent to you, nor can you use it as a payment for the next tax year.
How Long Does the IRS Have to Audit Your Tax Return?
The three-year time limit for the IRS to audit a tax return starts on the day the taxes are due. This time limit applies in most cases. The deadline for filing tax returns for 2022 is April 18, 2023, so the three-year limit will end on April 18, 2026.
Exceptions to the Three-Year Audit Rule
There are exceptions to the three-year federal rule regarding assessments and audits as well. The IRS has six years from the date of filing a return to audit it and assess additional tax if you have omitted more than 25% of the income you reported on the return. The IRS also has six years to audit your tax return and assess additional tax on income related to unreported foreign financial assets if the omitted income exceeds $5,000. The time limit for audits and additional tax assessments can remain open indefinitely if you filed a fraudulent or misleading return.
How Long Does the IRS Have to Collect Taxes?
The IRS has a specific 10-year collection period. This is the time allowed to pursue any unpaid tax liabilities. The 10-year clock for collecting debts begins from the date the tax liability was established. This can occur in several ways. Your liability may be established because of: the tax amount reported on a return you filed, an additional tax assessment resulting from an audit, or a proposed assessment that became final. The IRS has 10 years to collect the full amount from the day the tax liability was established, plus any penalties and interest. The remaining balance disappears forever if the IRS does not collect the full amount within the 10-year period because the collection time limit has expired. However, there are some situations that can suspend the 10-year collection period. While the IRS reviews an offer in compromise, an installment agreement, or an innocent spouse relief request while the taxpayer is under automatic bankruptcy protection, plus an additional six months for the period the taxpayer resides outside the United States for at least six months. Suspension means the clock effectively stops during these periods. The IRS may take a month to evaluate your request for an installment agreement to pay off a tax debt you owe. The 10-year time limit will be paused for 30 days in this case. The countdown begins again once those 30 days are over.
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Tax Planning Deadlines
It is generally preferable to file your tax returns early rather than later. You can claim any tax refund you are entitled to, and the three-year deadline for audits and the ten-year deadline for collections starts ticking.
Frequently Asked Questions
How long can the IRS hold your tax refund for review?
The review process can take up to 180 days. The IRS can take an additional 60 to 120 days to process new information and issue a refund if they request more information on an amended return. Remember that the IRS cannot issue a tax refund until February 15 if you are claiming the Earned Income Tax Credit or the Additional Child Tax Credit on your return. This can affect the timeline for those who file early in the year.
What is the deadline for unfiled tax returns?
The IRS can take as long as it wants to review your taxes and determine your final tax liability if you have not filed tax returns. The filing deadline then starts from this point if the IRS determines that you owe taxes. You will lose the refund if the IRS reviews your taxes and finds that you were actually entitled to a refund after the three-year deadline has passed.
Source: https://www.thebalancemoney.com/irs-statute-of-limitations-3192947
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