The Internal Revenue Service must timely take action to determine additional tax and collect unpaid tax. The statute of limitations to determine an additional tax liability is generally three years from the date the tax return was filed. The statute of limitations to collect an unpaid tax is generally ten years from the assessment date.
The Internal Revenue Code statute of limitations provisions include the general rule, exceptions to the general rule, and exceptions to the exception. Therefore the statute of limitations can have complex factual and legal issues which must be reviewed and timely raised. Asserting the statute of limitations in litigation is an affirmative defense, and if it is not timely and properly raised, a successful defense may be waived.
Both the Internal Revenue Service and taxpayers assert novel legal arguments. A few years ago the IRS issued new retroactive regulations regarding complex partnership transactions, retroactively changing the law regarding the statute of limitations. On April 25, 2012, in the case Home Concrete and Supply v. United States, the U.S. Supreme Court held that the IRS interpretation of the statute of limitations on a very narrow and complex transaction was incorrect, and therefore since the statute of limitations had expired, the IRS could not determine an additional tax liability.
In every case the taxpayer must ask, has the IRS taken its proposed action (IRS tax assessment and collection) timely? A tax controversy attorney can assist you in this matter.