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Substitute For Returns, Nonfiling, IRS, Statute of Limitations, Delinquent Returns, Penalties, FTB, Audit, Back Filing, Back Taxes Colette Karam Substitute For Returns, Nonfiling, IRS, Statute of Limitations, Delinquent Returns, Penalties, FTB, Audit, Back Filing, Back Taxes Colette Karam

Substitute Returns and IRS Statutes of Limitations: Why Nonfilers Should Not Assume Time Has Run Out

Taxpayers often believe that if enough years pass, the IRS can no longer assess or collect old taxes. Sometimes that is true. Federal tax procedure includes statutes of limitations that restrict how long the IRS has to assess tax, how long the IRS has to collect assessed tax, and how long a taxpayer has to claim a refund.

But the rules change dramatically when a taxpayer never filed a return. In that situation, the normal three-year assessment period may never begin. The IRS may prepare a substitute for return, assess tax, and begin collection. Even after the IRS prepares a substitute return, the taxpayer may still need to file a valid original return to start the assessment statute and correct the government-prepared assessment.

For taxpayers with unfiled returns, substitute-for-return assessments, old balances, or refund claims, the statute of limitations analysis can be more complicated than it appears.

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