LB&I Concept Unit
Unit Name Overview of Statute of Limitations on the Assessment of Tax
Primary UIL Code 9435 Offshore Arrangements
Library Level Title
Knowledge Base International
Shelf Individual Outbound
Book Offshore Arrangements
Chapter
Document Control Number (DCN) INT-C-115 (formerly OAR/C/013-04)
Date of Last Update Revised: 11/6/19
Note: This document is not an official pronouncement of law, and cannot be used, cited or relied upon as such. Further, this document may not contain a
comprehensive discussion of all pertinent issues or law or the IRS's interpretation of current law.
DRAFT
3
General Overview
Overview of Statute of Limitations on the Assessment of Tax
This Practice Unit supersedes the previously published Practice Unit with the same title published on April 12, 2018. The Practice Unit
was updated to reflect the judicial dispositions with regards to IRC 6501(e).
The Internal Revenue Code (IRC) requires that the Internal Revenue Service (IRS) assess, refund, credit and collect taxes within
specific time limits, known as the statute of limitations. When the statute of limitations expires, the IRS can no longer assess additional
tax, allow a claim for refund by the taxpayer or take collection action. The determination of statute expiration differs for assessment,
refund and collection.
An assessment is the recording of a taxpayer’s tax liability on the IRS’s books. It is critical to tax administration because the IRS
cannot collect a tax unless there has been an assessment.
One of the most important aspects of the IRS examiner’s job is protecting the statute of limitations of the tax returns placed in the
examiner’s inventory. This Practice Unit provides an overview of the statute of limitations on the assessment of tax and related
penalties. Its purpose is to help examiners determine the correct statute of limitations on a federal income tax return.
IRC 6501 is the main source of legal authority related to statute of limitations. Under IRC 6501(a), the government generally has three
years after the return is filed to assess the tax and to begin any court proceeding without assessment for the collection of any tax. In
general, the filing of a tax return is the event that triggers the running of the statute of limitations on assessments; however, the date
the limitations period begins to run differs for timely and untimely filed returns. A return is considered filed on its due date if the return
was filed on or before its due date.
Taxpayers and the IRS may extend the statute of limitations by signing a mutual agreement. In some circumstances, the statute of
limitations does not begin to run even though the tax return has been filed. Congress has also recognized that on rare occasions the
3-year general rule does not provide the IRS with sufficient time to identify and audit some non-fraudulent returns. As a result,
Congress has provided some exceptions to the general rule. See the Index of Related Practice Units for a list of Practice Units that
provide a closer look at exceptions to the 3-year statute of limitations.
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DRAFT
4
Relevant Key Factors
Overview of Statute of Limitations on the Assessment of Tax
Key Factors
There are several key factors to take into consideration when determining the statute of limitations.
Determination of a due date of a tax return, including extensions, is the first step. Different types of entities have different filing
deadlines and, under certain circumstances, two entities of the same type may have different due dates for filing their tax returns.
In general, a taxpayer is not considered to have filed a tax return (which begins the period of limitations on assessment) until the
taxpayer files a valid tax return. See IRM 25.6.1.6.14.
In general, a return is filed on the date that it is received at the place designated for filing by the Service. While the determination of the
received date is one of the most important factors, it does not necessarily establish the filing date. The filing date is established after
applying the relevant IRC sections.
As a general rule, tax on an income tax return must be assessed within three years of the filing of that tax return. There are, however,
circumstances where the general rule does not apply, such as:
No return filed - IRC 6501(c)(3)
Receipt of certain amended returns - IRC 6501(c)(7)
Extension of statute of limitations by agreement - IRC 6501(c)(4)
Waiver of statute of limitations defense on a closing agreement - IRC 6213(d) and 7121
False or fraudulent tax return - IRC 6501(c)(1) and 6501(c)(2)
Substantial omission of gross income - IRC 6501(e)(1)(A)(i)
Failure to report more than $5,000 in income attributable to specified foreign financial assets - IRC 6501(e)(1)(A)(ii)
Failure to furnish information regarding foreign transfers - IRC 6501(c)(8)
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DRAFT
5
Relevant Key Factors (cont’d)
Overview of Statute of Limitations on the Assessment of Tax
Key Factors
Suspension of statute of limitation due to John Doe summons - IRC 7609(e)(2)
Petition to quash a formal document request - IRC 982(e)
Extension due to changes in Foreign Tax Credit - IRC 905(c)
CAUTION: These situations involve a variety of complex requirements and are summarized very briefly here for information
purposes only. Review the Practice Unit(s) that cover(s) the exceptions for a more comprehensive discussion.
CAUTION: A separate set of rules applies to statute of limitations under 31 USC 5321(b)(1). Discussion of these rules is
beyond the scope of this Practice Unit.
!
!
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DRAFT
6
Detailed Explanation of the Concept
Overview of Statute of Limitations on the Assessment of Tax
Several concepts that are described below should be considered to understand the theory behind the statute of limitations on the
assessment of tax.
Analysis Resources
Concept 1: Due Dates
Individual, trust, estate and partnership (for tax years beginning prior to January 1, 2016)
i
ncome tax returns are due on day 15 of the fourth month following the close of the tax year,
typically April 15 in the case of a calendar-year taxpayer. Surface Transportation and
Veterans Health Care Choice Improvement Act of 2015 (H.R. 3236) P.L. 114-41, changed the
due dates for partnership returns to day 15 of the third month following the close of the fiscal
year for tax years beginning after December 31, 2015.
The IRS is authorized to grant a “reasonable extension of time” for filing returns. Except in the
case of taxpayers who are abroad, no such extension may exceed six months. Taxpayers
must generally submit a written application for the extension on or before the due date of the
return.
U.S. persons who, on the due dates of their returns, resided outside of the United States and
Puerto Rico and their main place of business or post of duty was outside of the United States
and Puerto Rico, or who were in the military service outside of the United States and Puerto
Rico, are allowed an automatic two-month extension of their filing deadline (without filing
Form 4868), which typically is day 15 of the sixth month following the close of the tax year.
IRC 6072
Surface Transportation and Veterans
Health Care Choice Improvement Act
of 2015
IRC 6081(a)
Treas. Reg. 1.6081-5
Form 4868 - Application for
Automatic Extension of Time To File
U.S. Individual Income Tax Return
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DRAFT
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Detailed Explanation of the Concept (cont’d)
Overview of Statute of Limitations on the Assessment of Tax
Analysis Resources
Concept 1: Due Dates (cont’d)
Corporate income tax returns are due on or before day 15 of the third month following the
c
lose of the tax year, typically March 15 in the case of a calendar-year taxpayer for tax years
beginning before December 31, 2015.
Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (H.R.
3236) P.L. 114-41, changed the due dates for C corporation returns to day 15 of the fourth
month following the close of the fiscal year for tax years beginning after December 31, 2015.
However, for C corporations with fiscal years ending on June 30, the new due dates will not
apply until tax years beginning after December 31, 2025.
A taxpayer filing as a nonresident alien who is not subject to income tax withholding on wages
may file a return as late as day 15 of the sixth month after the close of the tax year. However,
a nonresident alien who has wages subject to income tax withholding is required to file a
return on or before day 15 day of the fourth month following the close of the tax year.
Example 1: A nonresident alien individual receives non-employee compensation for
personal services performed in the United States for company A. The individual must file
Form 1040NR by June 15 of the subsequent year.
Surface Transportation and Veterans
Health Care Choice Improvement Act
of 2015
IRC 6072(c)
Treas. Reg. 1.6072-1(c)
Form 1040NR - U.S. Nonresident
Alien Income Tax Return
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DRAFT
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Detailed Explanation of the Concept (cont’d)
Overview of Statute of Limitations on the Assessment of Tax
Analysis Resources
Concept 1: Due Dates (cont’d)
Example 2: A nonresident alien individual performs personal services in the United States
as an employee of company B. The earned income is subject to wage withholding and is
reported on Form W-2. The individual must file Form 1040NR by April 15 of the subsequent
year.
Generally, tax on a federal income tax return must be assessed within three years of the filing
of the return.
The limitations period for taxpayers claiming a credit or refund for overpaid taxes expires
three years from the time the return was filed or two years from the time the tax was paid,
whichever period expires later.
Form 1040NR - U.S. Nonresident
Alien Income Tax Return
Form W-2 - Wage and Tax Statement
IRC 6501(a)
IRC 6511(a)
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DRAFT
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Detailed Explanation of the Concept (cont’d)
Overview of Statute of Limitations on the Assessment of Tax
Analysis Resources
Concept 2: Filing of a Tax Return
If a federal income tax return is filed prior to its due date, the statute of limitations begins to
r
un from the due date. In the case of a tax return filed after the due date, the statute of
limitations begins to run from the date the delinquent return is filed.
If a return is mailed and received before the due date, the statute begins to run on the due
date.
If any return is postmarked on or before the due date and received after the due date, the
postmark date is the date of delivery and the statute starts to run on the due date.
If a return is mailed after the due date, the statute begins to run from the date the return is
received, assuming IRC 7503 does not apply to a return under extension.
Under IRC 7503, also known as the holiday rule, when the last day for performing any act,
including the filing of a return, falls on a Saturday, a Sunday or a legal holiday in the District of
Columbia, the act is considered timely if it is performed on the next succeeding day which is
not a Saturday, Sunday or a legal holiday.
IRC 6501(b)(1)
IRC 6501(b)
IRC 7502
IRC 7503
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DRAFT
10
Detailed Explanation of the Concept (cont’d)
Overview of Statute of Limitations on the Assessment of Tax
Analysis Resources
Concept 2: Filing of a Tax Return (cont’d)
U
nder IRM 25.6.1.6.15, an extended due date is not treated like the regular due date. The
filing is not considered early when the taxpayer does not use the full extension period. A
timely return received before the end of the extension period (including postponement for
disaster relief and combat zone) is considered filed on the received date, not on the extended
due date.
Concept 3: Circumstances Where the General Rule Does Not Apply
Congress recognized that on rare occasions the 3-year general rule does not provide the IRS
with sufficient time to identify and audit some non-fraudulent returns. As a result, Congress
provided for some exceptions to the general rule. These exceptions are described in the
subsequent slides.
CAUTION: These exceptions involve a variety of complex requirements and are
summarized very briefly here for information purposes only.
IRM 25
!
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DRAFT
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Detailed Explanation of the Concept (cont’d)
Overview of Statute of Limitations on the Assessment of Tax
Analysis Resources
Exception 1: No Return Filed
Under IRC 6501(c)(3), the statute of limitations does not start to run until a valid return is filed.
O
nce filed, the statute for assessment expires in three years. If a taxpayer never files a
return, there is no statute of limitations on IRS for assessing tax with respect to the unfiled
year.
Exception 2: Receipt of Certain Amended Returns
Under IRC 6501(c)(7), if an amended return is filed within the 60-day time frame prior to the
expiration of the assessment period of the original return, and it shows that the taxpayer owes
an additional amount of tax for the tax year, the period of assessment for the additional
amount is extended an additional 60 days starting on the day after the amended return is
filed.
IRC 6501
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DRAFT
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Detailed Explanation of the Concept (cont’d)
Overview of Statute of Limitations on the Assessment of Tax
Analysis Resources
Exception 3: Extension of Statute of Limitations by Agreement
Under IRC 6501(c)(4), the taxpayer and IRS can agree to an extension of the statute of
l
imitations on assessment by entering into a written agreement. This agreement is
memorialized on Form 872 (or a similar form). The critical factor in agreements by consent is
the requirement that the statute of limitations must still be open when the agreement is
executed by both parties. It is an agreement to extend the statute of limitations on
assessment, not an agreement to revive an expired statute of limitations.
Exception 4: Waiver of Statute of Limitations Defense on a Closing Agreement
Generally, if the statute of limitations has expired, IRS may not assess a tax liability. However,
if a taxpayer knowingly and freely waives any statute of limitations defense, IRS may assess
a tax even though there is no open statute of limitations.
IRC 7121 allows a taxpayer and the IRS to enter into a closing agreement on Form 906,
reflecting the terms of the settlement, including but not limited to, statute of limitations
provisions. If a taxpayer waives the statute of limitations on assessment defense via a closing
agreement, it is irrevocable because a closing agreement is final and conclusive absent fraud,
malfeasance or misrepresentation of a material fact.
IRC 6501
Form 872 - Consent to Extend the
Time to Assess Tax
Form 10949 - Statute Extension
Check Sheet
IRC 6213(d)
IRC 7121
Dubinsky v. Becker - 64 F.2d 601 (8th
Cir. 1933)
Form 906 - Closing Agreement On
Final Determination Covering
Specific Matters
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Detailed Explanation of the Concept (cont’d)
Overview of Statute of Limitations on the Assessment of Tax
Analysis Resources
Exception 5: False or Fraudulent Tax Return
Under IRC 6501(c)(1) and (2), if a return is false or fraudulent, or is filed as part of a willful
at
tempt to evade taxes, there is no statute of limitations on assessment of tax for that tax
year. The Service has the burden of proof. Should the government fail to prove fraud, it will
likely result in a barred statute of limitations on assessment. As a result, the fraud exceptions
under IRC 6501(c) should be relied upon only as a last resort. If relying on IRC 6501(c) as an
exception to the normal statute of limitations, examiners must follow the procedures
described in IRM 25.1.10.
This exception to the general rule means that there is no time limit on IRS starting an audit of
a fraudulent tax return and, if IRS discovers fraud during an audit, there is no limit on the
amount of time IRS has to fully develop all the issues on the return.
A taxpayer cannot purge fraud committed on an original tax return by filing a completely
accurate and truthful amended return. Once fraud is committed by the filing of an original
return, the offense is completed.
Where a taxpayer fraudulently fails to file a return, but later files a non-fraudulent return, the
United States Tax Court has held that the statute of limitations runs from the date of the filing
of the delinquent return.
IRC 6501
IRM 25
Civil Fraud Penalty Guide
Badaracco v. Commissioner - 464
U.S. 386, 394 (1984)
United States v. Habig - 390 U.S. 222
(1968)
Rev. Rul. 79-178
Bennett v. Commissioner - 30 T.C.
114 (1958), acq. 1958-2 C.B. 3
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DRAFT
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Detailed Explanation of the Concept (cont’d)
Overview of Statute of Limitations on the Assessment of Tax
Analysis Resources
Exception 6: Substantial Omission of Gross Income
Under IRC 6501(e)(1)(A)(i), if a taxpayer omits more than 25 percent of gross income from
t
he tax return, the statute of limitations on assessment is six years. The computation of the
percentage of the omission is the fraction:
Gross Income Omitted from the Return
Total Gross Income Reported on the Return
Because the IRS cannot know about the income omitted from the return by merely looking at
the return, it is allowed the 6-year statute of limitations to audit the return. If a taxpayer
discloses the omitted income in the return or in an attachment to the return, it is not
considered “omitted” for purposes of computing the percentage of the omission. The
disclosure must be adequate to apprise the IRS of the nature and amount of the omitted item.
If the omission of gross income is greater than 25 percent, the 6-year statute of limitations
applies to the entire tax return, not just the omitted gross income.
IRC 6501
IRM Exhibit 25.1.4-1
Colestock v Commissioner - 102 T.C.
380 (1994)
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DRAFT
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Detailed Explanation of the Concept (cont’d)
Overview of Statute of Limitations on the Assessment of Tax
Analysis Resources
Exception 6: Substantial Omission of Gross Income (cont’d)
Prior to 2015, a taxpayer could omit or understate more than 25 percent of its gross income
by
inflating the basis of an asset disposed of during the tax year, thus significantly reducing its
gain.
In United States v. Home Concrete & Supply, LLC - 132 S. Ct. 1836 (2012), the Supreme
Court of the United States held that a taxpayer’s overstatement of its basis in property that it
sold, with the result that its gross income from the sale was understated and its total gross
income on the tax return was understated by more than 25 percent, did not constitute
“omission” from gross income, for purpose of determining timeliness of the Service’s
assessment of the tax deficiency. However, this Supreme Court decision was superseded by
the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (H.R.
3236) P.L. 114-41, now codified in IRC 6501(e)(1)(B)(ii).
CAUTION: The Surface Transportation and Veterans Health Care Choice
Improvement Act of 2015 provides that the 6-year limitations period applies where any
overstatement of unrecovered cost or other basis results in a substantial omission (in
excess of 25 percent) of gross income stated in the return. This legislative override of
the Supreme Court’s decision in Home Concrete & Supply, LLC is effective for all
returns for which the normal assessment period remained open as of the date of
enactment (July 31, 2015), and for returns filed after the date of enactment.
United States v. Home Concrete &
Supply, LLC - 132 S. Ct. 1836 (2012)
Surface Transportation and Veterans
Health Care Choice Improvement Act
of 2015
IRC 6501
!
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DRAFT
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Detailed Explanation of the Concept (cont’d)
Overview of Statute of Limitations on the Assessment of Tax
Analysis Resources
Exception 6: Substantial Omission of Gross Income (cont’d)
Example: The taxpayer filed his 2009 Form 1040 on or before April 15, 2010, reporting
gross income in the amount of $200,000. On June 29, 2015, the taxpayer submitted to the
examiner a signed Form 1040X for the 2009 tax year disclosing previously unreported
interest income from a U.S. bank in the amount of $20,000. There were no foreign entities
involved, no foreign unreported income and no indicators of fraud. In this case, the IRS
cannot process the Form 1040X submitted to make an assessment because the statute of
limitations has expired. In general, the filing of a taxable amended return does not extend
the statute of limitations. The unreported income was not greater than 25 percent of the
gross income stated on the original return, and did not include at least $5,000 attributable to
a foreign financial account; therefore, IRC 6501(e) does not apply to extend the statute of
limitations.
The 25% omission of gross income rule also applies to current-year Passive Foreign
Investment Company (PFIC) gains because only current-year PFIC gains are included in the
taxpayer’s gross income for the current year. It does not, however, apply to non-current-year
PFIC gains.
In Toso v. Commissioner, 151 T.C. No. 4 (2018), the Court held that, because only current-
year PFIC gains are included in gross income under IRC 1291, they are included in the IRC
6501(e) gross income amount. Similarly, because non-current-year PFIC gains are explicitly
not included in gross income under IRC 1291 for any year, non-current-year PFIC gains are
not counted in gross income for purposes of IRC 6501(e).
IRC 6501
Form 1040 - U.S. Individual Income
Tax Return
Form 1040X - Amended U.S.
Individual Income Tax Return
IRC 1291
Toso v. Commissioner - 151 T.C. No.
4 (2018)
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DRAFT
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Detailed Explanation of the Concept (cont’d)
Overview of Statute of Limitations on the Assessment of Tax
Analysis Resources
Exception 7: Failure to Report More Than $5,000 in Income Attributable to Specified Foreign
Financial Assets
Under H
iring Incentives to Restore Employment (HIRE) Act (H.R. 2847), P.L. 111-147
(enacted March 18, 2010), and specifically, a part of that act known as the Foreign Account
Tax Compliance Act (FATCA), for tax years beginning after March 18, 2010, the statute of
limitations on assessment may be extended in cases where foreign accounts and other
specified foreign financial assets are involved. Under IRC 6501(e)(1)(A)(ii), the statute of
limitations is six years in cases where a taxpayer omits more than $5,000 in gross income
from a foreign financial asset with respect to which information is required to be reported
under IRC 6038D, or would be required if such section were applied without regard to the
dollar threshold specified under that section.
The effective date for IRC 6501(e)(1)(A)(ii) limits its application to years for which the IRC
6038D reporting requirement is effective. So, the six-year assessment statute of limitations
applies to tax years beginning after March 18, 2010, for individual taxpayers (generally 2011),
and to tax years beginning after December 31, 2015, for domestic entities.
Hiring Incentives to Restore
Employment Act
IRC 6501
IRC 6038D
Form 8938 - Statement of Specified
Foreign Financial Assets
Rafizadeh v. Commissioner - 150
T.C. 1 (2018)
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Detailed Explanation of the Concept (cont’d)
Overview of Statute of Limitations on the Assessment of Tax
Analysis Resources
Exception 7: Failure to Report More Than $5,000 in Income Attributable to Specified Foreign
Financial Assets (cont’d)
Example: The taxpayer filed his 2008 individual income tax return on April 15, 2009. The
examiner discovered that the taxpayer failed to report $5,010 of interest income attributable
to a foreign bank account, which is included in the definition of a “specified foreign financial
asset” under IRC 6038D. Even though the three-year statute of limitations on assessment
was open as of March 18, 2010, and the understatement related to a foreign financial asset
income in excess of $5,000, IRC 6501(e)(1)(A)(ii) does not apply and will not extend the
statute of limitations for the taxpayer’s 2008 tax year because that tax year is before IRC
6038D became effective, as it only applies to tax years beginning after March 18, 2010.
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Detailed Explanation of the Concept (cont’d)
Overview of Statute of Limitations on the Assessment of Tax
Analysis Resources
Exception 8: Failure to Furnish Information Regarding Foreign Transfers
The principle that a taxpayer should not benefit by withholding required information from the
I
RS also applies in cases where a taxpayer is required to file certain information returns.
If a taxpayer holds an interest in a foreign entity such as a controlled foreign corporation
(CFC), controlled foreign partnership (CFP), or certain foreign trusts, the taxpayer is required
to file information returns reflecting his foreign interests. The most common required returns
are Forms 926, 5471 for foreign corporations, Forms 3520 and 3520-A for foreign trusts, and
Form 8865 for foreign partnerships. For tax years beginning after March 18, 2010, Form 8938
is required for taxpayers owning specified foreign financial assets as defined in IRC 6038D(b).
Under IRC 6501(c)(8), the statute of limitations on the individual’s return does not start to run
until the information return is filed. Once a complete and accurate information return is filed,
the statute of limitations starts and runs for three years.
Form 926 - Return by a U.S.
Transferor of Property to a Foreign
Corporation
Form 5471 - Information Return of
U.S. Persons With Respect To
Certain Foreign Corporations
Form 3520 - Annual Return To
Report Transactions With Foreign
Trusts and Receipt of Certain Foreign
Gifts
Form 3520-A - Annual Information
Return of Foreign Trust With a U.S.
Owner
Form 8865 - Return of U.S. Persons
With Respect to Certain Foreign
Partnerships
Form 8938 - Statement of Specified
Foreign Financial Assets
IRC 6038D
IRC 6501
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Detailed Explanation of the Concept (cont’d)
Overview of Statute of Limitations on the Assessment of Tax
Analysis Resources
Exception 8: Failure to Furnish Information Regarding Foreign Transfers (cont’d)
F
or tax returns filed after March 18, 2010, and tax returns for which the assessment statute of
limitations was open on March 18, 2010, the HIRE Act amended this provision to keep the
entire tax return open, unless the failure to file the information return was due to reasonable
cause. If the failure to file was due to reasonable cause, the statute of limitations on
assessment remains open only with respect to issues related to the unreported information.
In cases of tax returns for which the regular 3-year assessment statute of limitations expired
as of March 18, 2010, the statute of limitations on assessment remains open only with
respect to issues related to the undisclosed asset or entity.
Filing of the required foreign information return triggers the running of the statute of limitations
of not only the income tax return but also for a penalty case resulting from the failure to file
such foreign information return. Generally, the statute of limitations for assessing and
collecting foreign information return penalties ends three years after a substantially complete
foreign information return was filed or the information was provided to the IRS in another
form.
Hiring Incentives to Restore
Employment Act
Director, LB&I-IIC - Memo
(9/12/2019) -Statute of Limitations on
Assessment of Foreign Information
Return Penalties
Practice Unit - Failure to File the
Form 5471 - Category 2 & 3 Filers -
Monetary Penalty
Practice Unit - Failure to File the
Form 5471 - Category 4 and 5 Filers
- Monetary Penalty
Practice Unit - Failure to File the
Form 926 - Return by a U.S.
Transferor of Property to a Foreign
Corporation - Monetary Penalty
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Detailed Explanation of the Concept (cont’d)
Overview of Statute of Limitations on the Assessment of Tax
Analysis Resources
Exception 8: Failure to Furnish Information Regarding Foreign Transfers (cont’d)
CONS
ULTATION: Local counsel should be consulted when attempting to calculate the
statute of limitations where the foreign information necessary to prepare a foreign
information return was secured by the Service, but the actual foreign information return
was not filed.
CAUTION: IRC 6501(c)(8) does not provide an exception to the 3-year period of
limitations due to failure to provide information regarding gifts received from foreign
persons required under IRC 6039F. Large gifts received from foreign persons are
usually reported on Form 3520 Part IV. Unless other exceptions apply, failure to file
Form 3520 Part IV generally does not trigger the statute exception under IRC
6501(c)(8).
Example: A taxpayer filed a 2011 Form 1040 on April 3, 2012. A properly executed Form
872 was secured by the examiner that extended the statute from April 15, 2015 to April 30,
2017. In the course of the examination, the examiner determined that the taxpayer had not
filed a Form 5471 and did not provide the IRS with information required to be reported on
that form. Taxpayer submitted the delinquent form on December 15, 2015, and no
reasonable cause argument for failure to file the Form 5471 was provided. Under IRC
6501(c)(8), the statute of limitations on the 2011 Form 1040 expires on December 15, 2018,
three years after taxpayer submitted his delinquent Form 5471.
Practice Unit - Failure to File the
Form 3520/3520-A Penalties
Practice Unit - Failure to File the
Form 8865 - Category 1 and 2 Filers
- Monetary Penalty
IRC 6501
IRC 6039F
Form 3520 - Annual Return To
Report Transactions With Foreign
Trusts and Receipt of Certain Foreign
Gifts
Form 1040 - U.S. Individual Income
Tax Return
Form 872 - Consent to Extend the
Time to Assess Tax
Form 5471 - Information Return of
U.S. Persons With Respect To
Certain Foreign Corporations
!
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Detailed Explanation of the Concept (cont’d)
Overview of Statute of Limitations on the Assessment of Tax
Analysis Resources
Exception 9: Suspension of Statute of Limitations Due to John Doe Summons
Under IRC 7609(e)(2), the statute of limitations on assessment in any case in which a third-
party summons was served, the statute of limitations will begin to toll six months after the
service of the summons if the summons remains unresolved as to “any person with respect to
whose liability the summons is issued.” Therefore, if the IRS issues a John Doe summons,
the statute of limitations on assessing tax on any member of the John Doe class is
suspended starting six months from service of the summons and ending on the date of final
resolution of the summons.
CONSULTATION: If an examiner has a taxpayer who is a member of a John Doe
class, there should be a memorandum in the file from counsel calculating the statute
suspension period. If such memorandum is not in the file, the examiner should contact
a Technical Specialist in Offshore Compliance Initiatives to obtain the statute
suspension memo.
IRC 7609(e)(2)
# #
Any line marked with a # is for Official Use Only
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Detailed Explanation of the Concept (cont’d)
Overview of Statute of Limitations on the Assessment of Tax
Analysis Resources
Exception 10: Petition to Quash a Formal Document Request
A taxpayer’s petition to quash a Letter 2261(IN) F
ormal Document Request (FDR) suspends
the running of the statute of limitations for the period during which the proceeding and any
appeals, if applicable, is pending.
Example: On May 1, 2013, an FDR was issued to taxpayer A to produce foreign records
related to the taxpayer’s 2010 Form 1040 with a 3-year statute of limitations set to expire on
April 15, 2014. On July 1, 2013, taxpayer A filed a motion to quash the FDR under IRC
982(c)(2). The petition to quash the FDR wasn’t resolved until December 20, 2013. For the
2010 calendar year, for which the regular 3-year statute would expire on April 15, 2014, the
statute was suspended starting July 1, 2013, at which time the unexpired statute was 289
days. Consequently, under IRC 982(e), because the statute of limitations began to run
again on December 21, 2013, 289 days will be added to the statute and the statute of
limitations for assessment, absent any other exceptions, will expire on October 6, 2014.
Practice Unit - Issuing a Formal
Document Request When a U.S.
Taxpayer is Unresponsive to an IDR
Letter 2261(IN) - Formal Document
Request
Form 1040 - U.S. Individual Income
Tax Return
IRC 982
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Detailed Explanation of the Concept (cont’d)
Overview of Statute of Limitations on the Assessment of Tax
Analysis Resources
Exception 11: Extension Due to Changes in Foreign Tax Credit
IRC 6501(c)(5) directs the reader to IRC 905(c) for the statute of limitations when there is a
c
hange in the amount of foreign taxes claimed.
In case of adjustments to accrued taxes, when the accrued taxes are not paid within two
years after the close of the tax year at issue, there is no statute of limitations on assessment.
There is no statute of limitations when a foreign tax refund results in a U.S. tax liability and
the taxpayer fails to notify the Service. This rule does not apply, however, to assessments of
additional U.S. tax as a result of computational errors on the taxpayer’s federal income tax
return associated with foreign taxes (such as the use of an erroneous exchange rate).
IRC 6501
IRC 905(c)
IRM 4.61.10.7
Pacific Metals Corp. v. Commissioner
- 1 T.C. 1028 (1943)
Texas Co. (Caribbean) Ltd. v.
Commissioner - 12 TC 925 (1949)
CCA 201429026 - IRC 905(c)
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Detailed Explanation of the Concept (cont’d)
Overview of Statute of Limitations on the Assessment of Tax
Analysis Resources
Exception 11: Extension Due to Changes in Foreign Tax Credit (cont’d)
IR
C 6511(d)(3)(A) provides a special 10-year limitation period for refunds relating to foreign
tax credit (FTC). The 10-year period to file claims is without regard to any extension of time
for filing the returns. The statute of limitations begins to run on the due date of the return for
the tax year for which the FTC is claimed.
Example: Taxpayer originally filed his 2005 Form 1040 on April 15, 2006. On June 30, 2013,
he submitted a Form 1040X for the 2005 tax year claiming additional foreign tax credit
related to additional foreign taxes paid to country X resulting in a U.S. income tax refund.
Assuming the FTC claimed on Form 1040X is determined to be correct, the redetermination
results in a U.S. tax refund because IRC 6511(d)(3)(A) allows a 10-year period to file a
claim for refund. Because the original 2005 Form 1040 was filed on April 15, 2006, the 10-
year statute on refunds related to the foreign tax credit expires on April 15, 2016.
CONSULTATION: Special consideration must be given to informal claims for refund.
Such claims must put IRS on actual or constructive notice that the taxpayer is currently
asserting a right to a refund. Simply notifying IRS of an intent to file a claim in the
future is insufficient to be considered a timely filed claim. It is suggested that
examiners who encounter such situations seek advice regarding the timeliness of the
claim from the local counsel.
IRC 6511
Treas. Reg. 301.6511(d)-3(a)
Form 1040X - Amended U.S.
Individual Income Tax Return
Form 1040 - U.S. Individual Income
Tax Return
CCA 201540012 - IRC 6511(d)(3)(A)
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27
Index of Referenced Resources (cont’d)
Overview of Statute of Limitations on the Assessment of Tax
Treas. Reg. 301.6511(d)-3(a)
Badaracco v. Commissioner - 464 U.S. 386, 394 (1984)
United States v. Habig - 390 U.S. 222 (1968)
Dubinsky v. Becker - 64 F.2d 601 (8th Cir. 1933)
United States v. Home Concrete & Supply, LLC - 132 S. Ct. 1836 (2012)
Bennett v. Commissioner - 30 T.C. 114 (1958), acq. 1958-2 C.B. 3
Colestock v. Commissioner - 102 T.C. 380 (1994)
Pacific Metals Corp. v. Commissioner - 1 T.C. 1028 (1943)
Rafizadeh v. Commissioner - 150 T.C. 1 (2018)
Texas Co. (Caribbean) Ltd. v. Commissioner - 12 T.C. 925 (1949)
Toso v. Commissioner - 151 T.C. No. 4 (2018)
Hiring Incentives to Restore Employment Act
Surface Transportation and Veterans Health Care Choice Improvement Act of 2015
Rev. Rul. 79-178
CCA 201429026 - IRC 905(c)
CCA 201540012 - IRC 6511(d)(3)(A)
IRM 4.61.10.7
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Index of Referenced Resources (cont’d)
Overview of Statute of Limitations on the Assessment of Tax
IRM 25
IRM Exhibit 25.1.4-1
Form W-2 - Wage and Tax Statement
Form 872 - Consent to Extend the Time to Assess Tax
Form 906 - Closing Agreement On Final Determination Covering Specific Matters
Form 926 - Return by a U.S. Transferor of Property to a Foreign Corporation
Form 1040 - U.S. Individual Income Tax Return
Form 1040NR - U.S. Nonresident Alien Income Tax Return
Form 1040X - Amended U.S. Individual Income Tax Return
Form 3520 - Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts
Form 3520-A - Annual Information Return of Foreign Trust With a U.S. Owner
Form 4868 - Application for Automatic Extension of Time To File U.S. Individual Income Tax Return
Form 5471 - Information Return of U.S. Persons With Respect To Certain Foreign Corporations
Form 8865 - Return of U.S. Persons With Respect to Certain Foreign Partnerships
Form 8938 - Statement of Specified Foreign Financial Assets
Form 10949 - Statute Extension Check Sheet
Civil Fraud Penalty Guide
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Index of Referenced Resources (cont’d)
Overview of Statute of Limitations on the Assessment of Tax
Director, LB&I-IIC - Memo (9/12/2019) - Statute of Limitations on Assessment of Foreign Information Return Penalties
Letter 2261(IN) - Formal Document Request
# #
Any line marked with a # is for Official Use Only
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Training and Additional Resources
Overview of Statute of Limitations on the Assessment of Tax
Type of Resource Descriptions
Saba Meeting Sessions IIC - Statute of Limitations for BU Employees - 2015 CPE Saba Meeting
Issue Toolkits Audit Tool - Spreadsheet for 6-Year Statute of Limitations Exception Analysis
Audit Tool - JDS Statute Suspension Calculator
Other Training Materials Desk Guide - Statute of Limitations
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Glossary of Terms and Acronyms
Term/Acronym Definition
CCA Chief Counsel Advice
CFC Controlled Foreign Corporation
CFP Controlled Foreign Partnership
FATCA Foreign Account Tax Compliance Act
FDR Formal Document Request
FTC Foreign Tax Credit
HIRE Act Hiring Incentives to Restore Employment Act
H.R. House of Representatives
IRC Internal Revenue Code
IRM Internal Revenue Manual
PFIC Passive Foreign Investment Company
P.L. Public Law
Rev. Rul. Revenue Ruling
Treas. Reg. Treasury Regulation
USC United States Code
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32
Index of Related Practice Units
Associated UILs Related Practice Unit
9433 Failure to File the Form 926 - Return by a U.S. Transferor of Property to a Foreign Corporation - Monetary
Penalty
9433 Failure to File the Form 5471 - Category 2 & 3 Filers - Monetary Penalty
9433 Failure to File the Form 5471 - Category 4 and 5 Filers - Monetary Penalty
9434 Failure to File the Form 8865 - Category 1 and 2 Filers - Monetary Penalty
9434 Failure to File the Form 3520/3520-A Penalties
9460 Issuing a Formal Document Request When a U.S. Taxpayer is Unresponsive to an IDR
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