Tax season is now over. You filed your tax return on time and you didn’t owe a tax debt; congratulations! However, there is always that fear that the government will come after you, audit you long after you tossed out your tax records, and collect from you in perpetuity.
While audits and tax enforcement horror stories are a reality, there are actually some limitations to the government’s reach and scope in these matters. Knowing those limitations will hopefully give you some peace of mind; or at least a tax strategy as the tax season closes and the tax enforcement season begins.
Subject to some exceptions, in California there are four numbers you need to remember to understand timing issues for audit and collection cases: three, four, ten, twenty. These numbers are the number of years for the statute of limitations in IRS audit cases, FTB audit cases, IRS collection cases, and FTB collection cases; respectively.
For personal income tax returns in California, a taxpayer generally has two tax return filing requirements; FTB and the IRS. Once filed, the IRS has three years to audit and question you on the information reported on your tax return. This time limit, or statute of limitation is called the Assessment Statute Expiration Date (ASED). For your state tax return, the FTB generally has four years to question and audit your tax returns.
If you are “lucky” enough to get audited within the three or four years by the IRS or the FTB, respectively, and if the audit results in a tax debt, knowing how long the government will pursue you for the debt will likely influence your tax resolution strategy. Once the IRS or the FTB assesses a tax liability on a filed tax return, the government(s) are limited, somewhat, in the amount of time they have to actually collect a debt resulting from an audit, or a simple mistake on a tax return. Once assessed, the IRS has 10 years to collect the debt owed. This statute of limitations time is known as the Collection Statute Expiration Date (CSED). However, the great state of California has significantly longer time to collect a tax debt; a full 20 years.
So the unfortunate news is that even though the tax season is now over, you may have a tax headache for quite some time should you be audited and owe a tax debt. The “good” news is that it may only last a decade or two.This article is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.