CHAPTER 4: TIME: IT’S EITHER ON YOUR SIDE OR THE IRS
Just about everything the IRS can do to you has a time limit associated with it. These statutes of limitations are important to know.
Before we talk about these time components, let’s first talk through each Form and its’ associated ongoing tax filing and deposit schedule, because keeping up with the ongoing timeline does matter and can prevent you from getting in trouble with the IRS in the first place.
After resolving your case with the IRS, they will expect you to comply with these schedules moving forward. In most cases, missing even one deadline can negate your resolution agreement, so know these deadlines well.
Form 940 is the federal unemployment tax annual report form. This form is used to report and pay unemployment taxes to the IRS. If you have employees, you must report and pay unemployment taxes.
File Form 940 by January 31st. If you deposited all the FUTA tax when due, you have 10 additional calendar days to file. If January 31st falls on a weekend or holiday, the Form 940 is due the next business day.
|
Quarter |
Official Deposit Date |
|
Jan - Mar |
4/30 |
|
Apr - Jun |
7/31 |
|
July - Sept |
10/31 |
|
Oct - Dec |
1/31 |
Form 941 is used by employers to report quarterly tax withholding amounts for estimated income tax payments, as well as withholding from employee paychecks (income tax, social security, and Medicare taxes). This is “the big one” that all of you will likely need to be filing each quarter.
This form is due four times yearly, based on the following schedule:
|
Quarter |
Official File Date |
**Extra Time Period |
|
Jan - Mar |
4/30 |
5/10 |
|
Apr - Jun |
7/31 |
8/10 |
|
July - Sept |
10/31 |
11/10 |
|
Oct - Dec |
1/31 |
2/10 |
**Extra Time Period – If you timely deposited all taxes when due, you have 10 additional calendar days to file the 941 return.
If the file date falls on a weekend or holiday, Form 941 is due the next business day.
This will be either monthly or semiweekly deposits. See Chapter 2 - Sub Section: Depositing Taxes
Form 944 is the annual federal tax return for smaller employers. Very few, if not none of you, will qualify to use Form 944. For those with annual payroll tax liabilities of $1,000 or less, Form 944 can be used instead of Form 941. The IRS will send a letter stating that you are eligible or even required to file this form.
File Form 944 by January 31st. If you made deposits on time and in full, you have until February 10 to file. If the file date falls on a weekend or holiday, Form 944 is due the next business day.
Form 945 is the annual return of withheld federal income tax. This form is used to report any nonpayroll income tax withheld in the previous year.
File Form 945 by January 31st. If you made deposits on time and in full, you have until February 10 to file. If the file date falls on a weekend or holiday, Form 945 is due the next business day.
Now that we have gone through the different Forms, filing dates, and deposit schedules, let us talk through several components of time. In the tax resolution world, time is either on your side or on the side of the IRS.
What are tax statutes of limitations? It is a time period established by law to review, analyze, and resolve taxpayer and/or IRS tax related issues.
The Internal Revenue Code (IRC) requires that the IRS assess, refund, credit, and collect taxes within specific time limits. These limits are known as the statutes of limitations.
In other words, these are deadlines, and when they expire, they expire. The IRS can no longer assess additional tax, allow a claim for refund by the taxpayer, or take collection action.
Specifically, let us review two components: The Assessment Statute Expiration Date (ASED) and the Collection Statute Expiration Date (CSED).
The ASED defines how long the IRS can assess tax for specific periods. In most cases, the ASED is calculated as 3 years after the due date of the return, or 3 years after the date the return was filed, whichever is later.
*Special Note: The ASED does not start until an original return is filed. A Substitute for Return (SFR) does not count as an original return. For those of you not familiar with an SFR, they are created by the IRS and used when you do not file a tax return. They typically use past information about your business to file that return, and most often it will not be accurate information and typically not in your favor.
Going back to ASED, there are specific events called “Tolling Events” that stop the ASED time clock. All in all, there are over 34 different events that extend the ASED. Here are some of the most common:
Filing an Amended Return Within 60 days of ASED
If a return (with an assessment) is amended and received by the IRS within 60 days of the ASED, the ASED is extended for 60 days after the received date.
Example: If the ASED is 4/15/2020 and an amended return, with a new assessment, is received on 4/1/2020 then the adjusted ASED would be 5/31/2020 (4/1/2020 plus 60 days).
Tip: When filing an amended return near an ASED date, you should consider waiting (if tax is owed) to lessen the chance of the amended return being reviewed, unless it is in your favor.
Voluntary Extension of ASED
The use of Form 872 Waiver (consent to extend the ASED) can extend the ASED clock as well. It will be extended to an agreed upon date by an IRS representative and you the taxpayer/business.
Tip: You can use Form 872 as a bargaining chip. You can use it to negotiate with the IRS on certain items in exchange for leniency in others.
Fraudulent Returns
If you have filed a fraudulent return, there is no ASED clock. Fraud is forever. There is no period of limitations on assessment for a false or fraudulent return with intent to evade taxes.
An amended non-fraudulent return submitted after a fraudulent return does not begin the period of limitations.
Note Worthy: The fraud does not need to be committed by the taxpayer! Fraud done by the tax preparer without the taxpayer’s knowledge qualifies.
Under Reporting of Tax
The general rule here is 25%. If the taxpayer/business omits more than 25% of the gross income reported, the tax may be assessed within six years after the original return was filed.
Statutory Notice of Deficiency (90-Day Letter)
The Statutory Notice of Deficiency (90-Day Letter) extends the ASED for a total of 150 days. This includes 90 days from the time the letter was mailed (not received), plus an additional 60 days.
Tip: When reviewing your account transcripts, the SND letter may not show up. Instead, it may show TC 560 IRS.
Others
A few others include bankruptcy, the taxpayer living outside of the U.S. for a specific duration, and an SFR (in this case it never started).
The Collection Statute Expiration Date (CSED) defines how long the IRS can collect tax for a specific assessment. The CSED for tax liabilities is calculated as 10 years after the assessment date. The CSED ends the government’s right to pursue collection of a liability.
The CSED is assigned to each individual assessment. For example, each quarterly Form 941 that gets assessed, will have its own CSED.
Just like the ASED, the CSED can be extended or suspended based on certain “Tolling Events”. There are many, but here are some of the more common ones:
Time is an important thing. Based on the ASED and CSED rules, time is either on your side or the IRS. When it is on your side, you may not want to do much. But if it is on the side of the IRS, they can do a lot of nasty things to you and your business. Let us review those next.