Statute Of Limitations

Statute Of Limitations

Statute Of Limitations


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Statute Of Limitations

The statute of limitations will not prevent IRS from issuing a deficiency assessment for 2009, 2007 or 2002. Deficiency assessment can be explained as an assessment of an additional income tax designed to cover a deficiency in income that has been revealed upon an audit of the return duly made by the taxpayer (Allingham et al, 1972). It is the total amount that a taxpayer owes in all back taxes as determined by the IRS and, if an individual was requested, an appeal. For Instance, if one owed $50,000 in taxes for the 2009 but only paid $40,000, the IRS would officially make an assessment of deficiency for $10,000, plus all interest and penalties that have been incurred.

In this case, the IRS agent discovers that Dan did not report $40,000 of gross business income on all his 2007 return. Additionally, gross income of $60,000 was reported in 2007. The agent at the same time discovers that Dan failed to file a tax return in the year 2002. Thus, Dan has violated the law. According to the statute of limitations, it is mandatory for all taxpayers to file their returns for every financial year in order to be cleared by the IRS. Failure to this, then the IRS will be obligated to issue a notice for an assessment of deficiency. This comes after the violations, especially in the manner in which Dan violated it. There are other ways that Dan’s actions cannot be guaranteed.

For example, if the IRS determines that the amount of the tax due is more than the amount that has been disclosed by a return, it should mail to the individual taxpayer a notice of the additional tax that has been proposed to be assessed. The notice must contain a statement that if payment will not be promptly made, a warrant for distraint is going to be filed. The taxpayer, on the other hand, may seek a review of the determination. Furthermore, a penalty and interest must be added into a deficiency assessment so that the due course of law can be followed.

According to the statute of limitations, a statement that is made by a taxpayer disclosing his gross income as well as deductions may be accepted as a “tentative return”. If such a statement gets filed by the appropriate due date, it is going to relieve the taxpayer from liability for the act of delinquent filing penalties. However, the taxpayer has the obligation of supplementing the tentative return through filing a return on the proper form in the frame of a reasonable period of time. Thus, while the tentative return can enable the taxpayer to generally avoid penalties for late filing, the question will whether it is enough to start the running of the legal statute of limitations for assessment (Allingham et al, 1972). In the case of Dan, he performed some of the legal duties as stipulated by the statute of limitations and skipped some of them. For instance, failed to file a tax return in the year 2002 and also did not report $40,000 of gross business income on all his 2007 return.

In conclusion, the IRS will be operating within the law if they decide to issue an assessment of deficiency. Dan will have no legal grounds to contest the decision in court. In the most likely situation, he will be required to pay up the penalties required, as well as the remaining amount that he never disclosed or filed.


Allingham, M. G. & Sandmo, A. (1972) ‘Income Tax evasion: A Theoretical Analysis’, Journal

of Public Economics, Vol.1, 1972, p.323-38.

Internal Revenue Service (n.d). “The Agency, its Mission and Statutory Authority” Retrieved on

September 4, 2014.