Reference no: EM133828043

Assignment: Accounting

Determining the Statute of Limitations: While the statute of limitations for examination is generally three years from the date a return is filed, the statue can be automatically extended, can be voluntarily extended, or tolled under various provisions provided in the code, regulations, rulings and court cases. Your job is to advise your clients as to the applicable statute of limitations based on the fact pattern to be provided to you below. Remember: the date a return is deemed filed is a question of both fact and law.

It is October 1, 2021. The clients have not filed their joint current year's tax return. No extension has been filed. Your clients have filed timely in the past and there is no reason to suspect that there is unreported income (once the return is filed). They live in Florida and have been unaffected by a hurricane or other severe weather event. Your team must write a memorandum to the client explaining when a tax return filing will be deemed sufficient to start the statute of limitations for both examination and assessment purposes. In addition, the clients have asked if they should file a joint tax return under the facts above. You should cite, as appropriate, the code, regulations, rulings, court cases... etc. Make sure that the memo addresses all the following questions for both types of returns:

I. What are the elements of a complete return?

II. What is the general limitation on assessment?

III. What are the exceptions to the general statute of limitations on Assessment?

IV. When is a return deemed sufficient to start the statute of limitations?

V. What happens if IRS files a return on behalf of taxpayer?

VI. Under what circumstances will a statute not start? (Maria Alejandra Garcia)When appointing a client, it is important to emphasize that the statute of limitations for examinations and collections begins with the proper filing of the tax return. A complete return must include all required information by law and tax regulators to assess tax liability. Usually, the three-year time limit does not start from the filing date but could be extended if the return is incomplete. In essence, an invalid return may prevent the statute of limitations from starting if it is not signed correctly, lacks necessary information, or does not follow the required format, delaying the process. The IRS may deem a return inadequate, leading to corrective actions such as amending the return and ensuring proper filing. While an unclaimed property audit is vital to determining limitation periods, it can also provide clarity on examination and assessment rights for both taxpayers and the IRS. According to Brackney, 2019 (Tax Controversy Corner: CCH Journal of Passthrough Entities, May-June 2019) the injunction statutes provide a powerful civil enforcement tool for the Department of Justice and the IRS. In many ways, the injunction action is a much worse consequence for a tax promoter or preparer than civil penalties because the action is part of the public record (unlike the results of a preparer or promoter audit, which would be subject to taxpayer confidentiality under Code Sec. 6103), and the court may shut down the preparer's practice altogether. Under §6611(g), a return is considered valid if it contains sufficient information to calculate the tax liability reported, including the supporting schedules and/or forms, and if it contains the name, address, or identification number.

VII. If the statute is not deemed to start, because of not being deemed to be a complete return, what curative actions may be necessary in order to start the statute of limitations?

VIII. When is the statutes of limitations tolled from running? For how long?When counseling a client about the tax law rules on time limits for tax return examination and assessment, it is imperative to acknowledge the fundamental events that set these timeframes in force. A tax return becomes complete and begins the statute of limitations if it includes correct income reporting, legal forms, and all the obligatory information. In most cases, the IRS has three years from the filing date to examine the return. Nevertheless, the timeline may stretch out arbitrarily if due payment is available or the agreement of both parties for an extension has been granted. According to a principle outlined in the IRS's Publication 501 for the year 2023, the statute is not deemed to start as soon as the IRS categorizes the return as incomplete and needs fixing by the taxpayer. Furthermore, random events like the Internal Revenue Service filing returns on behalf of taxpayers will determine when the statute starts. Certain legislators of this regulation may apply, pausing the limitation period at random while waiting for some court's decision or appeal, until the appellate procedure ends. In Florida, where clients are unlikely to experience dire circumstances like natural disasters, submitting a combined and prompt return could be an option, as this aligns with past compliance and proactively deals with the potential limitation of the statute. Once the return is filed, it may be tolled due to pending tax court proceedings, pending bankruptcy proceedings, the taxpayer being outside of the US, or receiving a Notice of Deficiency from the IRS (26 USC §6503).