Question

1. Mr. B gets a six month extension to file his 2016 return. The extension allows Mr. B to file his 2016 return on or before October 15, 2017. Mr. B mails his return on October 10, 2017. The post office postmarks the envelope containing the return “October 11, 2017”. The IRS receives the return on October 14, 2017. The IRS issues a SND for Mr. B’s 2016 year on April 6, 2019. Mr. B does not file a Tax Court petition. When does the SOL on assessment expire? Assume 3 year SOL. (Please, explain)

2. Same facts as in Question 1, except the IRS received the return on October 17, 2017. (Please, explain)

3. Same facts as in Question 1, except Mr. B’s correct gross income was $200,000. On his return he reported $150,000. Furthermore, Mr. B did not make any disclosures with respect to his gross income. (Please, explain)

Answer 1

Under Statue of Limitations (SOL), sec. 6501 allows to the IRS three years’ time to assess the tax return from the date of filing of the tax return. In case a return has been filed prior to the deadline then the due date of filing the return is to be considered for the purpose of SOL. In case the return is filed on an extended date then the date on which the return has been received by the IRS will have to be considered for the purpose of determination of SO period of three years, assuming the return has been filed on or before the extended date allowed for the purpose of filing. However, in case the return has been filed beyond the extended due date then the postmark date shall be used to determine the three years’ period of SOL.     

Taking into consideration the above explanation let us check the different SOL expires date for the three scenarios provided in question 1, 2 and 3.

Answer 1:

Since, the return was filed before the expiration of the extended due date thus, the date on which the return was actually received by the IRS shall be consider for the SOL period. Hence, in this case SOL shall expire on October 13, 2020, i.e. three years from the date on which the return was received by the IRS, i.e. 14^th of October, 2017.

Answer 2:

Since, in this case the IRS has received the return after the expiration of the extended period hence, the postmark date has to be considered for the purpose of SOL period. Thus, the postmark date on the return was 11^th October, 2017 hence, the SOL expire date will be 20^th October, 2020.

Answer 3:

The statute of limitation (SOL) increases to six years from three years if there is gross omission in income tax return. In case an item of income has been omitted in the income tax return and the item is more than 25% of the gross income stated in the return. Since, in this the income stated is $150,000 whereas the actual gross income was $200,000 hence, it is clear that the item of $50,000 has been omitted from the income tax return. Hence, the SOL in this case will be 6 years.