Did you know that the IRS basically has forever to “assess” your tax if you never file a return? In practice, this does not typically happen because they are too behind to chase people for small dollars but statutorily they can do it if you don’t file a return.
A “Substitute for Return” (SFR) is what the IRS files for you when they see that you had income that you did not file a return for. They typically file it without giving you the benefit of the deductions you should have received, so they are not doing you any favors!
Assessment Statute Expiration Date (ASED)
The ASED defines how long the IRS has to assess tax for a specific module/period. In most cases, the ASED is calculated as 3 years after the original return received date or return file date, whichever is later. The ASED does not start until an original return is received. An SFR is not considered an original return.
There are also some things that will cause the ASED to be even longer. It should be noted that “Fraud is Forever” and if you underreport your income by 25% or more the statute is extended to 6 years.
Common ASED Tolling Events:
- Filing amended return within 60 days of ASED
- Voluntary extension of ASED
- Joint Return after filing MFS
- Fraudulent return: There is no period of limitations on assessment for a false or fraudulent return with the intent to evade tax. An amended non-fraudulent return submitted after a fraudulent return does not begin the period of limitations. The fraud does not need to be committed by the taxpayer. Fraud done by the tax preparer without the taxpayer’s knowledge qualifies.
- Underreporting of tax: Tax may be assessed within six years after the original return was filed if the taxpayer omits more than 25% of their gross income or more than $5,000 in income attributable to foreign assets.
- Statutory Notice of Deficiency (90-day letter)