The collection statute of limitations controls the amount of time the IRS has to collect a tax. The IRS has ten years to collect a tax once an assessment is made.

The actual assessment date is found on a notice of tax lien or in your Individual Master File. It is not uncommon for the IRS to try to collect a tax after the statute of limitations has expired. This is one good reason to understand how to spy on the IRS using Individual Master File information.

The statute of limitations for audits is three years from the time the return was filed. If filed before April 15, the three-year period begins on April 15. For example, if you file your tax return for 1996 in January of 1997, the IRS has until April 15th of year 2000 to audit your 1996 return. If you file for an automatic extension of time to file your return, the three years begins on the date the IRS receives your return. For example, if you file your 1996 tax return on October 15, 1997, the IRS has until October 15 of 2000 to audit your 1996 return. This is why many experts suggest you do not file your return before April 15th. It simply gives the IRS more time to audit that return. On the other hand, filing with an extension does not limit the time to audit a return.

If you omit more than 25% of your gross income from your return, the statute of limitations for audit is extended to six years. This is why I recommend everyone keep their tax records for six years from the date of filing your return. It is not uncommon for the IRS to assert an omission of income in order to audit a return. Keeping the tax records is the only way to prove the IRS wrong in this situation.

For those who do not file a return at all, there is no statute of limitations. The IRS can audit you for any year in which they claim you have not filed. Herein lies yet another reason to request an Individual Master File on a regular basis. Record of filing a return is made in this file. If you have the record, the IRS can never claim you did not file a return or bluff you into enduring an unnecessary audit.

These are the general rules. Under certain circumstances these statutes may be extended as a result of actions taken by the IRS or you. For example, you may have unknowingly signed a waiver that extends the statute.