- quote -

Why would you presume the statute of limitations has to be
symmetric?

The ordinary statute of limitations on income taxes is
certainly not symmetric.

As to refunds - under Sec. 6511, you have until the later of
3 years from the date the return was filed, or 2 years from
the date the tax was paid, to file a refund claim. Any
claim after that date is generally barred.

However, and here's the kicker, the amount of any allowable
refund is limited to the amount of tax that was paid within
the 3-year period preceding the filing of the claim for
refund, if the claim was filed within 3 years of the date
the return was filed, otherwise, you only get to look back 2
years from the date the claim is made. See Sec. 6511(b)(2).
Thus, if you file a return 10 years late, you can make a
claim for refund for up to 3 years thereafter, but you can
only get back the amount of taxes paid within that three
year period.

As to the assessment of deficiencies - under Sec. 6501, the
general rule is still 3 years from the date the return was
filed; however, there are a number of very important
exceptions.

For example, if no return is filed, there is no time limit
on assessment (until a return actually is filed). Sec.
6501(c)(3).

In addition, if you completely omit from your return an item
of income that is 25% or more of the income stated in your
return, the statute of limitations is 6 years, not 3. Sec.
6501(e).

Finally, if you file a fraudulent return, there is no
statute of limitations, and this cannot be cured by filing
an accurate amended return. See Sec. 6501(c)(1); Badaracco
v. Commissioner, 464 U.S. 386 (1984).

Thus, for example, suppose that you had income tax withheld
from your wages, which was properly paid over in 2001.

Under Sec. 6511, an in particular 6511(b)(2), since your
withheld income taxes are deemed to have been paid on April
15, 2002, and as a result, the latest date by which you
could successfully recover those taxes would be April 15,
2005 (i.e., 3 years after the date the return was due;
however, if you never filed a return, then, technically, you
would be out of luck after 4/15/2004 - that generally
doesn't happen because refund claims are, typically, filed
on a tax return, which fact puts you back into the 3-year
lookback period).

However, the 3-year limitation on assessment will not start
running until you file a return, and even then may be either
extended or eliminated entirely if you omit a substantial
item of income or file a fraudulent return.

So, for example, suppose that you duly filed a return on
April 15, 2002, but that the return was fraudulent. Under
that scenario, the IRS can come after you to assert a
deficiency at any time prior to the final settlement of your
estate. On the other hand, you cannot claim a refund for
taxes actually paid beyond April 15, 2005.

As a further example, suppose that you duly filed a return
on 4/15/2002, but that you improperly omitted an item of
income that was 25% of your income actually reported because
you treated a lump-sum distribution from your closely-held
corporation as a loan instead of as additional compensation.
Further assume that, because of the way your financial
affairs worked out, the overwithholding on your wages,
combined with large, perfectly legitimate deductions,
resulted in your having overpaid your income taxes through
withholding in an amount exactly equal to the additional
amount of tax that you should have paid with respect to the
compensation disguised as a loan.

Under that, admittedly somewhat strained set of facts, you
would have until April 15, 2005 to file a claim for a refund
of the overwithholding (based on your return as filed),
omitting for the sake of illustration the fact that a return
is, by itself, a claim for refund. On the other hand, the
IRS would have until April 15, 2008 to assess the additional
taxes against you under Sec. 6511.

To spare everyone else, I will forgo any more examples;
however, it should be clear that there is no foreordained
reason why the statutes of limitations should be symmetric
as between taxpayers and the IRS.

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"Geoff" <G...[at]yahoo.com> wrote:

- quote -

Or maybe the IRS found that the payments *were* compensation
but disallowed the employer's deduction because they - IRS -
found the compensation to be *excessive*. Still
compensation, but not deductible to the employer. And no
luck on the payroll tax refund!

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Geoff <Geoff[at]yahoo.com> wrote:

- quote -

But if they weren't wages, you have to pay both halves of
the social security tax, so you don't end up ahead (except
for an arithmetic mistake in the law, which is tiny).

- quote -

What does "shouldn't" have to do with tax law?

If you're really unlucky, the IRS would decide that your
income was self-employment, and you owe the other half of
the social security tax as well as the half you already
paid.

On the gripping hand, if the employer isn't entitled to a
deduction, the payments not only weren't wages, they might
not have been self-employment income; perhaps a gift, so you
don't owe any taxes on them. (More likely, though, the IRS
will determine that they were taxable to you, but the
company didn't gain benefit from whatever you did and wasn't
trying to, so it loses the deduction.)

Seth

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I read the thread below on it, but have another question.

Lets suppose my employer took deductions for payments to me
as wages and I paid taxes on these payments wages. Years
later the IRS determines they were not wages and not
entitled to deductions, and assesses the company
accordingly.

Would I be entitled to refund of my half of the payroll tax
(as the IRS says they were not payroll related) despite
being older than 3 years?

I would not get a refund on my income tax, since the tax on
ordinary income is the same as that on wages; I am just
asking about the payroll tax deducted from what I received.
Seems to me that if the IRS feels the statute of limitations
doesn't apply to taxes owed on a transactions, it shouldn't
apply to improper payroll tax on the same transaction
either.

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