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Part 25. Special Topics

Chapter 6. Statute Of Limitations

Section 1. Introduction

25.6.1  Introduction

25.6.1.1  (10-01-2001)
Introduction Overview

  1. The Statute of Limitations Project identifies statute imminent/expired returns and payments, and determines the Assessment Statute Expiration Date (ASED), Refund Statute Expiration Date (RSED), and Collection Statute Expiration Date (CSED).

  2. This section provides an introduction to the establishment and awareness of Statute Of Limitations.

  3. To respond to tax law inquiries, consult technical reference material.

25.6.1.2  (10-01-2001)
What is a Statute of Limitation

  1. A statute of limitation is a time period established by law to review, analyze and resolve taxpayer and/or IRS related issues.

  2. The Internal Revenue Code (IRC) states that the Internal Revenue Service (IRS) will assess, refund, credit, and collect taxes within specific time limits. These limits are known as the Statute of Limitations. When they expire, we can no longer assess additional tax, allow a claim for refund by the taxpayer, or take collection action. The determination of Statute expiration differs for Assessment, Refund, and Collection.

25.6.1.2.1  (10-01-2001)
Overall Mission of the Statute Program

  1. The overall mission of the statute program is to:

    • Minimize barred assessments.

    • Provide adequate statute alerts and messages to all campus and field office personnel.

    • Provide maximum feedback to other areas not following prescribed guidelines (this also includes Quality Assurance).

    • Coordinate all open controls with the appropriate functions.

    • Minimize the volume of STxx (statute imminent transcript), STxx(f) (follow-up), and AM–X (statute expired) transcripts.

  2. The guidelines of the Statute program are to:

    • Keep inventories to a minimum.

    • Completely review and resolve (or clear) all statute cases (imminent or expired).

    • Maintain adequate staffing for timely resolution of all statute cases (imminent or expired) and statute unpostable cases.

25.6.1.2.2  (10-01-2001)
Statute Function Establishment

  1. The Statute Function was established to review statute imminent/expired returns and payments, and to determine the Assessment Statute Expiration Date (ASED) Refund Statute Expiration Date (RSED) and Collection Statute Expiration Date (CSED).

  2. The function also reviews amended returns that reflect an increase in tax, documents that unpost or are rejected for statute imminent or expired periods, and Martinsburg Computing Center (MCC) transcripts that generate from the Accounts Maintenance/Statute Transcript Program.

25.6.1.3  (10-01-2007)
Statute of Limitations Research

  1. To handle statute imminent/expired cases, you need to refer to the following Internal Revenue Manuals (IRMs), as well as Internal Revenue Codes (IRCs) and other research:

    • IRM 3.11.3 Individual Income Tax Returns

    • IRM 3.12.32 General Unpostable Framework (GUF)

    • IRM 3.12.166 EPMF Unpostables

    • IRM 3.12.179 Unpostable Resolution

    • IRM 3.12.278 Exempt Organization Unpostables Resolution

    • IRM 3.13.62 Media Transport & Control

    • IRM 3.13.222 BMF Entity Unpostable Correction Procedures

    • IRM 3.12.21 Credit and Account Transfers

    • IRM 3.17.79 Accounting Refund Transactions

    • IRM 3.17.220 Excess Collection File

    • IRM 3.17.243 Miscellaneous Accounting

    • IRM 2.3 IDRS Terminal Responses

    • IRM 2.4 IDRS Terminal Input

    • IRM 5.8 Offer In Compromise

    • IRM 5.9.4 Common bankruptcy Issues.

    • IRM 5.14 Installment Agreements

    • IRM 5.19.1 Balance Due

    • IRM 20.1 Penalty Handbook

    • IRM 20.2 Interest

    • IRM 21.2.4 Master File Accounts Maintenance

    • IRM 21.3.3 Incoming and Outgoing Correspondence/Letters

    • IRM 21.4.1 Refund Research

    • IRM 21.4.5 Erroneous Refunds

    • IRM 21.5.1 General Adjustments

    • IRM 21.5.2 Adjustment Guidelines

    • IRM 21.5.3 General Claims Procedures

    • IRM 21.5.6 Freeze Codes

    • IRM 21.5.9 Carrybacks

    • IRM 21.6.7 Adjusting Individual Tax Accounts

    • IRM 21.7 Business Tax Returns and Non-Master File Accounts

    • IRM 3.0.273 Administrative Reference Guide

    • IRC§ 6501 Assessment

    • IRC § 6511 Claim for Credit or Refund

    • IRC § 6532(a) Limitation on Filing Refund Suit

    • IRC § 6404(a) Abatements

  2. Refer to Data Processing (DP) Tax and Examination Adjustment procedures for detailed instructions for adjusting accounts.

25.6.1.4  (10-01-2001)
Introduction Procedures

  1. The following subsections provide statute awareness relating only to "Introduction to Statutes" and not "Resolving Statute cases."

25.6.1.4.1  (03-01-2006)
Responsibility Of The Statute Function

  1. The Statute Function is the technical operation for identifying, "clearing" , and determining expired periods for assessment or refund/credit, on statute imminent or expired periods for Individual Master File (IMF), Business Master File (BMF) and Individual Retirement Account File (IRAF) accounts. This includes applying credits, and resolving unsettled tax modules and freezes that were not resolved as a result of the initial computer generated transcript and the statute date is within 180 days for transcript processing and 90 days for non-transcript type cases.

  2. Statute employees must direct their primary attention to statute protection (tax assessment before the statute of limitation passes) and not general non statute issues (refund claims or credit). "No other area should be clearing statute cases for processing." The Statute Function must stamp "No Statute Issue (does not meet statute tax assessment criteria)" on all returns, transcripts, etc., which are not statute related. Follow your IRM procedures for processing the return. They must be routed to the responsible function or originator, as applicable.

  3. Either a case history (action) sheet or statute transcript must be used to record the steps taken when resolving statute cases. The steps must be dated, legible, and listed in chronological order. Local management will decide the method used.

  4. Because of the special nature of problems involved with statute, only tax examiners assigned to the Statute Function should use the instructions and techniques provided in this section.

  5. Many statute related issues are complicated ones. The statute examiner must be able to use logic and judgment, when necessary, to resolve the case and/or determine a correct statute expiration date. The statute employee will:

    1. Be able to identify/resolve issues on IMF, BMF, and IRAF accounts, and/or

    2. Have a "hands-on" knowledge of various sources of information to be able to readily research specific issues, and/or

    3. Be able to identify critical statute (ASED, RSED and CSED) dates, and/or

    4. Be familiar with all IRMs significant to statute processing, and/or

    5. Be able to discuss statute related issues with areas impacted by statute processing

      Example:

      Criminal Investigation, Collection or Examination, Special Procedures Function in the Area Office (AO) as well as other functions in the AO., etc., and/or

    6. Be able to provide training throughout the year to employees that deal with statute related issues as well as Statute Unit employees, and/or

    7. Be able to identify and report systemic or operational problems in statute processing or ones which are causing an increase in statute issues, and/or

    8. Review and prepare barred assessment reports, as necessary.

25.6.1.4.2  (10-01-2007)
The Statute Awareness Program

  1. Since Statute Awareness is a vital process to the performance of identifying statute cases in the Internal Revenue operations, each Statute Function must create a Statute Awareness Program to prevent barred assessments and erroneous abatements.

  2. At the beginning of each quarter starting in January, the Statute Function must display messages on bulletin boards, flyers, posters, IDRS, and distribute Statute Circulars with statute periods that will expire within each month for all business operations. Statute imminent dates must be discussed prior to expiration dates in unit meetings, briefing and/or training classes for all business operations.

  3. Each campus Planning and Analysis Staff must submit a quarterly Statute Awareness Program report, to Headquarters by the 15th day of the month following the close of the quarter via memorandum. If the 15th day of the month falls on a Saturday or Sunday, the report is to be sent by express overnight mail on the Friday before the weekend in order to be received timely on Monday, the next business day. The memorandum must be sent to the attention of the Statute IRM author, at the address for the Statute Of Limitation Project Analyst stated in IRM 25.6.1.4.3. The memorandum must be signed by each Campus Director. If you wait until the last two or three days before the due date to send the report, you must send the report via next day express mail.

  4. Include the total volume of barred cases and total tax dollar, broken down by tax, penalty, interest and lost revenue. Also, list the type of case/condition that caused the barred assessment. (This information can be obtained from Form 9355 (Barred Statute Report) that is prepared throughout the year on barred cases. See IRM 25.6.14.4.4 Identifying Barred Cases for the criteria for barred cases.)

  5. Do not submit attachments such as copies of minutes from meetings, local memoranda for statute preparedness, statute imminent bulletins, monthly statute alert posters, or copies of any public address announcements. These should be kept for your records.

  6. The proposed assessments in the Underreporter Program (URP), Combined Annual Wage Reporting (CAWR) and Federal Unemployment Tax Act (FUTA) programs are giving us considerably more exposure to statute years than we have experienced before.

  7. Each functional area must ensure an adequate number of "Statute Specialists" are assigned to each operation.

  8. Each campus Operation will establish a review of Form 3893 Re-Entry Document Control, or other document input with a different DLN, for all returns that have tax periods with assessment expiration dates of 6 months or less. This is to ensure returns are not being input to a statute imminent period or abated prior to the posting to the correct account, and are being routed to the Statute Function.

  9. Document 7368 Basic Guide for Processing Statute Cases, is available to Customer Service Field Operations, field offices and IRS campuses. The document can be ordered from the distribution center servicing your area under Catalog Number 10296C.

25.6.1.4.3  (04-01-2007)
Statute Of Limitation Project Address

  1. Mail all Statute Awareness Program Reports for the Statute of Limitations Project Analyst to the following address:

    Internal Revenue Service

    Chief, Accounts Section
    401 West Peachtree St., NW
    ATLANTA, GA 30308
    ATTN.: Statute Analyst W:CAS:AM:PPG:A, Stop 38 W&I

25.6.1.4.4  (03-01-2006)
Necessity Of Quality Review

  1. To ensure accuracy of adjustments that are completed within the Statute Function, management must:

    1. Review 100% of on-line and non on-line adjustments of new employees.

    2. Randomly sample on-line/non on line adjustments after satisfactory performance of statute cases has been met.

  2. Management may delegate this review, but in no case may an employee conduct reviews of his/her own cases.

25.6.1.4.5  (03-01-2006)
Necessity Of Managerial Review

  1. First line supervisors of personnel working statute cases will conduct periodic reviews of cases assigned to the employees. The purpose of the review process is to ensure that employees are processing cases properly and in a timely manner. Additional IDRS training, research guidance, or counseling may be warranted if deficiencies are noted.

  2. Management supervision includes, but is not limited to, product quality review of suspense files to ensure:

    1. Accuracy of work

    2. Necessary information is requested

    3. Statute cases are controlled on IDRS until condition is resolved

    4. Timeliness of follow-ups

    5. Suspense cases are timely and appropriate, and replies are worked as soon as received

    6. No replies are worked expeditiously

    7. Credit transfer cases returned to the Statute Unit from Accounting are controlled on IDRS and being expeditiously handled

    8. Unpostable records are controlled on IDRS

    9. Unpostable records for bankruptcy, intelligence, and statute periods are assigned and worked on a first priority basis.

    10. Repeat unpostables are identified and the initial case handling was proper

    11. Turn-around time for working RSED–STAT and ST29 Transcripts over (see LEM 25.6.1.4.5) is ten workdays

    12. Mis-routed and re-routed correspondence is monitored to determine the source of errors.

    13. Direct feedback is provided to the functional area if significant volume changes occur.

    14. Feedback is provided to the operation level when statute cases are received from Area/Field offices requiring assessment action and the statute period has expired.

    Note:

    The purpose of the feedback is to alert field office personnel of statute ramifications when personnel does not route a case timely because of lack of training, etc.

    • Special trained employees are assigned to work cases when additional documents are requested.

    • Every attempt is made to resolve these cases prior to requesting the document a second time.

25.6.1.5  (04-01-2007)
Basic Guide for Processing Cases with Statute of Limitations Issues

  1. The following is a basic guide for processing claims seeking credit or refund based on the statute of limitation:

    IF AND THEN
    The module is in zero balance (and claim for refund is filed within 3 years from the received date of the original return or 2 years from the date of any portion of the balance of the module is paid (including tax, penalties and interest)) The look-back period is 3 years plus any extension of time to file or 2 years The maximum amount that can be refunded or offset cannot exceed the total of the credits, payments, or offsets cycle date payments made within the look-back period. Adjust the lesser of claim document amount or the total of credits or payment within the look-back period. (If your adjustment contains an increases in the amount of W/H, EIC , or ACTC, make correction to these amounts before inputting any other tax decrease). The claim must be disallowed if there are no credits, payments or offset payments made within the look-back period. Do not adjust the module. Send a 105 C disallowance letter.
    The module is in zero balance and the claim is not timely filed (within the 3 year or 2 year period identified above No look-back period exists because the claim for credit or refund is not timely filed Disallow claim for credit or refund. Do not adjust the module Input TC 290 for zero with blocking series 98/99 to indicate a full disallowance and send a 105 C letter.
    The tax module is in balance due (and the claim is filed within 3 years from the received date of the original return or 2 years from the date any portion of the balance on the module is paid) The look back period is 3 years plus any extension of time or 2 years from the date of any payment The maximum amount that can be refunded or offset cannot exceed the total of the credits/payments or offset credit payment cycle date within the look-back period. The adjustment is the lesser of: a) the correct adjustment amount based on the claim document or b) the total of credits/ payments or offset cycle date payments within the look-back period plus the posted balance due on the module.
    The tax module is in balance due (and the claim is not filed timely within the 3 year or 2 year period identified above No look-back period exists No amount can be refunded or offset. Apply the guidelines for a request for abatement to address the balance due. The adjustment is the lesser of : a) the adjustment amount based on the claim document or b) the balance due on the module. You must ensure that all documentation is complete and verified before taking any adjustment action or send to CAT/A if the claim meets CAT/A criteria. Send a 105C or 106C as required.
    If the claim is a request for an abatement (documentation is complete and verifiable) It meets CAT/A criteria (route to Exam on-site) Adjust the module based on the reply from CAT/A. If Exam does not accept the claim as filed or the claim will not be adjusted based on the document provided by the taxpayer, send the taxpayer a no consideration letter 916 C. In the letter request payment of the tax and ask the taxpayer to file a claim for refund.
    If the claim is a request for abatement with missing documentation or the documentation cannot be verified (request any missing documentation) If the taxpayer provides documentation, follow procedures as stated in the scenario above. If the taxpayer does not provide documentation, do not adjust the module. Notify the taxpayer to pay the tax and file a claim for refund as stated above.
    An original return is received timely it has not been processed for more than 33 months of it's original received date prepare a Form 2859 to assess tax and allow refund. Input a TC 150 for zero amount and TC 290 for the tax. Do not bill taxpayer. Route to Accounting. Input a TC 29X to allow credit(s) and taxpayer refund when the dummy TC 150 posts if needed.

    Note:

    If the module credit created by the posting of the adjustment exceeds the amount of the credit that can be refunded or offset due to the recomputation of tax, penalties or interest, you must transfer the barred portion of the overpayment to Excess Collections File (XSF). A manual refund may be needed to allow the correct refund. Also, a 106 C letter must be sent if refund created by the tax adjustment is not fully refundable.

  2. The following is a basic guide for reprocessing of a statute period return if the claim is timely (i.e., filed within 3 years from received date of the original return or due date, whichever is later):

    IF THEN
    The ASED has expired use TC 370/400 procedures. Do Not Abate the Tax. (IRM 25.6.5.10.3)
    The ASED is greater than 90 days follow normal processing procedures. (90 days allows time for processing through the pipeline).
    The ASED will expire within 90 days forward to Statute for possible quick assessment.

  3. The following is a basic guide for processing statute period assessments if the claim is timely (i.e., filed within 3 years from the received date of the original return or due date, whichever is later):

    IF AND THEN
    Return was timely filed but not timely processed there are no condition(s) which extend the ASED Do Not Assess the Tax Increase, forward case to the Statute unit and do not send a 2765 C letter.
    Return was timely filed and the ASED has not expired ASED is greater than 90 days make the assessment.
    Return was timely filed and the ASED has not expired ASED is less than 90 days Notate Statute Imminent and Expedite/ Hand carry to the Statute Unit.

    Note:

    If you cannot ascertain whether the ASED is extended refer the case to the Statute Unit.

    Note:

    An additional assessment such as a TC 290 or TC 300 does not extend the Assessment Statute Expiration Date. The ASED is determined by the received date or due date of the original return whichever is later.

    Exception:

    For Employment Taxes the ASED is 3 years from April 15 of the following year.

    Caution:

    If a TC 150 is manually assessed with a tax amount, any further tax increase must be manually assessed.

  4. The following are conditions which extend the Assessment Statute Expiration Date:

    • IRC Section 6501(c)(6) Termination of Private Foundation Status

    • IRC Section 6501(c)(1) False or Fraudulent Return

    • IRC Section 6013 Joint Return After Separate Returns

    • IRC Section 6501(h) Net Operating Loss (NOL) or Capital Loss Carryback

    • IRC Section 6501(j) Credit Carryback (as defined in IRC Section 6511(a)(4)9c)

    • IRC Section 6501(i) Foreign Tax Carryback

    • IRC Section 65039a) Statutory Notice of Deficiency

    • IRC Section 6501 (e) 25% Omission

    • IRC Section 6501(f), 543(a) & 544 Personal Holding Company

    • IRC Section 6501(b)(3) Substitute for Return - SFR

    • IRC Section 6901 Fiduciaries, Transferees, & Transferors

    • IRC Section 6229 Partnership Items

    • IRC Section 6503(h) Bankruptcy

    • IRC Section 6501(c)(4) Agreements that extend the time to assess

    • Returns with Extension of Time to File

    • IRC Section 6502 (a)(2)(C) and (D) Offers in Compromise

    • IRC Section 1033(a) Involuntary Conversion

    • IRC Section 6501(c)(9) Gift Tax (Form 709)

    • IRC Section 1314 (b) Mitigation

    • IRC 664 Split Interest Charitable Trusts

    • IRC Section 6501 (e) (3) and 6501(1) Excise Tax

    • IRC Section 6501(c)(8) Certain unreported foreign transfers

    • IRC Section 6501(c)(10) Listed transactions

    • IRC Section 6501(m) Certain credits elected

    • Some Forms 2290 (Amended)

    • Special Tax Stamp - each location established ASED (Form 11C)

    • IRC Sections 6503-6504 Other circumstances

      Note:

      If a timely filed IMF taxable amended return showing an increase in tax is received within 60 days of the ASED of the original return, the assessment of the amended return is extended for 60 days from the day the amended return was received on all subtitle A (Income ) taxes. IRC Section 6501 (c) (7).

      Caution:

      An additional assessment on a module, such as a TC 290 or TC 300 DOES NOT extend the Assessment Statute Expiration Date(ASED). The ASED is determined only by the received date or the due date of the original return, unless any of the above conditions are met.


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