It can be challenging to understand all your tax obligations each year, including tax deadlines, extensions, forms, and the reporting process. One concept that helps you establish a timeline is understanding an open tax year versus a closed tax year. An open tax year simply means the period following submission of your tax return is still “open,” enabling tax officials to question the tax return or you to claim a refund. A closed tax year means this period has passed. There are three years in the statute of limitations from the filing date, so this means the IRS only has that amount of time to conduct an audit on that tax return. There are a few exceptions to those three years, though. This guide will walk through everything you need to know about an open tax year and how to make sure you don’t have any issues arise during this period.
Understanding What Can Occur in an Open Tax Year
An open tax year may apply to you in a few different ways. Tax returns are not always complete or finalized right away, even though you’d probably like to get it all out of the way and move forward into next year. Here are some of the things that can still happen during an open tax year:
Pursue a Refund
You have three years from the actual file date or due date of the return, whichever is later, to make a claim to get your refund of a tax overpayment. You typically cannot make a claim once this period is passed, and the IRS cannot issue you a refund.
Undergo an Audit
The IRS has three years to pursue an audit of your tax return and assess additional tax. The agency usually will not audit you after these three years pass, though there are exceptions that will be discussed later in this post.
Amend a Tax Return
You may need to amend your tax return after you submit it, whether you left off income, you missed a credit or deduction, or there was a mistake in one of your tax forms. You have three years from the filing date to go back and change your tax return.
Note that filing an extension to October 15 of a given tax year means the three-year period starts from that date and not the original due date. Not filing an extension means you still have three years from your late filing date.
3 Exceptions to the Statute of Limitations
There are a few scenarios to be aware of that may give the IRS longer than three years to pursue an action. Note that those who fail to claim a refund or amend a tax return within the open tax year are by law not eligible for a refund after that period. Here are three situations when the IRS will have more time to take an action:
1. Understatement of Income
An understatement of income is when you have misreported your actual income by more than 25%. You could be audited for up to six years in this scenario, double the standard three-year period.
2. Fraudulent Tax Returns
The IRS will have more than three years, and perhaps forever, if they claim that fraud has taken place. No deadline applies, for example, if a taxpayer filed a fraudulent return or attempted to evade their taxes.
3. Missing Tax Returns
Failing to file a tax return is not subject to the statute of limitations. This means that if you do not file a tax return in a given year, the IRS will not just leave you alone after three years. You will have to pay eventually, and additional penalties and interest will apply.
The IRS can still review your tax return or perform an audit if one of these issues arises. Most taxpayers don’t get audited after three years, however. Make sure you talk through your situation with a tax professional if you’re worried about the IRS performing an audit on your return.
How to Manage Open Tax Years
It may be difficult to understand precisely what the IRS can do after the three years has passed. Always ensure you don’t run into any issues with audits or tax return problems by following these tips:
- File and pay on time whenever possible. The tax deadline is usually April 15 for the tax year prior, but sometimes this deadline is pushed back.
- File an extension, which usually changes your tax return deadline to October 15, if you need more time getting all your information together. Note that you still have to pay your income tax by the deadline, even if you submit your return later.
- Act within three years to claim a refund. Don’t put this off, as you never want to miss out on getting money that you overpaid in taxes. The IRS may extend its three years for an audit, but you cannot extend this deadline to claim a refund or amend your return.
- Make sure your information is accurate and complete before you file.
Staying diligent about your taxes is the best way to avoid any issues with an open tax year. It’s always a good idea, when in doubt, to discuss your options with a tax expert. You don’t want to leave money on the table, but you also want to make sure you’re filing everything correctly and on time.
Talk to Silver Tax Group to Take Advantage of an Open Tax Year
Some of these IRS guidelines can be confusing and hard to put into practice. That’s why Silver Tax Group is here to help. We will make sure you understand your tax situation, obligations, and applicable deadlines so you don’t have to worry about taking steps outside of an open tax year. We also help with emergency tax services, general consulting, IRS audits, tax defense, and much more. Reach out to Silver Tax Group to speak to a tax expert about open tax years and the statute of limitations.
