When It Comes to the Two Year Statute - You are on Your Own

Originally Published on forbes.com on September 6th,2011

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No sooner do I write one thing than I find something that while not totally contradicting it makes me want to modify it.  In Has Taxpayer Bill of Rights Turned IRS into a Paper Tiger,I observed that someone with ahigh school education who carefully reads all the material that the IRS sends them can frequently access the collection due process system.  I have sometimes coached people to avoid having to charge them for services that are not a core part of my particular practice.  The “carefully read” part prevents a lot of people from taking advantage of that. Also many people are too emotional and get frustrated with having to send the same material in multiple times or having people tell you that you need to get back to them in ten days, who then don’t get back to you for six months and then only to ask for a statute extension.  I think the biggest error that they have trouble avoiding is anthropomorphizing the IRS.   IRS does not execute its mission in a holistic manner such that you are dealing with a thinking being.  If the IRS is some sort of being, it is not that its left hand doesn’t know what its right hand is doing.  Its left hand is only vageuly aware that its right hand exists. At any rate having issued all sorts of qualifications on my observation that the instructions will facilitate many people fending for themselves, I have to issue a further warning. 

If they forget to tell you a rule, it is still the rule.

There is not just one statute of limitations in tax matters.  Three years, the best known, is the amount of time the IRS has to adjust your return.  If you have a substantial ommission of gross income the three turns into six.  Once your tax has been determined they have 10 years to collect.  (Please note that I am glossing over many fine points here.  There are a variety of ways in which the clock can be stopped and precise rules about when it starts and finishes, which can trip people up.)  There is also a two year statute.  If you file for a refund and the IRS denies your claim, they will send you a Notice of Claim Disallowance.  You then have two years to file a suit for refund.  They usually tell you about the two year statute when they send you the disallowance notice, but apparently not always.  Here is the latest on that:

PMTA 2011-016

When the Service disallows a claim for refund, it sends a letter, known as a Notice of Claim Disallowance, to the taxpayer explaining that disallowance. IRC § 6402(l). Section 6532(a)(1) indicates that the mailing of the Notice of Claim Disallowance by certified or registered mail triggers the beginning of the two-year limitations period in which the taxpayer can bring a suit for refund.

Although the Notice of Claim Disallowance letter sent by the Service generally contains a statement advising the taxpayer that the two-year period began on the date of the letter, the Service occasionally mails these letters without the paragraph notifying the taxpayer of the two-year period for filing suit. Procedure and Administration was asked whether the failure to include a notification about the limitations period invalidates the Notice, and whether two-year period begins even without the language being included in the letter.

After a lawyerly discussion of case law and controlling precedent, the document concludes:

As no controlling authority requires the Service to send the taxpayer a statement regarding the limitations period, the lack of such language does not invalidate a disallowance letter.

Ferengi At Work Again ?

I see this as another sign of the creeping Ferengi influence in the IRS.  Ferengi Rules of Acquistion – Rule Number 1 – Once you have their money, never give it back.