Sales and Income Tax Audits Statute of Limitations Issues

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New York Tax Law provides a three-year statute of limitations on the Tax Department’s right to assert additional tax due. In general, the three-year statute of limitations clock begins to run on the date the tax return is filed. After the three years, the Department may not assess any tax above what the taxpayer reported on their tax return. A longer statute of limitation applies to discourage avoidance practices. A six-year statute of limitations applies to abusive tax avoidance transactions, etc.

The statute of limitations may be extended, by written consent from the taxpayer prior to the expiration of the statute of limitations. Extensions may be granted multiple times. If the taxpayer consents to an extension in writing, the period for filing an application for a credit or a refund is extended and shall not expire prior to six months after the extended date has expired. This most often happens when a tax audit is in progress.

It is important to note that the statute of limitations does not apply to any period where the taxpayer did not file a return, failed to report changes made to a federal return, or filed a false or fraudulent return to evade tax. For income tax purposes, a taxpayer is generally required to report changes to their federal return to New York within 90 days after the final determination of the change by the IRS.

In addition to extension, the statute of limitations may be suspended for a period of time, based on certain circumstances. The statute of limitations is suspended with respect to the amount of additional tax asserted after the mailing of such notice of tax has been sent, until the expiration of the time for filing a petition contesting the notice. The statute is also suspended if a timely petition has been filed with the Division of Tax Appeals, until the determination of the administrative law judge or the tribunal becomes final.

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