I cannot find whether a past due tax amount will be offset by a refund past the 3 year statute of limitations. Will a 4 year old refund apply to 5 year old amount due?

[itonewbie · Accepted solution]

The IRS has a 10-year statue of limitations from the time of assessment to collect.  The statute may, however, be suspended by certain events such as OIC, military deferment, bankruptcy, or taxpayer being overseas.

The IRS generally has a 3-year statue of limitations for assessment once a return is filed.  In the event no tax return was filed, certain information returns (e.g. F.5471, F.8938, F.3520) were not filed with the required information, the statue of limitations for assessment does not start to run until these returns are filed.  In addition, the 3-year statue of limitations may be extended to 6 years, for example, where the taxpayer fails to file a F.8938 or where there's substantial under-reporting of income (or overstatement of cost basis).  Similarly, the statue of limitations never runs out on fraudulent returns.

On the other hand, the statue of limitations for refund claim is 3 years from the date the return is filed or 2 years from the date the tax was paid, whichever is later.  If no return was filed, the window is based off the date of tax payment.

Prima facie, the 5-year old amount due would still be within the statute of limitations for collection.  Since the 4-year old refund is already outside of the window allowed for refund claim (unless portion of that refund was paid within 2 years), your client would not be able to offset the 5-year old balance due with the 4-year old refund claim.