Financial challenges can arise unexpectedly, impacting anyone at any time. Whether it’s unforeseen medical expenses, life-changing events like a divorce, or the emotional and financial strain of losing a loved one, these events can dramatically disrupt your financial stability. These circumstances may make it increasingly difficult to meet both your personal and business obligations, placing you in a difficult position with the IRS.
Recognizing the complexities these situations introduce, we’ve been publishing a blog series, seeking to provide clarity and guidance. In the first installment of our series, we tackled the essentials of employment tax law, providing a foundational understanding of business tax responsibilities. Following this, Part 2 explored the possibilities offered by an Offer in Compromise for settling debts with the IRS. Now, in Part 3, we shift our focus to the statute of limitations, a critical yet often overlooked aspect of tax law that defines the time limits within which the IRS can take action.
Tackling New Challenges
When Donna Fecondo became the sole owner and president of her family’s mushroom farm in Delaware County, Pennsylvania, in August 2010 after the death of her grandfather and uncle, she inherited a host of new responsibilities as well. These included running payroll, collecting employment taxes, filing taxes with the IRS, and submitting her individual tax returns along with the income tax return for the corporation.
Unfortunately, she failed to meet these obligations. Her explanation—that she was experiencing personal and financial troubles, including a divorce and grief over the loss of her loved ones—did not justify her failure. While this might normally present an opportunity to explore penalty abatement or another avenue for resolution, her circumstances did not meet the necessary criteria. Even an Offer in Compromise, which allowed her to settle her debt for less than the full amount owed, failed to resolve the situation.
Time Limits
The statute of limitations plays a crucial role in tax cases like Fecondo’s, setting time limits for both the IRS and taxpayers to take certain actions. But what, exactly, is the Statute of Limitations? According to the IRS, it is “the time period established by law during when the IRS can review, analyze, and resolve your tax-related issues. When the statutory period expires, we can no longer assess or collect additional tax, or allow you to claim a refund.”
The expiration date of a statute of limitations depends on the time the IRS can assess and collect tax:
- Assessment Period: Generally, the IRS has 3 years from the date a tax return is filed to assess additional taxes. This means that for employment tax returns, like that Fecondo was required to file, the IRS had a 3-year window to review and make additional assessments. However, if she reported less than 25% of her income, that window can increase up to 6 years. And if someone files a fraudulent or false return with intent to avoid tax, or never files a return, the IRS can assess tax for an unlimited period of time.
- Collection Statute Expiration Date (CSED): Once taxes are assessed, the IRS typically has 10 years to collect unpaid taxes. This is known as the Collection Statute Expiration Date. In Fecondo’s case, with $599,159 in back employment taxes owed, this 10-year period would have begun when those taxes were assessed.
- Criminal Prosecution Timeframe: For tax evasion and willful failure to file returns, the statute of limitations is generally 6 years. This is particularly relevant in Fecondo’s case, as her actions ultimately led to criminal charges, a $5 million fine, and 46 months in prison.
Impact on Fecondo’s Case
The statute of limitations likely played a significant role in how Fecondo’s case unfolded:
- Late Filings: By filing required forms late, Fecondo may have extended the assessment period for the IRS.
- Ongoing Non-Compliance: Her continued failure to pay employment taxes on filed returns likely reset the statute of limitations clock multiple times.
- Criminal Charges: The 6-year statute of limitations for criminal tax evasion allowed prosecutors to bring charges for her ongoing non-compliance.
Importance of Timely Action
Fecondo’s case underscores why it’s so important for you to address tax issues promptly. The statute of limitations can work both for and against taxpayers:
- It can limit the IRS’s ability to pursue back taxes after a certain period.
- It can also restrict a taxpayer’s options for claiming refunds or credits for overpayments.
This case highlights the importance of timely tax filings and the potential consequences of failing to meet tax obligations, even when facing personal difficulties. Seeking professional legal counsel early can help navigate these complex timeframes and potentially avoid severe consequences like those faced by Donna Fecondo. A skilled and knowledgeable attorney can work with the IRS to achieve a fair resolution of your case.
Reach out to Kundra & Associates Today for Knowledgeable Legal Guidance
When you have unresolved tax debt like Donna Fecondo and need help exploring your options, we are here for you. At Kundra & Associates, P.C., we have the extensive knowledge of tax laws and skills required to help you make the most sensible decisions about your business and personal assets. Please call us at 301-750-9717 or schedule a consultation online to discuss your options and take back control of your finances and future.
