Assessment Statute Expiration Date (ASED) Overview for Taxpayer

Through the Internal Revenue Code, Congress has given the IRS broad powers to assess taxes and collect them from taxpayers. For example, the IRS has tools like liens and levies to collect unpaid taxes. Despite this authority, there are limits to what the IRS can do and for how long.

One such limit is the Collection Statute Expiration Date, or CSED. The other is the Assessment Statute Expiration Date, or ASED. Both of these are important for you to be aware of, although the ASED could be more important in certain situations, such as if you have unresolved tax disputes with the IRS or unfiled tax returns.

The goal of this blog post is to take a closer look at ASED, including what it is, why it exists, how it works, and what effect it can have on your tax case. Depending on your situation, knowing your ASED helps determine what approach to take when dealing with the IRS. 

What Is the ASED and Why Does it Exist? 

The Assessment Statute Expiration Date is the latest date the IRS can assess a tax against a taxpayer. In most cases, this date comes three years after the IRS receives an original tax return or three years after the due date for an original tax return, whichever is later. 

An IRS tax assessment occurs when the IRS concludes a tax liability exists and calculates an amount for that liability. This is often represented by the IRS sending you a tax bill. We can look at an example to help illustrate how the ASED works.

Let’s say you were required to file an income tax return for the 2019 tax year. Unless you had an extension, this return would have been due on April 15, 2020. Assuming you filed your return on April 15, 2020, the deadline (ASED) for the IRS to assess a tax against you for the 2019 tax year would be April 17, 2023 (this is the next business day following April 15, 2023, which falls on a Saturday). 

Now, assume that you filed your 2019 return late. Instead of filing it on April 15, 2020, you filed it on June 15, 2021. In this case, the ASED would be June 15, 2024.

So if you filed your 2019 tax return on April 15, 2020, the latest the IRS could impose a tax obligation on you concerning your 2019 income taxes would be April 17, 2023. If the IRS were to assess this 2019 income tax against you on April 18, 2023, they would be legally barred from trying to collect it.

The reason the ASED exists is to prevent the IRS from unfairly trying to assess a tax that’s too old. It would be difficult enough to deal with the IRS if they showed up one day saying you had to pay a tax from three years ago. Think about how much harder it would be if they tried to do this about a tax that’s 10 or 20 years old. It’s highly unlikely you’d still have records and information relating to your taxes from that far back. And because of that, you’d have no realistic choice but to pay whatever amount the IRS said you owed.

As you can see, the ASED is a significant limitation on the IRS’ tax assessment (and collection) powers. Yet there are several major exceptions to its application. 

Exceptions to the ASED 

The ASED exceptions can be divided into things that can extend the ASED and things that can suspend the ASED “clock.” The three-year ASED can be extended in the following situations:

• You filed a fraudulent tax return with the goal of not paying a tax you legally owed. In this situation, the ASED is extended indefinitely, meaning the IRS has an unlimited amount of time to assess the tax.
• You didn’t file a tax return, and you were required to do so. When this happens, there is no three-year clock to start. Even if the IRS files a substitute for return (SFR), the ASED clock still doesn’t start.
• You significantly underreported your income for the tax year at issue. Specifically, if you report 75% or less of your actual income on your tax return, then the ASED is extended by three years (so there are six total years instead of the normal three).
• You agreed to extend the ASED. There aren’t many situations where you’d want to do this, but in special circumstances, there might be a strategic reason to do so, especially if you want to demonstrate your willingness to “cooperate” with the IRS.

It should be noted that filing a superseding or amended tax return won’t typically reset or extend the ASED. This means the ASED should be based on your original tax filing, not your amended or superseding tax return.

There are two major situations where the ASED clock can be paused. The first is when the IRS issues a notice of deficiency (also known as a 90-day letter), where you have 90 days to decide whether you want to accept the IRS’ tax assessment or file a petition with the U.S. Tax Court. The ASED pause begins on the date the IRS issues a notice of deficiency, and the pause ends 60 days after the final decision from the U.S. Tax Court.

The second is if you file for bankruptcy. The ASED clock gets suspended when the IRS issues a notice of deficiency less than 90 days before you file for bankruptcy. There’s also a suspension if the IRS issues a notice of deficiency any time before the stay ends. 

How the ASED Can Affect Your Taxes 

How your ASED can make a difference in your taxes depends on your unique situation. There are several ways in which your ASED can make a difference.

First, it’s possible to use the ASED as a defense to the IRS’ attempt to collect a tax debt from you. If you can show that the IRS assessed the tax they’re trying to collect after the ASED expired (and no extension or suspension applies), then you should be able to successfully stop the IRS from trying to collect an otherwise collectible tax.

Second, the existence of the ASED means it could be in your best interest to file missing tax returns, even if you’re filing them late. It’s understandable that you might not be looking forward to the idea of filing a tax return well past its filing deadline when that return will show that you owe the IRS taxes. However, filing this missing return means the three-year ASED clock can begin ticking. As long as the ASED clock is running and the IRS hasn’t yet assessed a tax against you, there’s hope that the ASED could prevent the IRS from collecting that tax from you. 

What You Should Do If Your ASED Is a Concern 

If you think that you might have a tax liability that could go away because of the expiration of the applicable ASED, then the first thing you should do is confirm your ASED. The best way to do this is to review your tax transcripts with the IRS. These will contain important information about your tax file, including filing dates. Your transcript will also help you determine if any events extended or suspended your ASED.

You should also promptly respond to any letters or notices from the IRS. For instance, recall from earlier that a notice of deficiency can pause the ASED clock. Properly responding to the notices or letters that come before the notice of deficiency can prevent the notice of deficiency from being sent to you.

Also, if there’s a tax return you know you should have filed a while back, now might be the time to file it. Before you do, it might be a good idea to consult with a tax pro to not just make sure the late return is filed correctly, but that it’s in your best interest to do so. 

Assessment Statute Expiration Date FAQs 

What’s the difference between ASED and CSED? 

The ASED deals with the time the IRS has to assess a tax. The CSED, or Collection Statute Expiration Date, places a time limit on how long the IRS can try to collect a tax. The CSED is usually 10 years from the date of the tax assessment.

To summarize, the ASED gives the IRS three years from the date of filing to assess a tax. The CSED gives the IRS 10 years from the date a tax was assessed to collect that tax.

Even if the IRS assesses a tax before the ASED expires, if they can’t collect that assessed tax before the CSED expires, then the taxpayer isn’t legally required to pay that tax. However, there are situations where the CSED can be extended, or the 10-year clock paused, such as requesting a form of tax settlement relief from the IRS, like an installment agreement or offer in compromise. 

Why is the ASED good for taxpayers? 

The ASED can help taxpayers because it prevents the IRS from trying to assess taxes that are too old. The ASED can also serve as a possible defense when the IRS tries to collect a tax debt that’s too old. 

Can the IRS assess a tax against me if I never file a tax return? 

If you don’t file a return, the assessment time clock never starts, and the IRS can file a return for you. Called a substitute for return (SFR), this is not the IRS trying to be nice, but instead decide how much money they think you owe. 

How Can a Tax Attorney Help Me With My ASED? 

It’s one thing to learn what the ASED is. It’s another to determine how you can take advantage of it when fighting the IRS. To make full use of what the ASED has to offer, as well as avoid missteps when utilizing the ASED, you should strongly consider contacting a tax professional, such as one from Damiens Law. 

We can help you determine your exact ASED and whether it can make a realistic difference in your tax case. If it turns out it can, we’ll help you decide the best strategy to use with the IRS, even if it means agreeing to the IRS’ request to extend the ASED. To get started, contact us online or call 601-957-9672.