AZ just sent me a bill for $158 (w/ Late File penalty and interest-
$240), for the Tax year 2004. No explanation or accounting. I thought
that after 3 years they can't bill me or is that just the US IRS.
It will be a PITA to dig back that far to try to figure this out. I
need advice before I spend any time on this.
AZ, like many other states, gives you 4 years to file an amended state
income tax return. So I guess this means they have 4 years to audit
you. But I couldn't find any info on the AZ statute of limitations.
As for federal, they have 3 years to assess tax. But if you
understated your gross income by 25% or more, then they have 6 years
to assess you. If your return was fraudulent, there is no
limitation. If the IRS begins an audit just before the timeframe
ends, they might ask you to sign a letter to extend the statute of
In article ,
"Sign, and we'll keep investigating and negotiating for another two
years. Don't sign, and we'll disallow everything under discussion,
and you can pay the taxes and take us to court."
The Arizona statute of limitations for issuance of deficiency
assessments is 4 years from the later of the date the return was
required to be filed, or the date it was filed. Ariz. Rev. Stat.
Ann. §42-1104(A). If you filed a timely return for 2004, the statute
expired four years after the original or extended due date of the
return -- i.e. April 15, 2009 if no extension was filed; October 15,
2009 if extended. If your return was filed late, the statute is open
until 4 years after the date you filed it. If you did not file a 2004
Arizona return, the state can issue an assessment at any time.
The statute is extended to 6 years if 25% or more of Arizona gross
income is not reported. Ariz. Rev. Stat. Ann. §42-1104(B)(2). If
there was fraud, or no return was filed, there is no limitation. Ariz.
Rev. Stat. Ann. §42-1104(B)(1).
If there has been a federal audit resulting in a tax change, the
taxpayer is required to notify the Arizona Department of Revenue
within 90 days after the final federal determination. If the taxpayer
does so, the state has six months from the date of the notification to
issue an assessment. If the taxpayer fails to notify the Department
of a federal change, the Department has 4 years from the date of the
IRS determination to issue an assessment. Ariz. Rev. Stat. Ann.
The statute can be extended by a written waiver signed by the taxpayer
before the expiration of the applicable statute. Ariz. Rev. Stat.
Ann. §42-1104(B)(9). If the taxpayer signed a federal statute
waiver, the Arizona statute is extended to six months after the
expiration of the federal waiver. Ariz. Rev. Stat. Ann. §42-1104(B)
When the Department issues a deficiency assessment or denies a claim
for refund, it is statutorily required to provide the taxpayer with a
written explanation of all adjustments, including citation of specific
statutory, regulatory or judicial authority to support each
adjustment. Ariz. Rev. Stat. Ann. §42-2076.
If what you received was just a bill and not a notice of a proposed
assessment, you may not have received the original notice, perhaps
because you have moved since the return was filed or for some other
reason. As a result it has gone final and has now gone into
collections. Your first step should be to contact the Department to
obtain a copy of the original assessment and an explanation of the
Katie in San Diego
If a taxpayer who is under audit declines to sign a statute waiver,
the auditor may issue a proposed assessment based on incomplete
information. In that situation, the auditor will generally use a
"shotgun" approach, setting up every potential issue on the return, to
avoid missing anything. The proposed assessment will be issued and
the taxpayer will be forced to file a protest or appeal to prevent its
going final and into collections. The result is generally to perform
the audit, in effect, at the protest or appeal level. This is not
always a bad thing. Occasionally it can work to the taxpayer's
advantage. However, usually it is easier for both the state and the
taxpayer to complete the audit at the audit level.
P.S. I spent 7 years as a state income tax auditor.
Katie in San Diego