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.
Chip
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 limitations.
If the IRS begins an audit just before the timeframe
what would be the advantage and/or disadvantages in you do in so or failing to do so?
"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."
Seth
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. §42-1104(B)(6).
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) (8).
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 adjustments.
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
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