Under the new law, the statute of limitations is extended to six years if there is an omission of gross income in excess of $5,000 and the omitted gross income is attributable to a foreign financial asset.
Taxes are generally required to be assessed within three years after a Taxpayer’s return was filed, whether or not it was timely filed. A special rule extends the three year limitation period in the case where there is a substantial omission of income.
If a Taxpayer omits substantial income on a return, any tax with respect to that return may be assessed and collected within six years of the date on which the return was filed.
In the case of income taxes, there is a substantial omission of income if the Taxpayer omits from gross income an amount that was properly includible in gross income and that is in excess of 25% of the amount stated on the return.
The state of limitations period will be suspended if the Taxpayer failed to timely provide information with respect to foreign financial assets required to be reported. The limitation period will not begin to run until the information required has been furnished to the IRS.
The new six-year statute of limitations applies not only to returns filed after March 18, 2010 on which the Taxpayer fails to report income in excess of $5,000 attributable to foreign financial assets, but also to returns filed on or before the date for which the statute of limitations is still open on March 18, 2010 (Act §513(d) of the HIRE Act [PL 111-147]).
For example, a 2006 tax return (filed in 2007), on which the Taxpayer failed to report more than $5,000 of income attributable to a foreign financial asset and which is otherwise subject to the three-year limitations period, will be subject to the new six-year statute of limitations.