One of the issues taxpayers need to be aware of when coming under a tax audit is that tax authorities at both the state and the federal level don’t have an unlimited amount of time with which to pursue unpaid taxes. There is a time limit for tax authorities to act, known as the statute of limitations. The statute of limitations is different under federal law than it is under state law.
Here in Georgia, the Department of Revenue ordinarily has three years after to asses assess additional tax. If, however, a taxpayer files a claim for a refund within six months of the closing of the three year period, the Department of Revenue has another six months to assess additional tax liabilities, based on the day the refund claim is filed.
The statute of limitation is different in cases where the taxpayer has been more than negligent in paying taxes. In cases where the taxpayer failed to pay over 25 percent of the gross income on his or her return, the Georgia Department of Revenue has not three years to assess additional tax, but six years. If the taxpayer failed to pay taxes based on fraud, there is no limitation for assessing additional tax.
This means that the Georgia Department of Revenue will typically has to initiate an audit within three years of the tax filing, unless the taxpayer failed to pay over one-quarter of his or her gross income or committed tax fraud.
The time limitations for an audit at the federal level are slightly different. We’ll look at the rules in our next post.