Miscellaneous Statutes of Limitations On Deficiency Assessments and Claims for Refund/Credit
This is the final article on Statutes of Limitation (SOLs) relating to California tax law. This month's article addresses miscellaneous SOLs for deficiency assessments and for claims for refund or credit.
- Six-year SOL for assessment if taxpayer omits 25 percent of gross income.
If a taxpayer omits 25 percent of the gross income that should properly be reported on the return, we may issue a proposed assessment within six years of the date the return was filed. (R&TC Section 19058)
- Eight-year SOL for assessment for an "Abusive Tax Avoidance Transaction."
We may issue a proposed assessment within eight years after the return was filed if the assessment is related to any plan or arrangement whose principal purpose is tax avoidance. This includes both listed and non-listed transactions. (R&TC Section 19755)
- SOLs relating to pass-through entities.
The SOL to issue a deficiency assessment relating to pass-through income from a partnership, a limited liability company, and an S corporation is determined by the SOL for proposing an assessment to the ultimate recipient of the income, for example, by the SOL for the partner, member, and shareholder, respectively. However, the SOL to assess the 1.5 percent tax on an S corporation is determined by the SOL for that S corporation.
- Deficiency assessments in cases of fraud or failure to file return.
The SOL on deficiency assessments does not begin to run until a valid return is filed. We may issue a proposed deficiency assessment at any time if a taxpayer has not filed a return or has filed a false or fraudulent return intending to evade tax. (R&TC Section 19087)
- Deficiency SOL not applicable to the LLC fee.
The SOL applicable to deficiency assessments only applies to deficiency amounts. We may assess the LLC fee (based on gross income) at any time because the fee is not a tax.
- Refund based on Other State Tax Credit.
A taxpayer may file a claim for refund or credit based on payment of taxes to another state within a year of the date the taxpayer pays the tax to the other state. This SOL applies to taxes paid to another state beginning January 1, 2009. (R&TC Section 19311.5)