Colorado’s Department of Revenue must comply with the state’s income tax statute of limitations laws. Generally, the Department of Revenue bases its limitations periods on the federal limitations periods but adds one year to the federal limitations periods. Thus, the limitations period for each tax assessment against a Colorado taxpayer depends on the taxpayer’s federal filing.
Tax Assessments and Refunds
The Department of Revenue must assess income tax delinquencies within four years from when taxpayers file their state tax returns. Colorado’s statutory deadline is based on the federal limitations period of three years to assess delinquencies, plus one year. The Department of Revenue can assess taxes against taxpayers who file their state income taxes earlier than the state deadline. For early filers, their statute of limitations period begins to run on the original due date, not the date they filed their early returns.
Extensions of Time
Taxpayers who obtain a federal income tax extension of time to file also receive a Colorado extension if they pay their state liabilities by the original deadline. The statute of limitations period for taxpayers who obtain federal or state extensions is four years from the date of filing. For instance, taxpayers who obtain extensions of time to file their taxes for the 2010 tax year will have six months to file their state and federal tax returns. The Department of Revenue may assess delinquencies against these taxpayers for four years from October 2011.
IRS Federal Waiver and State Waivers
Taxpayers who waive the statute of limitations for federal tax purposes also waive their tax limitations period for their Colorado taxes. Colorado’s statute of limitations period is extended by the same period of the IRS federal waiver. Under Colorado law, taxpayers may waive their state tax limitations periods by entering into a written agreement with the Department of Revenue. However, taxpayers are deemed to have waived their limitations periods by one additional year from their federal limitations periods when they fail to file amended state tax returns based on their federal amendments.
Late-Payment Statutes
Since the IRS can extend its statute of limitations beyond the normal three-year period against taxpayers who do not timely pay their taxes, Colorado also extends the limitations period against late filers. The federal statute of limitations for taxpayers who pay their tax liabilities after the original filing date is two years from the late payment date. Colorado’s statute of limitations is three years. Taxpayers are limited to this time period to collect refunds.
Fraudulent Tax Returns and No Returns Filed
Similar to the federal Internal Revenue Code’s regulations, there is no statute of limitations for the Department of Revenue to collect taxes when taxpayers fail to file their returns or intentionally file fraudulent tax returns to avoid their tax liabilities.
Considerations
Since tax laws can frequently change, do not use this information as a substitute for legal or tax advice. Seek advice through a certified accountant or tax attorney licensed to practice law in your jurisdiction.
