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Tax laws regarding doctrine of equitable tolling

old tax returnsAll tax filings, tax payments and government audits have limited time frames allowing for any changes to be made.  Collectively these are known as “Statute of Limitation” rules.  A common example would be the limitation for amending personal income tax returns once the return has been filed.  Both the IRS and the taxpayer have three years to amend the return after which no adjustments are allowed.  (However if there is a substantial understatement of income or fraud the IRS will have six years to make adjustments).

A related area of tax law that can be of significant benefit to taxpayers is a doctrine known as “equitable tolling”. This doctrine can allow taxpayers, in certain circumstances, to file a claim for a refund even though the limitations period has expired.  A recent appellate court case identified as; Volpicelli, CA-9, January 30, 2015, has clarified the logic and application of this doctrine.

The court case involved a wrongful levy by the IRS.  A taxpayer owed the government money for a tax liability.  In order to enforce collections the IRS levied, improperly, the savings account of the 10 year-old son of this taxpayer and took $13,000 from the son’s bank account.  The son discovered this levy when he was 18 and promptly filed for a refund of the erroneously seized money.  The government asserted that claim for refund was invalid as the statute of limitations had expired and no adjustments, including equitable tolling, was allowed.  The Court rejected this claim – a 10 year-old cannot defend himself against wrongful levies in a timely fashion.  Equitable tolling applied and the appellate court remanded the case back to a lower court.