§ 26-18-306 - Time limitations for assessments, collection, refunds, and prosecution.
26-18-306. Time limitations for assessments, collection, refunds, and prosecution.
(a) (1) Except as otherwise provided in this chapter, no assessment of any tax levied under the state tax law shall be made after the expiration of three (3) years from the date the return was required to be filed or the date the return was filed, whichever period expires later.
(2) The Director of the Department of Finance and Administration shall not begin court proceedings after the expiration of the three-year period unless there has been a previous assessment for the collection of the tax.
(b) (1) Notwithstanding the provisions of subsection (a) of this section, if the amount of taxable income or taxable estate for a taxpayer for any year, as returned to the United States Department of the Treasury, is changed and corrected by the Commissioner of Internal Revenue or any officer of the United States of competent authority, the taxpayer, within ninety (90) days from the receipt of the notice and demand for payment by the Internal Revenue Service, must report to the director the corrected federal tax, taxable income, or taxable estate for the taxable period covered by the change on an amended Arkansas income tax return.
(2) (A) If there is any additional state tax due from the taxpayer because of the correction by the Internal Revenue Service, any additional state tax resulting from the issues that are included in the correction must be assessed by the director within one (1) year of the filing of the amended Arkansas income tax return by the taxpayer.
(B) However, in the instance of a taxpayer who fails to notify the director of the correction as required by this subsection, no assessment of additional state tax due from the taxpayer because of the correction by the Internal Revenue Service shall be made by the director after the expiration of eight (8) years from the date the return was required to be filed or the date the return was filed, whichever period expires later.
(C) If the assessment made by the Internal Revenue Service is appealed by the taxpayer, the director shall have three (3) years from the date of the final Internal Revenue Service assessment or date of payment of the federal assessment by the taxpayer, whichever of the two (2) periods expires later, in which to make an assessment.
(3) (A) Notwithstanding the provisions of subsection (i) of this section, if the correction by the Internal Revenue Service results in an overpayment of state income tax for the taxable year for which the correction is made, the taxpayer may receive a refund of the overpaid income tax for that year resulting from the issues that are included in the correction upon the filing of the amended return within ninety (90) days from receipt of the notice from the Internal Revenue Service.
(B) A refund shall not be paid if the amended return is filed on or after the ninety-first day following receipt of the notice from the Internal Revenue Service unless the amended return is filed within three (3) years from the time the original return was filed or two (2) years from the time the income tax due on the original return was paid, whichever of the periods expires later.
(4) A change or correction to taxable income made by the Internal Revenue Service that results in additional state income tax due from the taxpayer does not entitle the director to issue an assessment unless fewer than three (3) years have elapsed from the date the original return for the year not included in the notice was required to be filed or the date the original return was filed, whichever of the periods expires later, for:
(A) A tax year that is not included in the notice of change or correction; or
(B) An issue that is not included in the notice of change or correction.
(5) A change or correction to taxable income made by the Internal Revenue Service that results in a refund to the taxpayer does not entitle the taxpayer to receive a refund unless fewer than three (3) years have elapsed from the date the original return for the tax year not included in the notice was filed or fewer than two (2) years have elapsed from the time that income tax due on the original return was paid, whichever of the periods expires later, for:
(A) A tax year that is not included within the notice of change or correction; or
(B) An issue that is not included in the notice of change or correction.
(c) Upon written agreement of the director and the taxpayer, the time within which the director may make a final assessment, as provided by 26-18-401, may be extended to a date mutually agreed upon in the written agreement.
(d) (1) When, before the expiration of the time prescribed for the assessment of the tax or of extensions of the time prescribed for the assessment of the tax consented to in writing, both the director and the taxpayer have consented in writing to an assessment after that time, then the tax may be assessed at any time prior to the expiration of the time agreed upon.
(2) When the time to file a claim for a refund has not expired at the time the extension agreement is entered into, the agreement shall automatically extend the period in which a refund may be allowed or a claim for a refund may be filed to the final date agreed to in the agreement, plus sixty (60) days.
(e) If a taxpayer understates a state tax due by an amount equal to or greater than twenty-five percent (25%) in any return or report or in the case of an income tax, if the taxpayer underreports net taxable income by twenty-five percent (25%) or more, the director may assess the tax due or begin an action in court for the collection of the tax due at any time prior to the expiration of six (6) years after the return was required to be filed or the date the return was filed, whichever period expires later.
(f) In the case of a fraudulent return or failure to file a report or return required under any state tax law, the director may compute, determine, and assess the estimated amount of tax due from any information in his or her possession or may begin an action in court for the collection of the tax without assessment, at any time.
(g) Whenever a taxpayer requests an extension of time for filing any return required by any state tax law, the limitation of time for assessing any tax shall be extended for a like period.
(h) When the assessment of any tax imposed by any state law has been made within the period of limitation properly applicable to the assessment, the tax may be collected by levy or proceeding in court, but only if the levy is made or the proceeding is begun within ten (10) years after the date of the assessment of the tax.
(i) (1) (A) An amended return or verified claim for credit or refund of an overpayment of any state tax shall be filed by the taxpayer within three (3) years from the time the return was filed or two (2) years from the time the tax was paid, whichever of the periods expires later.
(B) The provisions of subdivision (i)(1)(A) of this section shall not apply to a tax paid as a result of an audit or proposed assessment.
(2) Any taxpayer who fails to file a return, underreports his or her income by twenty-five percent (25%) or more, or fails to notify the director of any change or correction by the Internal Revenue Service in the taxpayer's taxable income shall not be entitled to file an amended return or verified claim for credit or refund after the expiration of three (3) years from the date the original return or notification of change was originally due.
(j) No person shall be prosecuted, tried, or punished for any of the various criminal offenses arising under the provisions of any state tax law unless the indictment of the person is instituted within six (6) years after the commission of the offense.
(k) (1) In the case of an individual, the running of the periods specified for filing an amended return or verified claim for credit or refund shall be suspended during any period of the individual's life in which the individual is financially disabled.
(2) (A) An individual is financially disabled if the individual is unable to manage his or her financial affairs by reason of a medically determinable physical or mental impairment of the individual which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve (12) months.
(B) An individual shall not be considered to have a physical or mental impairment unless proof of the existence of the impairment is furnished in a form and in a manner as the director may require.
(3) An individual shall not be treated as financially disabled during any period that the individual's spouse or any other person is authorized to act on behalf of the individual in financial matters.
(l) (1) The limitation periods in subsection (i) of this section to file a claim for credit or refund of an overpayment of state tax do not apply to a taxpayer who is a veteran if the:
(A) Overpayment of state tax claimed resulted from the:
(i) Reduction of uniformed service retired pay computed under 10 U.S.C. 1046 or 1047, as in effect on January 1, 2009; or
(ii) Waiver of retired pay under 38 U.S.C. 5305, as in effect on January 1, 2009; and
(B) Reduction of the uniformed service retired pay or waiver of retired pay provided in subdivision (l)(1)(A) of this section is the result of an award of compensation under a determination by the Secretary of Veterans Affairs that part or all of the payments to the taxpayer are payments made for a service-connected disability that are not included in gross income under 26 U.S.C. 104, as in effect on January 1, 2009.
(2) An amended return or verified claim for credit or refund of an overpayment of state tax described in subdivision (l)(1) of this section shall be filed by the taxpayer within one (1) year of the date of the determination described in subdivision (l)(1)(B) of this section or February 25, 2009, whichever occurs later.
(3) A credit or refund for an overpayment of state tax shall not be allowed under this subsection for any tax year which began before January 1, 2001.