As of January 1, 2021, Pennsylvania (H.B. 17) will use a 10-year look back period during which the Commonwealth can collect assessed taxes, except inheritance taxes. There are a number of cases, though, where no statute of limitations will apply, including:
- For taxpayer’s that collected or withheld trust fund taxes, as an agent of or in trust for the Commonwealth, but willfully failed, grossly neglected or effused to remit to the Commonwealth notwithstanding whether the taxpayer filed a return
- For a taxpayer filing a false and fraudulent tax return or report
- For a taxpayer willfully failing to file a tax return or report as required by law
- For a taxpayer attempting to evade or defeat a tax
- For a tax offense for which a taxpayer has been criminally charged and convicted in which tax liabilities remain unpaid
- For liabilities of eligible taxes unknown to the DOR that have not been extinguished prior to the beginning of the tax amnesty period
In the instance when there is a dispute, appeal, or other, the bill anticipates tolling the look back as per the events below:
- During a bankruptcy or proceeding during which the taxpayer’s assets are in the control or custody of an administrative body, court or duly appointed guardian, receiver or trustee
- The period during which a taxpayer’s offer-in-compromise is under consideration by the DOR
- The duration of an installment agreement or deferred payment plan between the taxpayer and the DOR
- The duration of a proceeding which constitutes a tax appeal or which opposes a collection action before an administrative tribunal or court of law or in which the taxpayer has filed a lawsuit or brought a cause of action against the DOR
- The duration of a taxpayer’s military service for which the taxpayer is eligible for and has received a Federal extension
- For a period of time as the taxpayer and the DOR agree, in writing, to extend the collection expiration date
The Takeaway
Pennsylvania’s changes in its mandate for statute of limitations may have an impact in other areas of tax and raises more questions.
- Will the refund statute be changed to match this timetable?
- How will the state modify the Voluntary Disclosure Agreement look back, now 3 years for sales tax and 6 for income taxes?
- Ten years is also well beyond the 7-year IRS documentation retention requirements. Will taxpayers need to extend their document retention practices from seven to ten years for Pennsylvania recordkeeping requirements?
- Are other states going to start enacting similar laws?
- And, why did Pennsylvania feel the need to legislate this mandate?
We’ll keep you posted on additional developments.
Let’s talk tax
Judy Vorndran can be reached at jvorndran@taxops.com.
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