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 Secretary 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 subsection (a) of this section, if the amount of taxable income or taxable estate for a taxpayer for a year, as returned to the United States Department of the Treasury, is changed and corrected by the Commissioner of Internal Revenue or an officer of the United States of competent authority, the taxpayer, within one hundred eighty (180) days from the receipt of the notice and demand for payment by the Internal Revenue Service, shall report to the Secretary of the Department of Finance and Administration 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 an additional state tax due from the taxpayer because of the correction by the Internal Revenue Service, the additional state tax resulting from the issues that are included in the correction shall be assessed by the Secretary of the Department of Finance and Administration within one (1) year from the filing of the amended Arkansas income tax return by the taxpayer. (B) However, if a taxpayer fails to notify the Secretary of the Department of Finance and Administration 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 Secretary of the Department of Finance and Administration after the expiration of three (3) years from the date the amended return was required to be filed. (C) If the taxpayer appeals the assessment made by the Internal Revenue Service, the Secretary of the Department of Finance and Administration has 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 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 one hundred eighty (180) 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 one hundred eighty-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 Secretary of the Department of Finance and Administration 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 Secretary of the Department of Finance and Administration and the taxpayer, the time within which the Secretary of the Department of Finance and Administration 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 Secretary of the Department of Finance and Administration 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 Secretary of the Department of Finance and Administration 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 Secretary of the Department of Finance and Administration 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)(1) Except as otherwise provided in this chapter, 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. (2) A bankruptcy filing by a taxpayer tolls the ten-year collection period stated in subdivision (h)(1) of this section until one hundred eighty (180) days after the termination of the taxpayer's bankruptcy case. (i)(1)(A) An amended return 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 limitations periods stated in subdivision (i)(1)(A) of this section apply regardless of whether the amended return would reduce a taxpayer's tax liability, entitle the taxpayer to a refund of an overpayment of a state tax, amend the taxpayer's filing status, or amend the taxpayer's return for any other purpose. (C) Subdivision (i)(1)(A) of this section does not apply: (i) To a tax paid as a result of an audit or proposed assessment; or (ii)(a) If the amount of taxable income or taxable estate for a taxpayer for a year, as returned to the United States Department of the Treasury, is changed and corrected by the Commissioner of Internal Revenue or an officer of the United States Government of competent authority. (b) Subsection (b) of this section applies in circumstances described in subdivision (i)(1)(C)(ii)(a) of this section. (D)(i) If a taxpayer is subject to an audit, then the taxpayer may file an amended return or verified claim for credit or refund of an overpayment of a state tax that occurred at any time during the time period for which the audit is performed. (ii) However, the total refund of overpayments for the extended audit period shall not be more than the total amount assessed for the extended audit period. (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 Secretary of the Department of Finance and Administration 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 Secretary of the Department of Finance and Administration 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. § 1406 or 10 U.S.C. § 1407, 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 United States 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. (m)(1) Except in the case of deficiencies that are determined to be due to fraud, if the Secretary of the Department of Finance and Administration assesses a tax or begins an action in court for the collection of a tax under subsection (e) or subsection (f) of this section for a time period in excess of the time periods provided in subsection (a) of this section, the taxpayer may file a verified claim for a credit or refund of an overpayment of state tax for the additional time period open for assessment by the Secretary of the Department of Finance and Administration at any time before the time of collection of the assessment. (2) However, the taxpayer shall not receive a credit or refund of any amount in excess of the assessment under this subsection. (3) The taxpayer's ability to file a verified claim under this subsection is in addition to and not in limitation of the other provisions for filing claims in this section. (n)(1) Except as provided in subdivision (n)(2) of this section, an assessment to recover an erroneously paid refund shall not be made after the expiration of three (3) years from the date of the refund warrant. (2) However, an assessment may be made at any time to recover an erroneously paid refund that was paid as a result of fraud or misrepresentation by the taxpayer.