Soled & Book: Transformative Technology And Shortening The Statute Of Limitations Applicable To Taxpayers

Jay A. Soled (Rutgers; Google Scholar) & Leslie Book (Villanova; Google Scholar), Transformative Technology and Shortening the Statute of Limitations Applicable to Taxpayers, 60 U. Rich. L. Rev. ___ (2025):

When it comes to submitting tax returns and paying taxes, most taxpayers understand the nature of their civic duties and do so dutifully, if not willingly. However, many taxpayers fail to grasp why Congress provides the IRS with such an elongated time period—namely, three years—to audit their tax returns and propose additional taxes. Indeed, when the IRS exercises its oversight authority by auditing taxpayers' returns, records may no longer be available, and memories may be dulled.

The time the IRS takes to assess additional tax reflects a balancing of interests: Too short a time to assess additional tax may embolden tax cheating and undermine confidence in our tax system; too long a time to assess additional tax imposes taxpayer and third-party administrative burdens.

Technology has transformed tax administration since Congress instituted the three-year tax assessment limitations period nearly a century ago. Indeed, over 90 percent of income tax returns are currently electronically submitted. The IRS can and is readily employing Artificial Intelligence (AI) and other detection modes to identify those tax returns requiring an audit. As a secondary guardrail, Congress has also given additional time to the IRS to assess tax in situations when the IRS is less equipped to detect underreporting of income, such as when taxpayers engage in fraud, fail to report overseas income, or engage in complex tax shelter investments.

To date, academic scholarship relating to tax administration has not focused on reforming the general time period for the IRS to audit taxpayers. Yet, given technological advancements that have transformed tax administration and the statutory exceptions that allow for additional time for the IRS to assess tax, the current general statute of limitations on assessment fails to reflect a proper balancing of interests. As such, we propose that Congress should shorten the general statute of limitations period to two years. This reform would incentivize the IRS to act expeditiously in audit practices and grant faster closure to taxpayers. Moreover, such reform would augment overall confidence in the tax system without jeopardizing the IRS’s ability to detect the most serious and egregious forms of tax underreporting.

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