Federal Rule

• The Internal Revenue Service (IRS) has three years in which to make an assessment on a federal tax return, the process of reviewing the return and determining that more is owed than the return states. A taxpayer who wishes to file an amended federal tax return must do so within three years of the original tax filing deadline. Filing an amended return does not extend the three-year statute of limitations. In addition, filing an amended tax return will not automatically stop any collection efforts that the IRS has initiated. You will need to get a signed agreement from the IRS to stop collection efforts while your amended return is being reviewed.
  
  

State Rule

• Statutes of limitation for state tax returns vary by state. For example, in California the statute of limitations for making state assessments is four years from the date of filing. However, if the IRS adjusts your tax return, no statute of limitations bars California from assessing additional taxes that you owe.
  
  

Exceptions

• If you file an amended return close to the expiration of the three-year statute of limitations, the IRS has 60 days from the date it receives your return to make an assessment. In addition, if you committed fraud or your amended tax return reveals that you understated your gross income by 25 percent or more, the statute of limitations is increased to six years.
  
  

Significance

• If the IRS determines that you owe taxes and you later discover that you made a mistake on your tax return or you failed to claim certain deductions and credits, failing to file an amended tax return within the time allowed means you will be stuck with paying the higher taxes as well as penalties and interest.