42-1104. Statute of limitation; exceptions

A. For the taxes to which this article applies, every notice of every additional tax due shall be prepared on forms prescribed by the department and mailed within four years after the report or return is required to be filed or within four years after the report or return is filed, whichever period expires later. For the purposes of this section, the requirement that the notice be mailed shall include methods allowed in lieu of mail under section 42-1108 or 42-1109.

B. The following are exceptions to the general rules prescribed by this section, and a deficiency assessment may be issued in any of the following cases:

1. The department may assess the tax or begin a proceeding in court for collecting the tax at any time:

(a) In the case of a false or fraudulent return with the intent to evade tax.

(b) In the case of failure to file a return for any tax administered under this title other than income tax and withholding tax.

(c) In the case of failure to file an income tax or withholding tax return if it is shown that the failure was due to an intent to evade tax.

2. If a taxpayer omits from gross income, gross receipts, gross proceeds of sales or Arizona adjusted gross income, as defined for purposes of chapter 5 of this title or title 43, an amount that is properly includible and that exceeds twenty-five percent of the amount of gross income stated in the return, the tax may be assessed at any time within six years after the return was filed.

3. If a taxpayer during a taxable year sells at a gain property used as the taxpayer's principal residence, the statutory period for assessing any deficiency attributable to any part of the gain does not expire before the expiration of four years after the date the taxpayer notifies the United States internal revenue service pursuant to the United States internal revenue code.

4. If a claim for credit or refund relates to an overpayment on account of the deductibility of a debt as one that became worthless, a loss from worthlessness of a security, an erroneous inclusion of an amount attributable to the recovery of a bad debt, prior tax or delinquency amount due to an adjustment of a bad debt deduction or a loss deduction from worthlessness of a security, the period of limitation is seven years after the date prescribed by law for filing the return for the year with respect to which the claim is made.

5. If a taxpayer fails to report a change or correction by the commissioner of internal revenue or other officer of the United States or other competent authority or fails to file an amended return as required by section 43-327, the department may assess any deficiency resulting from such adjustments within four years after the change, correction or amended return is reported to or filed with the United States internal revenue service regardless of any previous examinations by the department.

6. If a taxpayer is required to report a change or correction by the commissioner of internal revenue or other officer of the United States or other competent authority or to file an amended return as required by section 43-327 and does report the change or files the return, any deficiency resulting from the adjustments may be assessed within six months after the date the notice of amended return is filed with the department by the taxpayer, or within the period provided in subsection A of this section or paragraph 1 or 2 of this subsection, whichever period expires last.

7. Except as provided in paragraph 8 of this subsection, if a taxpayer agrees with the United States commissioner of internal revenue for an extension or renewals of the period for proposing and assessing deficiencies in federal income taxes for any year, the period for mailing a notice of a proposed income tax deficiency is four years after the return was filed or six months after the date of the expiration of the agreed period for assessing deficiencies in the federal income tax, whichever period expires later.

8. If a taxpayer agrees with the United States commissioner of internal revenue for a limited extension or renewals of the period for proposing and assessing deficiencies in federal income taxes for any year, then, solely with respect to those items specifically enumerated in this agreement, the period for mailing a notice of a proposed income tax deficiency, or claiming a refund, is four years after the return was filed or six months after the date of the expiration of the agreed period for assessing deficiencies in the federal income tax, whichever period expires later.

9. If, before the time prescribed for mailing a notice of a proposed deficiency assessment expires, the taxpayer consents in writing to an assessment after that time, the assessment may be made at any time before the period agreed on expires. The period agreed on may be extended by subsequent written agreements made before the period previously agreed on expires.

10. If a taxpayer fails to file a report or return for income tax or withholding tax, the department may assess the tax within seven years after the date the report or return was required to be filed.

C. Notwithstanding subsection A of this section and subsection B, paragraphs 1 and 2 of this section, a taxpayer who has a duty to collect use tax shall not be assessed tax pursuant to chapter 5, article 4 of this title for any retail sales to purchasers who were licensed pursuant to section 42-5005 or registered pursuant to section 42-5154 and who filed use tax returns for the reporting period in which the sale was made, if the reporting period in which the sale was made is more than four years from the notice of proposed deficiency. If, before this time limitation expires, the taxpayer consents in writing to an assessment after that time for the transactions, a subsequent assessment may include any transaction within the agreed extended period. The period agreed to may be extended by subsequent written agreements made before the period previously agreed to expires.