Statute of Limitations for Assessments

• The Department of Taxation has three years to assess income taxes and must collect taxes within three years. However, if the department discovers a substantially omitted item, such as under-reported earnings, the department has an additional three years to assess income taxes. Under Hawaii tax law, income or any other item listed on individual state returns is considered substantial if the unreported or under-reported amount is more than 25 percent of the amount listed on individual returns. Furthermore, the department is not required to comply with the limitations periods in certain circumstances.
  
  

Exceptions to Limitations Deadlines

• There is no statute of limitations for collections when taxpayers fraudulently file their income tax returns or fail to file income tax returns. In other words, the department can assess taxes against taxpayers who filed fraudulent tax returns for an unlimited time. The department will assess penalties for late filing and interest from the date the taxes were originally due.
  
  However, under Hawaii law, taxpayers have legal rights to request waivers of penalties and interest, and the department must waive them if taxpayers can prove they had justifiable reasons for failing to file returns. "Good cause" reasons for failing to file tax returns include circumstances beyond a taxpayer's control.
  
  

Statute of Limitations for Appeals

• The Department of Taxation mails a "Proposed Notice of Assessment" to taxpayers who may owe income taxes to the state. Taxpayers have 30 days to challenge a notice by filing written appeals from the date of mailing. After 30 days, the department mails a "Final Notice of Assessment." Taxpayers have legal rights to file written appeals to final assessment letters within 30 days from mailing. Taxpayers must send their written appeals to the board of review, and they have 30 more days to file written appeals to board decisions.
  
  

Statute of Limitations for Refunds

• Taxpayers have three years to claim their refunds from the time their returns were filed, three years from the date taxes were originally due or two years from the date taxes were paid, whichever is later. Since Hawaii grants automatic six-month extensions to taxpayers who obtain federal extensions, the three-year limitations period begins from the time taxes were originally due. However, taxpayers who failed to pay their taxes when originally due will have to pay interest and penalties.
  
  

Considerations

• Since tax laws can frequently change, do not use this information as a substitute for legal advice. Seek advice through an attorney licensed to practice law in your state.