The Three Year Rule is the equivalent of a statute of limitations on the right of the IRS to make a tax assessment. The rule gives the IRS up to 3 years to assess a tax from the date the return is filed or from the due date of the return, whichever is later. There are some exceptions to the rule. The first exception occurs when the taxpayer agrees to extend the period of assessment beyond the 3 years. A second exception comes into play when a taxpayer underreports gross income by more than 25%. In that case the statute of limitations is extended to a six year rule. The third exception is called the fraud exception. When the IRS determines a tax return was filed fraudulently by the taxpayer to evade taxes, the three year rule is not applied. There are also occurrences that can lead to a suspension of the three year rule such as filing a bankruptcy petition.