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You can fight this if they are in error. The first step is to determine if they are correct. To do so you will need to contact them by mail (registered return receipt) and request proof of their assertion. You can also inquire in your letter concerning "are there any other open items". Having this you will need to decide if it is worth fighting - the cost may simply outweigh the potential benefits. If they cannot prove their claim you can file a protest and request a hearing to determine if you are entitled to your money back. Up to this point you can represent yourself. If you decide to go to court rather than a hearing you will need an attorney. Then the matter becomes a losing battle. And, yes what they are doing is legal. Many states are now searching their records for any "open" items they can collect to help offset their budget problems.
Where would I find the laws regarding the above? From your answer, the 3 years applies to an audit - is this correct? However, they could try to collect from any year - is this correct? Does this imply that one should keep tax records forever now? Sounds like the deck is slanted in favor of the State. As I said, I have never done any tax law.
Just let me know the last points when you can as I work during the day.
3 years for an audit
7 years for audit if fraud suspected
No limit on time for collections
Here is the link to the Ohio Tax Department's web site. It will take a great deal oh hunting. This is just not knowledge they promote.
You should, at least keep the returns themselves for 10 years although most of us do not do that (me included). The real problem is that the states are all stretching the issue in their quest for money.