Question: In general, how far can the IRS go back in time to audit your tax return?
Answer: Traditionally, the statute of limitations on taxes is three years but there are a number of exceptions that give the IRS more time. The statute of limitations is a fundamental rule which give taxpayers the potential ability to cut off their tax exposure.
- Three years is doubled to six when a taxpayer omits 25% or more of their income. What does it mean to omit income? Taxpayers have argued in court that omit is really to leave out. But Congress has said that omit can have a much broader interpretation so than simply leaving certain income off a tax return, for example, the IRS could go back and audit what a taxpayer reported as basis on the sale of a property.
- The IRS has no time limit if you do not file a tax return. If no return is ever filed and no audit initiated, from the IRS’ standpoint, the criminal penalties are usually limited to looking back six years.
- The IRS has unlimited ability to go back if there is an omission of particular tax forms. Additionally, if the IRS assesses a tax in the case of omission of a certain form, the ability to go back can be extended to as much as 30 years.
- When it comes to foreign sources of income, the IRS also gets five years to audit for omission of even very small amounts. Omission of foreign disclosure reports will carry civil and criminal penalties, similar to those for crimes of tax evasion.Comment: People often ask how long they should keep their tax returns. For tax records, the general rule is seven years but for the actual tax returns, you should keep the actual tax returns much longer (maybe even not destroy them at all).
As always, if you have any questions or would like to learn more, please contact Steve Shane at firstname.lastname@example.org or .
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Steve Shane provides strategic counseling to clients in need of estate administration, charitable giving and business continuity planning while minimizing estate, gift, and generation-skipping transfer tax exposure. He offers legal guidance to clients on asset protection and the proper disposition of assets in accordance with the client’s objectives, while employing tax planning techniques such as the use of irrevocable trusts, life insurance planning, lifetime gifts and charitable trust. He is also experienced with drafting documents for business planning, the incorporation and application for exemption for Private Foundations and the administration of decedents’ estates.
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