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What Is the IRS Statute of Limitations?

IRS Audit Defense, Tax Consultation

“Three years.”

That’s what everyone says is the cut-off for hanging on to all the receipts and loan documents and retirement income forms you might need if you were ever audited by the IRS.

Unfortunately, America’s favorite federal agency has written into its regulations so many exceptions, caveats, and conditional extensions that there’s no single answer on when the IRS might revisit your tax situation.

The reality is that the statute of limitations for when the IRS can come back and claim you owe back taxes depends on a multitude of factors.

  • Unreported Income: While the three-year timeframe is still active in many cases, the government can assess taxes going back six years from the filing date if they believe (and have some evidence that) you failed to report 25% or more of your income (or gifts).
  • Unspecified Extensions: It’s not uncommon for the IRS to ask that you concede to another year’s extension. Depending on your situation (the amount owed, the reason for the audit or late assessment, etc.) the government can reasonably request extensions for years. This isn’t necessary, and with a professional in your corner, you can easily cut this back.
  • Fraudulent Claims: In the event of a fraudulent tax return, the IRS has no statute of limitations. It can audit and assess taxes at any point in the future. And amending a fraudulent claim doesn’t start the clock for the government. This policy applies to fraudulent claims made by tax preparers, as well. The IRS may investigate for fraud, according to its website, if there are indications of “deceit, concealment or to make things seem other than what they are,” according to the IRS, including “substantial unexplained increases in net worth, substantial excess of personal expenditures over available resources, and bank deposits from unexplained sources substantially exceeding reported income.”
  • Penalties: Penalties are the enforcement arm of the IRS’ polite request that you “voluntarily” report your income and pay taxes. The most common penalties are for late filings and unpaid taxes.
    • 5%: According to the IRS, “The penalty for filing late is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. That penalty starts accruing the day after the tax filing due date and will not exceed 25 percent of your unpaid taxes.”
    • 1/2 of 1%: You can also face a penalty of one half of one percent of your unpaid taxes, if you don’t pay by the deadline.
    • $135 or 100%: “If you file your return more than 60 days after the due date or extended due date,” according to the IRS, “the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax” (emphasis added).

Obviously, the best-case scenario is to file and pay on time and in full. We know as well as anyone that life doesn’t always offer best-case scenarios as options. That’s where we come in. Whether the IRS is claiming you didn’t report your full income, they’re alleging a fraudulent claim, or you’re just behind on taxes, we aren’t the judge and jury. We’re reminded daily, with every client that calls us for help, that taxes are complex, mistakes are common, and life sometimes takes precedence over paperwork.

The act of reaching out to settle your debt says everything we need to know about your intentions, and we’ll do everything we can to save you time, stress, and your hard-earned money.

Contact us today to learn how our team of tax attorneys can help you understand your options, negotiate better ones, and resolve your tax burden once and for all.