There are certain statutes in place that determine how far back in time the IRS can go in order to review your tax returns. In all cases, it is in your best interest to file your tax returns as early as possible, as the clock does not start “ticking” until you’ve done so.
Following is a summary of the statutes. But for information regarding your specific situation, please contact E. Daniel Miller, CPA, PC at (888)734-3933 or [email protected].
Generally 3 Years
In general, the IRS cannot go back further than 3 years to audit your tax return and assess additional amounts due. This 3-year period begins on your original tax return due date or the date you file your tax return, whichever is later. So the statute start date is April 15th or the date you actually file if after April 15th (regardless of extension). Likewise, a taxpayer is limited to the same amount of time if they want to amend their tax return.
If You’ve Understated Income 6 Years
If you exclude from your gross income an amount that is 25% greater than the gross income stated on your tax return, the normal 3-year statute of limitation increases to 6 years.
But if the understatement of income is comprised of (or includes) foreign financial assets, that amount only needs to be greater than $5,000 to increase the 3-year statute of limitation to 6 years.
In the Case of Fraud No Limit
In this case there is no statute at all; the IRS is able to go back as far as they like.
So How Long Does the IRS Have to Collect Taxes Due?
In general, the IRS has 10 years in which to collect the tax. They are willing (and in some cases required) to accept an installment agreement. But if arrangements are not made, they have authority to garnish your wages by notifying your employer (if your employer doesn’t comply, they may become responsible for the tax themselves) or even to “sack” your bank account (although this sounds harsh, they do have the right, and it does happen often).
Solutions
If you’ve received a notice from the IRS–whether of additional tax due, changes to your tax return, or that your tax return is being audited–then please contact us for advice and strategy. E. Daniel Miller, CPA, PC offers a free consultation and can be reached at (888) 734-3933 or [email protected].
Other topics that might interest you:
Do I Need to File a Tax Return?
What’s My Tax Bracket?
Am I Taxed on Home Sale Gain?
Image courtesy of Stuart Miles at FreeDigitalPhoto.net