Have you ever wondered how long you should keep tax return documents, just in case the IRS decides to audit it? Even if you do your best with your taxes, taxes are horribly complex. It is good to know laws that set time limits on IRS audits.
Under the Internal Revenue Code, Section 6501 provides the statute of limitations on IRS audit. It varies depending upon the circumstances of the tax return. Generally, IRS will not go back more than 3 years unless there is something very wrong with the tax return that was filed.
The statute of limitations starts on the original due date of the tax return. If the tax return was filed prior to the due date it doesn’t matter, the statute of limitations starts on April 15th of the year that the tax return was due. It’s important to note that filing a tax return on extension has the downside of also extending the time your return is subject to an audit. So, if you filed your 2013 tax return on April 15, 2014then the IRS would have time until April 15, 2017, to audit it. However, if you had requested an automatic extension and filed tax return on Oct 15, 2014 then the IRS still has time until Oct. 15, 2017, to audit your return and assess any additional tax and penalties due.
Below are the three different time frames and descriptions of when each applies for the IRS to audit your tax return.
3 Year Period: This is the standard amount of time that the IRS has to legally audit most tax returns. This is the time period that applies if you do not fall into any of the two categories listed below.
6 Year Period: If the income on the tax return was understated income by 25% or more the statute of limitations to audit the return can be extended by another 3 years. It is really worth noting that the IRS doesn’t consider any amount as omitted from gross income if you disclose it in the tax return, or in a statement attached to it, and you do it in a manner that’s adequate for the IRS to appraise the nature and amount of the item. So, in case you used an estimated cost basis to reduce the capital gains income on the sale of property. However, you disclosed this and the possible lower cost basis on a written statement, the IRS would have only three years to audit that tax return.
Unlimited Time Period: If the tax return was filed with the purpose to commit fraud then the statute of limitations may be prolonged to all the time. There may be a great line between fraud and negligence and this best applies to tax fraud. The IRS ought to show fraud in those forms of cases and generally will most effective do that if a variety of money is concerned or it is an excessive profile tax case.
IRS Audit Group attorneys are extremely passionate about helping people, and at IAG we are dedicated to resolving your IRS tax issues. Our tax attorneys take pride in being accessible, efficient, and responsive.