The IRS Statute of Limitations and Its Exceptions

The IRS Statute of Limitations and Its Exceptions

Even the most honest taxpayer shares this nightmare: what if I made a mistake on my return?

Perhaps my advisor misinterpreted an arcane regulation or missed a rules change. Maybe my accountant got too creative… There must be a limit to our worries, though. Just how long does an old tax remain a potential threat?

As set by legislation, the statute of limitations on tax returns filed with the IRS is three years. Not surprisingly, there are exceptions that do nothing to foster sound sleep. The IRS has six years to discover if you underestimated your income in order to avoid tax. That seems straightforward enough, but there are further complications that can do worse than make restless your slumber.

If the IRS identifies what it believes is tax fraud on returns more than six years old, you can still wind up before the judge if the conduct is determined to be ongoing. Under a federal court ruling, the statute of limitations has been clarified as pertaining to the last alleged case of tax evasion – events that occurred prior to this are still actionable in court, if they are part of a demonstrably consistent set of actions. In other words, serial tax evaders cannot escape punishment via application of the statute of limitations.

Crucially, the statute of limitations applies only to criminal tax cases: for civil tax matters, there is no limitation. If you file a false return, don’t file at all, or take illegal steps to evade taxes, the authorities can come after you, anytime, for as long as time shall extend. Death may be worrisome, but we’ll wager that more sleep is lost over the other unavoidable thing.

For more information, please read:
How Long Can Your Tax Returns Haunt You? | Wealth Management


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