Tax Records & the Statute of Limitations

Recently, we discussed a little thing called record retention (you can read about it here), otherwise known as when to keep it and when to throw it away. Today, we’re talking about the statute of limitations in regards to your taxes. No, they’re not the same thing.

The statute of limitations does not refer to the amount of time you hang on to your tax records. Rather, the statute of limitations refers to the length of time you and your pals at the IRS can make changes to your tax return. In other words, this is the length of time when the IRS can assess additional tax, or you can claim a refund.

There’s no one set rule related to the statute of limitations and the IRS (shocking, we know). Rather, it depends on a few things:

Did you file a return?

The following assumes you did (if you didn’t, we have a bigger problem). In general, the statute of limitations for the IRS is three years from the due date of the return or the date of filing (whichever is later). We say in general because there are a whole bunch of “ifs” related to this. Here are just a few.

If you had a substantial omission (more than 25 percent) of your gross income on your tax return, the IRS extends the statute of limitations. How long? Six years from the time the IRS makes its assessment.

If the IRS files suit against the taxpayer to collect previously assessed taxes, the statute of limitations is generally 10 years. In other words, once the IRS issues an assessment, the IRS has 10 years to pursue legal action and collect on tax debt. They do this through a variety of mechanisms, including garnishing your wages.

If you paid late or failed to pay the full amount of your taxes, you can incur interest fees and additional penalties. These vary, obviously, based on the severity of the situation. We will say this, though: missed filings or errors in filing can actually be considered a crime with criminal ramifications. So it’s best to get your taxes paid on time and in full.

Be aware that other tax authorities (a.k.a. state and local governments) set their own statutes of limitations.

Did you attempt to file a fraudulent return? Or not file a tax return at all (intentionally)?

Then congratulations, there’s no statute of limitations. No, this doesn’t mean the IRS can never audit you. Rather, what it means there is no deadline for the IRS if it can establish that you, the taxpayer, have: 1) filed a false or fraudulent return; 2) willfully attempted to evade tax; or 3) failed to file a return.

In other words, if you have intentionally not filed taxes, or filed them fraudulently, the IRS always has the option to come after you. Further, they raise the interest and penalties related to these transactions. And we really shouldn’t have to say this, but we will. Tax evasion and tax fraud are CRIMES. So if you mess up, it’s best to come forward voluntarily and work with the IRS to establish a payment plan and resolve the issue.


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