IRS Statute of Limitations Vary
If you’re hiding on significant assets that aren’t reported to the government, or are hiding a nice amount of income from the feds, you might be up at night wondering how long you have to play hide and seek with your income and the IRS.
It’s a sure thing that if people are making additional income on the side, especially through cash payments, they probably don’t want to report it to the feds. The hope is that not doing so reduces the tax bill.
But the long arm of the tax man has time on its side. In fact, depending on the issue, the IRS may have several years to investigate and prosecute unscrupulous tax and financial activity.
For instance, the IRS typically has three years after you file a tax return to perform an audit. But that three years is doubled to six years if you omit a substantial portion of your income, which is usually more than 25 percent. It makes sense because taxpayers usually don’t accidentally omit that much income from their tax returns.
If a taxpayer is engaging in criminal tax evasion, the statute of limitations jumps to six years. According to the tax code, the six years starts after the taxpayer willfully takes an action to evade or defeat any tax or payment of a tax.
Under the law, the six year statute of limitations for tax evasion begins on the last act of evasion. In one court case, the court held that a taxpayer using special trusts to conceal assets several years after he didn’t file a return postponed the six-year period because the mere use of the trusts extended the period.
The bottom line is this: if you’re making moves to hide money, each new act of concealment postpones the six-year statute of limitations.
Another tricky thing about the IRS statute of limitations is that you may be approached by an IRS agent asking for you to grant time extending the statute.
Statutes of limitations can be extended with the taxpayer’s consent, so if you’re subject to an audit, you may be asked to sign a form extending it for a year. Whether you should sign the form should be the topic of a conversation between you and your tax attorney. Who knows? Maybe with some strategic advice you can limit the extension to six months, or narrow the scope of the IRS’s investigation.
One general legal rule is that there is no statute of limitations for fraud. This is true if the IRS is going after you for civil tax fraud.
But the thing about fraud cases is that they’re generally hard to prove, and if the IRS tries prosecuting you for a fraud conviction, they’ll have a pretty high burden of proof to meet that’s definitely no slam dunk.
If you’re in a tax situation that isn’t on the best legal footing, you may want to consult with a tax attorney to get everything in order. The IRS’s budget may be getting slashed by Congress, but their investigators and accountants are hard-charging agents that aim for arrests and convictions.
Check out our website to see how we can help if you think an IRS audit or investigation is on your horizon.