Statute of Limitations 101
How long do you need to keep tax records?
How long can the IRS audit your tax
returns? How long can the IRS collect
unpaid taxes? Let's discuss IRS statute of limitations so you can
clean your garage
- The general statute to audit you is three
years after the return is filed.
- The statute is extended to six years if you omit 25% of your gross
- The statue to collect
what has been established to be your tax liability is 10 years.
- A tax return that is filed earlier than
April 15 is considered filed on that deadline. A 2010 return filed
on February 15, 2011 is considered filed on April 15, 2011 with a
statute expiration of April 15, 2014.
- A 2010 tax return that was extended and
filed on October 15, 2011 is considered filed on that date with
statute expiring on October 15, 2014. (TIP
If you have some sensitive issues that you don't want disturbed,
file on time so as not to give the IRS an extra six months to
- There is no
protection from the statute if the IRS does not receive/span> your tax return.
There is no protection even if you
filed a return but the IRS did not receive (or claims not to have
received) your return! (TIP: Mail
certified with return receipt especially if your return contains
some critical income or deductions).
- There is no
statute if you do not file a return.
They can audit you anytime.
- There is no statute for false or fraudulent returns. Nada.
- If you want statutes to protect you but your records are
incomplete, file anyway. TIP File a signed
processible return. Provide sufficient data for IRS to assess your
liability. That return does not need to be perfect. Show an honest
attempt to comply with the law.
- If the IRS identifies you as a non-filer, they can file a substitute return for you. Believe me, that
return will be estimated on the high side; pardon me, on the very
high side, resulting on a very high tax of about 200% of what you
actually owe. Add penalties and interests and, Houston, you have a
- Filing a gift tax return is advisable even if not required.
It starts the running of the statute of limitations.
- An estate or decendent's estate
may also request for a prompt assessment within 18 months.
- The executor of an estate can request for discharge
from personal liability within nine months after the request is filed.
It does not shorten the three-year statute but relieves the executor of personal liability.
- Here's another tip so we don't end our discussion with an unlucky 13.
What if you are under examination and the agent wants you to extend the statute?
Should you extent or not? Well, if you do, you are just giving the IRS more time to get you. If you don't they will
bypass appeals and go straight to Tax Court with a notice of deficiency. Goint to Tax Court could get very expensive.
TIP: Extend and go to Appeals. You will be asked to sign either Form 872 or Form 872-A.
Go with Form 872 that expires at a specific future date. Avoid 872-A which is open-ended meaning it has no expiration period.
In summary, by 4/17/13:
- Keep records for 2008, 2009, 2010, 2011, 2012 (4th year is for California).
- Dispose records for 2007 and prior years.
- But keep an additional 2 years for 2006 and 2007 if you omitted 25% of you income.
This concludes our Statute of Limitations 101. Good Day!