Federal Statute of Limitations
How long can the IRS audit your tax returns? Let's discuss IRS statute of limitations so you can clean your garage for 2010.
• The general federal 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 income.
• A tax return that is filed earlier than April 15 is considered filed on that deadline. A 2009 return filed on February 15, 2010 is considered filed on April 15, 2010. The statute to audit you expires April 15, 2013.
• A 2009 tax return that was extended and filed on October 15, 2010 is considered filed on that date with statute expiring on October 15, 2013. (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 snoop around.)
• There is no protection from the statute if the IRS does not receive 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 you have difficult tax issues).
• 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 problem
In summary, you may dispose by April 2010 (or a later filing date), supporting documents from the oldest through 2005. Keep records for 2006, 2007, 2008 and 2009. If you failed to report 25% of your gross income, keep 2005 and 2004 records. This concludes our Statute of Limitations Course 101. Good day!