I always feel nervous when I have to amend a client’s taxes. After all, that means that the ability of the IRS to audit their report continues. Normally, there is a 6 year deadline for audits. Except that time frame starts from the due date of the return or the time the taxes are filed- whichever is later. (Yes, that means just because you filed in January of this year for 2021 does not mean that the audit period lapses on 31 January 2028; nope- it’s still [for this year, which the altered due date] 18 April 2028.
If you file your taxes late (as way too many of you do), that six year time doesn’t start until the IRS gets the taxes. (I am really not sure- given the backlog the IRS has in mail bins right now- if we can prove when the 6 year time frame starts. Unless you do use our services, where we get copies of the postage (and zip codes) applied to the mail submissions, proving the date of filing.)
Yes, I know that some tax professionals say the deadline for audits is three years, but that rule is not set in stone.
But, it turns out that the 6 year deadline has lots of exceptions, too.
Like if you tried to (or forgot? Come on now!) omit 25% or more of your income. Or, if you overstated the cost basis on an item sold by more than 25%. Not to mention that $ 5000 or more of foreign income didn’t manage to find its way to your tax filing.
What about if some foreign fella or gal left you an inheritance or a gift? (That means you should have filed From 3520- or maybe even Form 8938 to detail those assets.)
Or, like so many people who come to us (after the IRS found them, of course) who have failed to file taxes since 1492. (OK, seriously, for the past few years or so. Remember- there was no IRS back in 1492.)
You see for most civil tax cases, the IRS has 6 years to scoop you up. But, for non-filed tax returns, criminal violations, or fraud- the IRS has… forever (almost).
Which brings up the question if you are you a part owner of a foreign entity? (Form 5471 was a required filing. This became a thing back in 2010 with FATCA- the Foreign Account Tax Compliance Act.) That means you also owe a penalty of $ 10K- if its not filed, filed late, incomplete, or inaccurate! (Don’t think just because you don’t owe any money on that form the penalty won’t apply.) Moreover, it means your tax return is officially open for audit forever! (That’s like sending in a tax return without a signature- the IRS considers that a non-filed return, too!)
That’s also true if you simply “forgot” about one of your foreign (offshore) accounts. Audits can come whenever. No 6 year limitation.
So, get your taxes in on time- and make sure they are complete. It’s to your benefit.
