Winning IRS Litigation with Help from Statute of Limitations

Taxpayers often fear the IRS for its power to send notification letters of audit or examination of a taxpayer’s returns. The IRS inquiry is often dreaded by companies and individual taxpayers because the examination can result in the assessment of higher taxes, the imposition of penalties, or worse, criminal referral for fraud. But the power to audit tax returns has a time limit known as a statute of limitations, generally for a period of 3 years.

When the statute of limitations applicable to a specific tax period has expired, the IRS can no longer examine your records for potential inaccuracies or errors in tax returns filed in previous years. The typical time limit for the IRS is 3 years, but in certain cases, the statute of limitations may be extended or may not begin to run.

Longer Statute of Limitations 

The IRS may have more than three years to audit your tax returns in any of the following cases:

  • If there is a failure to report more than 25% of your income
  • If you never filed a return
  • If you omit to file certain tax forms
  • If you fail to report foreign income amounting to more than $5,000 

In many of the mentioned cases, the statute of limitations may be 6 years. And if the IRS discovers that you have unfiled tax returns, you may be exposed to criminal indictment. 

While waiting for the statute of limitations to expire, it’s absolutely important to keep good records of all your tax returns. A key rule of thumb is to retain tax and financial records for up to 7 years but for property records and documents relating to property improvements and home remodeling, the advice is to keep them indefinitely.   Property records may be used as basis for tax returns when selling property later.

Paying Attention to IRS Notices 

When receiving a notice from the IRS informing you of IRS audit or intent to levy, it’s important to act immediately by speaking to an experienced IRS lawyer.  Your tax attorney can examine the notice, check for the remaining period of the applicable statute of limitations, and promptly send a response or dispute any assessment made on the IRS notice.

If you’re a taxpayer who needs IRS tax advice in Tyler or in the East Texas area, the Scammahorn Law Firm has 16 years of tax litigation experience, helping troubled clients manage their IRS issues through remedies such as offers-in-compromise and installment agreements. 

You are invited to call us for a confidential consultation at (903) 595-1000.