Have You Been Under-Reporting Your Income to the IRS?
Are you the target of an audit for allegedly under-reporting income to the IRS? Professional help by an experienced tax attorney is a must in this type of situation. A little bit of understanding may also come in handy before you get sucked into the unraveling of your tax returns.
A recent Forbes article points out the value of knowing how far back the IRS can ask taxpayers who have been hiding or under-reporting income to prove income, expenses, bank deposits and more. Just be aware the normal three-year IRS statute of limitations does not apply. When it comes to tax evasion or fraud, as the article states, “the IRS can turbo-charge a case.”
Depending on how much of your income you failed to report, the IRS can put you through the wringer for a very long time. For instance, if you fail to report 25% of your income the IRS has a full six years to audit. Even that time frame almost always gets extended up to an extra full year. Though working with an expert tax attorney may help you be able to shorten the time of the extension.
Things get even more complicated if you consciously file a false return, under-report income or worse, willfully fail to file. You could even be facing potential criminal charges and prison time. The rules change in an equally dramatic way. As the Forbes article reported, “Section 6531(2) of the tax code says the statute is six years commencing once the return is filed, or from the time you willfully failed to file a return.”
With complicated tax issues it is often difficult to determine specifically when a tax crime is committed. And even more difficult to decide when the six-year clock begins to run. Let’s suppose a taxpayer is indicted within six years after willfully attempting to evade taxes. That does not necessarily mean they are out of the woods in terms of further audits or investigation. This happens frequently if the taxpayer is outside the U.S. or becomes a fugitive. The clock just stops running and will start again once the case becomes active again.
Trusts are often used to hide income making a complex issue more complicated. In an example cited by Forbes, United States v. Irby, “Mr. Irby used nominee trusts to conceal his assets many years after he failed to file.” According to the article, “He may have thought he only had to worry for six years, but his use of nominee accounts postponed when his six years commenced. That meant he could still be indicted, prosecuted and convicted.”
Often people think that the statute of limitations never runs on fraud. That’s true. The IRS can come after you any time for civil tax fraud. But since the IRS bears a higher burden of proof in fraud cases they don’t want to go back too far.
Sometimes innocent activities can appear suspect to the IRS, which can trigger an audit. So, whether you’ve been under-reporting income for years, or the IRS is taking a closer look at you for the first time, timing is very important in tax cases. So, seek the counsel of an exceptional tax attorney because it’s one of the most uncomfortable positions to worry about being caught trying to cheat the IRS. And remember, you always have the protection of attorney client privilege.