How Far Back Can the Taxman Reach If You’ve Been Hiding Income?
Some people who have been hiding income take great comfort in thinking there is a specific end date to the long reach of the IRS. However, taxes are extremely complex so there are many things to take into consideration.
The usual risk for an audit runs from three to six years. However, even if you didn’t get overly aggressive or consciously decide to hide income, sometimes very innocent activities can appear suspect to the IRS, which can trigger an audit.
The average taxpayer knows that the basic rule of thumb is that the IRS has three years after taxes have been filed to initiate an audit. Things get a little more complicated depending on how much income was omitted. Suspicion of tax evasion or fraud can turbo-charge an IRS audit.
Say you failed to report 25% of your income. In this instance, the IRS gets a full six years or twice the usual amount of time to audit. The IRS may even extend that time frame often saying it needs more time. And consider this: If the IRS suspects that a taxpayer has failed to report income over the course of many years, the statute of limitations begins with the last filed tax return. That means they can reach back to all the previous returns even six years after the last return was filed. So the IRS has what could appear as an endlessly long reach extending out for decades in some cases.
No matter what your circumstances are with the IRS, professional advice can expedite the entire process and very often may be able to limit the time of any extension. And one of the comforting things about seeking professional advice is attorney client privilege.