How long do you have to keep tax records? How long can the IRS audit your tax returns?
Let’s discuss 10 tips on statute of limitations so you can clean your garage this weekend.
Statute of limitations provides final dates after which neither you nor the IRS can be disturbed by the other.
• From an IRS perspective, the agency can no longer audit your tax return or collect what you owe.
• From your perspective, you can no longer claim a refund for overpaid tax.
1. The general statute to audit you is three years after a return is filed.
2. The statute is extended to six years if you omit 25% of your gross income.
3. A tax return that is filed before April 15 is considered filed on April 15.
4. A tax return that is extended and filed after April 15 has its statute also extended to date of actual filing.
• For example, a return that’s filed October 15 extends its statute to October 15 as well.
• TIP: If you have sensitive issues that you don’t want disturbed, file on time so the IRS does not get an extra six months to snoop around.
5. There is no protection from the statute if the IRS does not receive your tax return.
• This is true even if you filed a return that the IRS did not receive (or claims not to have received)!
• TIP: Mail certified with return receipt especially if there are critical items in your return.
6. There is no statute if you do not file a return. They can audit you anytime. Forever.
7. There is no statute for false or fraudulent returns. Nada.
8. 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.
9. 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 of the scale.
• The result can be painful. It could go up to 200% of what you actually owe.
• Add penalties and interests and, Houston, you have a problem.
10. If you are under audit, the agent may ask you to sign either Form 872 or Form 872-A.
• Sign Form 872 that expires at a specific future date.
• Do not sign Form 872-A which is open-ended, meaning it has no expiration period.
Update at 4/15/15:
• Keep records for 2011, 2012, 2013, 2014 (OK to dispose records for prior years).
• But keep an additional 2 years if you may have omitted 25% of your income.
• Keep an extra year for California.
This concludes our Statute of Limitations Course 101. Good day!
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Sy Al-os Accountancy Corporation provides accounting and tax services to individuals, corporations, LLCs and business entities. The Firm has a niche in defending taxpayers audited by the IRS and other governmental agencies. The firm celebrates its 38th anniversary in 2015.
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Victor Santos Sy graduated Cum Laude from UE with a BBA and from Indiana State University with an MBA. Vic worked with SyCip, Gorres, Velayo (SGV – Andersen Consulting) and Ernst & Young before establishing Sy Accountancy Corporation in 704 Mira Monte Place, Pasadena, CA 91101. He has 50 years of experience in accounting, consulting, and tax work.
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The Firm proudly welcomes Arlene Al-os in 2015. She obtained her bachelors of Science in Accountancy from Mindanao State University and MBA from Ateneo de Manila University. She teaches intermediate accounting at UCLA and was a professor of Economics at Asia Pacific College. She has over 15 years of experience including member firms of KPMG and BDO Seidman accounting firms.
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Our readers may call (626) 744-0200 or email tax questions to [email protected]. Please visit our website for about 300 tax tips at www.victorsycpa.com.
