Monday, October 26, 2015

Thought for the Day #89

If you allow people

to make more withdrawals

than deposits in your life,

You will be out of balance

And in the Negative

Know when

to close the Account!


Monday, October 5, 2015

IRS Audit..How Far Back Can They Go?

This is an all to familiar question... How far back can the IRS audit me? or how long should I keep my tax returns after they've been files?

As unnerving as an audit may be, you can take comfort in the laws that set time limits on IRS audits. Under the Internal Revenue Code, Section 6501 provides a three-year statute of limitations on tax audits. It's important to know that filing a tax return on extension has the downside of also extending the time your return is subject to an audit. For example, if you filed your 2011 tax return on April 15, 2012, the IRS had until April 15, 2015, to audit it. However, if you had requested an automatic extension and filed Oct. 15, 2012, the IRS still has until Oct. 15, 2015, to audit your return and assess any additional tax and penalties due. Section 6501 also sets forth a second statute of limitations. The three-year limit is doubled to six years if the IRS finds that a taxpayer omits from gross income an amount that exceeds 25 percent of the stated gross income. In that case, the IRS could audit your 2011 as late as 2017. Under reported income can happen for a variety of legitimate reasons; overestimating your cost basis for calculating the gain on the sale of property or securities held for a long time is very common. It's worth noting that the IRS doesn't consider any amount as omitted from gross income if you disclose it in the tax return, or in a statement attached to it, and you do it in a manner that's adequate for the IRS to apprise the nature and amount of the item. If you used an estimated cost basis to reduce the capital gains income on the sale of property, but you disclosed this and the possible lower cost basis on a written statement, the IRS would have only three years to audit that tax return. 

Lastly, know about the third statute of limitations: The IRS has no time limit when an audit pertains to assessment of tax if a return is false or fraudulent, reflects a willful attempt to evade taxation or when no tax return at all is filed.