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How far back in time can the IRS go to investigate tax evasion?

When it comes to tax evasion, the IRS cares about intent. This is why tax evasion, defined in Section 7201 of the Internal Revenue Code, requires the IRS to prove that a taxpayer purposefully underpaid or misrepresented his or her taxes.

Examples of tax evasion include failing to disclose all sources of income, intentionally overstating deductions, or failing to file a tax return. Although an innocent mistake probably wouldn’t qualify as tax evasion, it is important to consult with a tax attorney before making admissions or incriminating statements to the IRS, no matter how informal the conversation may seem.

A tax attorney can help protect your rights and best interests from the outset. For starters, the IRS is also subject to a statute of limitations. A tax evasion investigation typically starts with an IRS audit, and the default limitations period is three years after the taxpayer’s filing. However, there are important exceptions, such as the six-year limitations period for returns where a taxpayer omitted 25 percent or more of his or her income. Section 6531 of the I.R.C. provides additional exceptions, such as instances where a taxpayer willfully failed to file any tax return.

If the IRS seeks your consent for an extension to conduct an audit, should you agree? Our tax law firm recommends consulting with an attorney before making this decision. While it is true that the IRS has administrative authority and discretion to offer settlements, there are instances where the IRS may pursue criminal charges and use a taxpayer’s informal statements against him or her.

Source: FindLaw, “Tax Evasion,” copyright 2016, Thomson Reuters

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