Tax evasion is a matter that’s taken seriously by the Internal Revenue Service (IRS) because it’s a criminal action that involves someone willingly avoiding paying the income taxes that they owe. Tax evasion is typically uncovered during an investigation or audit of a person’s or company’s tax situation.
In most cases, the IRS has a time limit for auditing tax returns that lasts three years. During that period, they can review or investigate any tax activity. That time frame can be extended to six years if a person has understated their income by more than 25%. There are also other exceptions to these time limits.
Exceptions to the rule
If a case involves suspected tax evasion, the IRS isn’t bound by any statute of limitations. This means they can go back as far as necessary to investigate the matter. Fraudulent activity, such as claiming false deductions or purposely underreporting income provides the IRS with a reason to review an entity’s tax returns as far back as deemed necessary.
Because of the unlimited statute of limitations, some people may wonder how long they need to keep applicable records. The key here is that individuals and companies that file accurate and honest returns only need to keep records for seven years, which is one year beyond that six-year period. Some people recommend keeping tax returns for a decade.
If there’s any chance that errors were made on tax returns, it may behoove a person to maintain their records even longer. This provides them with a bit of surety just in case the IRS sees something amiss and invokes that virtually unlimited statute of limitations.
Anyone who is notified that they’re being audited by the IRS should quickly learn their rights and responsibilities. This may help them to understand exactly what they should do and how to handle the situation. Having a legal representative to turn to at this point is also a good idea. That representative can help an individual to explore their options and determine how to move forward.