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Time limits for tax audits, collections aren’t always concrete

Many readers may have heard that they should keep paperwork from tax returns for three years. This rule of thumb is based on the idea that the Internal Revenue Service has three years to initiate a tax audit. Once this benchmark is reached, people might feel a sense of relief.

Unfortunately, the 3-year window of time might not be as set in stone as people would like. On this blog, the complexities of tax rules are often mentioned. This is another case where the intricacies of federal tax law can come back to haunt a person. Various IRS regulations may be invoked to extend the 3-year deadline.

Some of the most basic exceptions to the statute of limitations for audits can be invoked if a person has excluded more than 25 percent of income or more than $5,000 from their tax return. If the IRS believes that this is the case, the time limit for audits is extended to six years.

In addition to time limitations for audits, the IRS may also be able to reach beyond the 10-year deadline for collections. Although many people might believe that IRS collection efforts have a sunset period, Forbes reports that one tax case went to court and tax officials were able to go after tax penalties that were assessed three decades earlier.

Although the 3-year limit on audits and 10-year window for collections might apply in many cases, the important thing to remember is that there may be exceptions to the rule. It’s not surprising that tax officials leverage little-known rules to their advantage. More than anything, people should be vigilant and understand that the IRS may go to great lengths to go after potential tax debt.

Source: Forbes, “IRS Can Only Go Back 3 Years, Right? How About 10 Years Or Forever,” Robert W. Wood, May 9, 2014

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