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  • Daniel Rodriguez

If I Face an IRS Audit in California, for How Many Years Can I Be Held Responsible?

For many Americans, filing taxes is both a matter of duty and a function of fearing the consequences of what will happen should he or she fail to file. The fact of the matter is that most Americans have a duty to file taxes because the income threshold that triggers a filing obligation is rather modest. In any case, for the people who are unsure if they have an obligation to file taxes, it is probably better to take the conservative approach and file taxes. For one, the only way a taxpayer can obtain their tax refund is by filing taxes. The second reason as to why there would be an obligation to filing taxes is if a problem with the taxes occurs. But, we will discuss this in more detail later.

If you have concerns regarding a tax filing obligation, an experienced Roseville tax attorney of the NewPoint Law Group, LLP, LLP can provide clarity and insights regarding your tax obligations. If you are concerned about an tax audit, we can provide a risk assessment. Furthermore, if you have already been contacted by the IRS we can handle the audit process from start to finish. To discuss your tax return preparation concerns confidentially, call 800-358-0305 or contact us online.

The Failure to File Can Allow the IRS to Audit Your Taxes at Any Time

Taxpayers who fail to file taxes not only lose the right to their tax returns, but since the statute of limitations is based on when the tax return is filed, they also do not trigger the start of the limitations period. This means that the IRS can technically examine a tax year where the individual has failed to file at any time.  And, if individuals do not correct the “failure to file” within three years of the original filing deadline, they will permanently lose the rights to receive the refund to which they are otherwise entitled.

Other Reasons That Can Give Rise to an Open-Ended Audit Period

Other reasons that can create an statute of limitations period which does not expire, and allows the IRS to examine the return at any time, is when the taxpayer files a false or fraudulent return. A false or fraudulent return is a tax return that the taxpayer files when he or she knows that the information therein is untrue or inaccurate. Other actions that can trigger a tax return audit could be when taxpayers willfully–meaning intentionally or voluntarily disregarding a known legal duty–conceal income or assets to reduce their tax obligations. Taxpayers who have utilized offshore tax shelters or abusive tax structures are likely to face an unlimited audit period.

Otherwise, the General Rule Is a Three Year or Six Year Look Back Period

Section 6501 — Limitations on assessment and collection state that “the amount of any tax imposed by this title shall be assessed within 3 years after the return was filed.” Thus, in most cases the IRS has three years from the filing date to audit or examine your tax return. However, filing amended taxes can toll the statute and provide the IRS with additional time to audit. If they are free of errors, mistakes, or intentional action by the taxpayer, three years of records is all the taxpayer should have to provide for an examination.

Certain mistakes by the taxpayer can still trigger a longer potential audit period. For instance, a taxpayer who makes mistakes resulting in a significant understatement of income on his or her taxes is subject to a six-year audit period. The terminology used in Section 6501 is a “substantial omission.” A substantial understatement can include the failure to include an amount of income that is greater than 25% of the amount reported on the tax return. A substantial omission can also include any unreported amount greater than $5,000 or the failure to report certain types of income. Likewise, the failure to report certain types of income can also double the limitations period that the IRS has to initiate an audit or collections proceeding.

Contact a Sacramento Tax Attorney that Can Help If You Are Facing a Tax Audit

If you are facing or fearing an IRS tax audit, the experienced California sales tax audit defense lawyers of the NewPoint Law Group, LLP can advocate on your behalf. We can work to present your taxes to the IRS and minimize any consequences you may face. To schedule a confidential consultation, call us at 800-358-0305 or contact us online.

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