January 8, 2017

Denver Tax Attorney   How Far Back Can the IRS Claim on Tax Evasion or Fraud?Even though you may be a law-abiding taxpayer, innocent mistakes can be easily interpreted as suspect. If you are a business owner, an aggressive tax planning strategy may be considered illegal without you knowing it. It therefore pays to be able to differentiate tax evasion and fraud, as well as to know the statute of limitations the IRS follows when it comes to dealing with such crimes.

Although frequently used interchangeably, the terms tax evasion and fraud are very different from one another. Tax evasion can be defined as a willful and systematic effort to avoid paying taxes to the government. It is basically using illegal methods to avoid paying taxes. This may refer to misdemeanors such as failing to file a tax return, or felonies like refusing to pay taxes after they are assessed. Tax fraud, on the other hand, refers to falsifying tax documents and blatantly lying on a tax return, which is deemed a felony.

The statute of limitations of a crime refers to the amount of time a plaintiff or prosecutor has to file charges. While taxpayers may hope that their tax problems will disappear with time, banking on the statute of limitations is a rather risky move.

Typically, the Internal Revenue Service’s statute of limitations to conduct a tax audit is three years from the date of filing. If, however, an examination of your tax return shows you omitted more than 25% of your income, then the IRS has twice the time—or a six-year lookback window to file charges. Note that this statute of limitations can be extended for numerous reasons.

If, for example, you become a fugitive or are not currently in the U.S., then the statute of limitations may stop running until you either return home or are found. In some instances, the six-year period may only begin from your last act of tax fraud or evasion, classifying your series of fraudulent of tax returns as one charge.

It is often said that the IRS statute of limitations never runs out when it comes to tax fraud.

To an extent, this is true. While the IRS has limits as to how far back it can look when filing charges against you in criminal court, no statute of limitations exists for civil tax fraud. When suing for civil fraud, the IRS is authorized to look back as far as it wants or needs. Of course, the IRS seldom goes back over six years as it already bears a high burden of proof in cases of fraud.

Timing is particularly important in tax cases. After all, no one wants to be lying low day after day and constantly worrying about being caught. Thankfully, these issues can still be resolved in less expensive and less distressing ways. If you have any concerns about your situation, it would be best to consult with a knowledgeable and experienced tax attorney.

Categories: IRS, Tax Fraud