IRS Bound by Time in Claiming Tax Evasion or Fraud

Last updated on October 14, 2022

There is a thin line between saving taxes and tax evasion. If the IRS discovers anything that is not consistent with the tax laws, it will make inquiries. It is hard to deal with the IRS in cases of tax fraud and tax evasion because it is often difficult to prove that the error was due to negligence or misinformation.

Knowing how much time the IRS has in claiming tax evasion or fraud helps in handling accusations of tax fraud or evasion. Forbes states the rules:

“Start with the basic rule that the IRS usually has three years after you file to audit you. If you omit more than 25% of your income, the IRS gets double that time, six years. But statutes are often extended, sometimes voluntarily.

“Frequently, the IRS says it needs more time to audit and asks you to sign a form extending the statute, usually for a year. Most tax advisers generally advise clients to agree.” Forbes goes on to advise taxpayers to get advice from a tax professional before signing an extension request. It is possible to limit the time or scope of the extension.

For people who file a false return or purposefully the fail to file the rules are different. “The rules for how long you must worry–and the stakes–go up materially, including potential criminal charges and prison. Section 6531(2) of the tax code says the statute is six years commencing once the return is filed, or from the time you willfully failed to file a return.

“In a case of alleged criminal tax evasion, that means the statute hasn’t run if the taxpayer is indicted within six years after ‘willfully attempting in any manner to evade or defeat any tax or the payment thereof.’ In some cases, though, the statute is ‘tolled’–so stops running. For example, the statute stops running if the target is outside the U.S. or is a fugitive.”

The six-year deadline can extend depending on the particulars of a case. It is best to seek legal advice to resolve any case of tax fraud or evasion before the IRS notices it. Waiting for the statute of limitations to expire is never a desirable choice. Forbes shares important information on statute of limitations:

“Finally, you often hear people say that the statute of limitations never runs on fraud. For civil tax fraud, that’s true. The IRS can come after you any time. But it’s still rare for the IRS to go back too far. Problems of proof are too great, and the IRS bears a high burden of proof in fraud cases, even civil fraud.”

Correctly preparing taxes and filing them on time is the best practice. Using professional help never hurts if complicated tax problems need to be resolved. Most times, keeping it simple helps save much.