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Tax fraud and timelines: How far back will the IRS look?

Worried about accusations of tax fraud from the Internal Revenue Service (IRS)? The term “statute of limitations” may come to mind. Does the IRS have to play by the same rules as other government agencies? Is there a time limit when it comes to looking back at tax obligations?

Like many things in the legal world, the answer is — maybe. Before we delve into the timeline the IRS has to follow, let’s cover a few basic questions:

  1. What does the IRS consider fraudulent activity? There are a variety of forms of fraud the IRS could investigate. Some of the more common examples include a deliberate failure to report income, overstatement of deductions, personal expenses claimed as business costs and hiding or transferring assets in an attempt to avoid tax obligations.
  2. How often does the IRS investigate alleged fraudulent activity? The IRS reports that it conducted 1,177 investigations in 2016. Of these investigations, 863 resulted in enough evidence to support moving forward with prosecution. 771 were sentenced, translating to a 76 percent incarceration rate of an average three-year prison sentence.

Back to our original question — how long do you have to worry about becoming another number in those statistics? It depends on the details of the allegations. Generally, the IRS can look back three years.

There are factors that can extend this lookback period. The IRS can look back six years if the agency can establish the taxpayer emitted 25 percent of gross income. The IRS can potentially look back an indefinite period of time if it can establish the taxpayer filed fraudulent returns with the intent of evading tax obligations.

Due to the serious nature of such allegations, anyone that is under investigation by the IRS is wise to seek legal counsel. One of the attorneys at Goldburd McCone could review the allegations and provide guidance on the best course of action to protect your legal rights.

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