With most tax returns, the statute of limitations is three years. This means that the IRS has three years to challenge a tax return after you file it. Now, there are exceptions to the rule. Forbes explains that if there is no substantial understatement of income, then the IRS has to let it go after three years. A substantial understatement may be about 25% of your taxable income on the return.
In the case that there was a substantial understatement, there is about six years for the IRS to file a claim. When thinking about the statute of limitations, it is important that you know the difference between civil and criminal tax fraud. With criminal tax fraud, there is six years since the last conduct to file a claim. This means six years after the taxpayer filed a fraudulent return. If this is a civil matter, however, then the six-year time limit does not apply. Instead, the IRS has an unlimited amount of time to prosecute.
The IRS can pursue three situations indefinitely. These situations include:
- Failure to file a tax return
- Filed a false tax return
- Evaded paying taxes
The civil division pursues these situations. The government does not have to meet as high of a standard in civil matters. While it is not normal for the IRS to question income, estate tax returns or gifts after three years, it can happen. This is particularly true if there is reasonable fraud committed and there is a large recovery for the U.S Treasury.
The above information is meant to inform on tax fraud. It is not intended as legal advice.