Think the IRS can only look-back 3 years? 2 times you are wrong.

If there are questions about your tax returns, the Internal Revenue Service (IRS) can generally look back three years — but there are some exceptions that allow the agency to look back even longer. Two of the most common reasons for an extended look-back period: omission of income and a failure to file returns.

Omission of income and federal tax audits

In certain cases, the IRS can extend this look-back period to six years if the agency claims the taxpayer failed to report 25 percent of his or her income.

Unfortunately, the type of “income omission” that can warrant the extension is not clearly defined. There is discrepancy about what it means to omit income on one’s tax returns. A recent piece in Forbes discussed the debate in detail, ultimately noting the issue is debated by the Supreme Court and Congress. As a result, it is a good idea to be aware of the fact the IRS could look back through a taxpayer’s income for six years.

Failure to file tax returns can lead to an extended look-back period

A failure to file returns can extend the agency’s look-back period indefinitely. This is also true if the agency is able to establish a filed return was fraudulent or that the taxpayer willfully attempted to evade his or her tax obligations.

The years the IRS can review taxes is just one concern to address during a federal tax audit. Due to the complexity of this process, it is wise to seek legal counsel.

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