New Tax Audit Rules

Tax Audits

IRS now has six years to “Audit Your Taxes”, up from three years.

I recommend you keep your old tax records for at least seven years and keep any cost basis tax information like stocks, real estate and capital assets for even longer.

The statute of limitations on taxes is a fundamental rule allowing taxpayers to eventually cut off their exposure for audits as well as any past tax liabilities (tax debt).

The time periods can be even longer than six years in some cases. The IRS has no time limit if you never file a return.

IRS can audit forever if you omit certain tax forms. Plus, once an assessment is made, the IRS collection statute is typically 10 years. In some cases, the IRS can go back 30 years.

It is always a great idea to keep detailed records of major financial transactions such as home improvements or any transaction that may change your cost basis.

If you are planning to escape back taxes due to the statute of limitations which is ten years, remember the 10 years do not start counting until you have filed your tax return for years in question and those tax years have been assessed which could take an extra month or two after you file.

It is amazing to me; how many individuals keep poor tax records or make guesses as to amounts on their tax returns.

If you live in a state that has “state income taxes”, you need to be aware of the state’s rules concerning audits and statute of limitations.

As with most other technical tax issues, consult with a tax professional if you are uncertain about your specific situation.

If you have a complex tax situation, I recommend a tax professional that is an Enrolled Agent who came represent you before the Internal Revenue service along with Tax Attorneys and CPAs.