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Author: fleg9bo Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121436  
Subject: Statute of limitations Date: 3/30/2012 5:55 PM
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It is my understanding that the IRS will not question your return once three years have gone by since the date of filing, unless there is evidence of fraud or some other malfeasance.

So if you're going to hear from the IRS, is there some part of those three years when it's more likely? During the second year after filing? Or could it happen just about any time up to three years minus a day?

--fleg
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Author: Wradical Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 115747 of 121436
Subject: Re: Statute of limitations Date: 3/30/2012 6:27 PM
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It is my understanding that the IRS will not question your return once three years have gone by since the date of filing, unless there is evidence of fraud or some other malfeasance.

So if you're going to hear from the IRS, is there some part of those three years when it's more likely? During the second year after filing? Or could it happen just about any time up to three years minus a day?

--fleg

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Second year after filing would be prime time. Depends what kind of checking they're doing, though.

They used to generally send out notices about 1099 matching about 15-18 months after the due date of the return. Last fall they were a little faster on that; they actually did matching notices on 2010 in Nov.-Dec. of 2011.

For an audit, it's about the same; about 12-18 months after filing would be the prime time to be contacted about an audit.

It would be later if you get an adjustment notice about a partnership or an S-Corp in which you were involved, because that would be after they complete the audit of the business, which might take several months to a year.

And most of the states use a 4-yr. statute, which gives them an extra year to follow up on a federal audit adjustment.

Bill

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Author: AngelMay Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 115748 of 121436
Subject: Re: Statute of limitations Date: 3/30/2012 6:34 PM
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So......
How many years' worth of tax returns and all the data that go with them do I have to keep? When is it safe to chuck all the backup data and just keep the copy of the returns for my records?

AM

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Author: Wradical Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 115749 of 121436
Subject: Re: Statute of limitations Date: 3/30/2012 6:37 PM
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It is my understanding that the IRS will not question your return once three years have gone by since the date of filing, unless there is evidence of fraud or some other malfeasance.
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Just to clarify - that's mostly true.

In the case of an understatement of gross income of 25% or more, the statute goes to 6 years, up from 3. That doesn't necessarily mean outright fraud involved, though they may go for an accuracy-related penalty.

If a return is fraudulent, and they can prove it, the statute of limitations is gone, and they have forever to audit and adjust that year. There is still a statute of limitations for criminal prosecution, however. And since the statute of limitations (usually) runs on April 15, they often indict a lot of people just before April 15. That's partly the deadline they have to meet, and also good PR to scare people.


Bill

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Author: Wradical Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 115750 of 121436
Subject: Re: Statute of limitations Date: 3/30/2012 6:40 PM
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So......
How many years' worth of tax returns and all the data that go with them do I have to keep? When is it safe to chuck all the backup data and just keep the copy of the returns for my records?

AM

==========================
6 years should generally do it for the backup data.

Bill

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 115752 of 121436
Subject: Re: Statute of limitations Date: 3/30/2012 6:56 PM
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During the second year after filing? Or could it happen just about any time up to three years minus a day?

My understanding is that the audit must be complete before the 3 year deadline (unless fraud or other specific extension) or the taxpayer isn't liable. Notice for a routine audit a day before or during the third is unlikely, because of the risk that after spending significant time in the audit that it might not complete before the 3 year deadline.

The state audit I have just been through with my father's income tax, covered a specific type of income. They requested information for the past three years. It was a fishing expedition for tax exemption interest claimed on out of state bonds. Since it was basically a fishing expedition, they had nothing to lose by asking for multiple years.

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 115755 of 121436
Subject: Re: Statute of limitations Date: 3/30/2012 7:53 PM
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My understanding is that the audit must be complete before the 3 year deadline (unless fraud or other specific extension) or the taxpayer isn't liable. Notice for a routine audit a day before or during the third is unlikely, because of the risk that after spending significant time in the audit that it might not complete before the 3 year deadline.

You've got the right idea. But in practice it works a bit differently.

If there is some risk that the audit will take longer than the statute of limitations, the auditor will generally ask the taxpayer to agree to an extension of the statute.

You are free to refuse to extend the statute, but the auditor will then generally complete their audit immediately, disallowing all deductions under audit. That put the taxpayer in the position of having to go to tax court to make their case.

It's usually a good idea to agree to the extension of the statute. I sometimes wait and make them ask a second time for the statute extension. Just making sure they're doing their job, you know. ;-)

--Peter

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Author: JeanDavid Big funky green star, 20000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 115760 of 121436
Subject: Re: Statute of limitations Date: 3/31/2012 11:36 AM
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It is my understanding that the IRS will not question your return once three years have gone by since the date of filing, unless there is evidence of fraud or some other malfeasance.

This three-year limit does not reassure me at all. I still keep all my records 7 years. Because, while I have never attempted to defraud anyone, much less 350 million of my fellow-citizens, who knows what some examiner might think? 6.5 years after I file a return, he suspects fraud, and opens a proceeding against me. My defense that I thought I committed no fraud, and destroyed my older records will not help me refer to them in preparing my audit, my defense, etc. Or so it seems to me.

I still wish I could UPS all my records over three years old to the IRS and they could store them instead of making me do it.

---
Suffering from a bulging file cabinet since 1938.

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Author: culcha Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 115767 of 121436
Subject: Re: Statute of limitations Date: 3/31/2012 11:07 PM
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Also, if you own rental real estate, won't you have to keep the returns from the first year that you started to depreciate it?

culcha

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Author: Wradical Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 115772 of 121436
Subject: Re: Statute of limitations Date: 4/1/2012 2:50 PM
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Also, if you own rental real estate, won't you have to keep the returns from the first year that you started to depreciate it?

culcha

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It's generally recommended that you keep the actual returns permanently anyway.

In that case, particularly, the return for that year would show the original cost and methods elected (or required) when it was placed in service, including supporting calculations for how you allocated the cost of land vs. building/improvements. You should also be keeping the documents for the acquisition in any case, on a permanent basis.

Bill

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