Statutes of limitations generally prevent the Internal Revenue Service from investigating tax returns that are older than six years. For most returns filed by taxpayers in Maryland, the IRS only has three years to audit the reported income. If the agency suspects that income has been substantially underreported by 25 percent or more, the law provides up to six years to initiate an audit and pursue taxes and penalties. Three major exceptions to these limitations, however, remove time constraints and grant the agency’s civil division the power to review returns of any age.
The filing of a false tax return represents the first exception. A taxpayer who completely fails to file a return will also remain subject to audits. The willful attempt to break the law to avoid paying taxes provides the third exception. Only one condition out of the three needs to be met for the IRS to take action regardless of the passage of time.
Criminal complaints from the IRS remain limited to six years. The agency labels tax evasion as a crime, but tax fraud could attract attention from the IRS’s civil division. If a person appears to have met one of the conditions for exemption from the statute of limitations, then the civil division could prosecute.
When the IRS notifies a person about a compliance issue or the intention to audit, the taxpayer might want advice from an attorney. With tax audit representation, a person could learn about rights and gain assistance with the preparation of financial documents for the review. An attorney familiar with audits could explain how to amend a return and resolve the problem. In cases that result in penalties, an attorney could propose a settlement that might satisfy the IRS.