How far back can the IRS go to audit my taxes?

How far back can the IRS go to audit my taxes?

You may think that you are in the clear once your tax refund check arrives. However, this is not necessarily the case, and you should keep a copy of your tax return in case the IRS decides to audit it.

The IRS Has Three Years to Conduct an Audit 

As a general rule, the IRS can audit a return for up to three years after it has been submitted. For example, if you submitted a return in June 2018, it could be subject to an audit until June 2021. This is why most tax professionals encourage taxpayers to keep their returns and related records for at least 36 months.

The IRS Has Six Years In Cases of Fraud 

In the event that the IRS believes that you tried to defraud the government, it has six years to audit your return. Examples of fraud may include failing to report income or taking deductions that you were not entitled to take. Generally speaking, only egregious attempts to evade paying taxes will result in a return being examined after three years.

What If I Don’t File a Return? 

If you don’t file a tax return, the IRS has an unlimited period of time to conduct an audit. Those who earn income from wages, capital gains and a variety of others sources are required to file a return by April of each year. In most cases, failing to file your tax return is more serious than failing to pay taxes owed. Therefore, it is often a good idea to file even if you can’t pay at the time.

The IRS has significant power to review tax returns and penalize those who don’t pay what they owe. Therefore, even if you make an honest mistake on a tax form, be sure to rectify it as quickly as possible to minimize the damage to your bank account.

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What is considered tax fraud?

What is considered tax fraud

Income tax fraud is purposely disobeying tax law or working to defraud the Internal Revenue Service (IRS). The IRS is very specific about which actions constitute fraud. Filing a false tax return, failing to report all income, and purposely not filing taxes is fraud. Submitting a tax return with false information is fraud as well.

How the IRS Deciphers Fraud from a Mistake

Tax laws are difficult to understand. The IRS takes this into account when flagging tax returns for fraud. It’s possible that an honest error was made, and no fraud was intended. If that happens, then the taxpayer will not receive a charge of fraud. But they will possibly have to pay a penalty for the error.

IRS auditors look for certain types of activity to help distinguish mistakes from fraud. For example, a person who tries to hide income is doing it on purpose. Over-exaggerating deductions and exemptions is also a red flag. Claiming nonexistent dependents, and using a false social security number is also fraud. Those are activities that no one would do by mistake.

Criminal Investigation

The IRS Criminal Investigation agency is the law enforcement department of the IRS. Agents in this department investigate tax fraud, money laundering, general tax crimes, and violations of the Bank Secrecy Act. Agents are highly-trained in obtaining all kinds of information, including passwords, encryption methods, and other security measures.

Punishment for Fraud

A person found guilty of tax fraud is subject to civil and criminal penalties. The severity of the punishment depends on the severity of the crime. Who commits the crime matters as well. For example, filing a false tax return can result in up to three years in prison. But if an individual filed the return, they can also get fined up to $250,000. But if the individual filed the return on behalf of a corporation, the fine can go up to $500,000.

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How far back can I go to get a tax refund?

How far back can I go to get a tax refund?

While it’s recommended to file your taxes each year by the deadline regardless of whether you’re expecting a refund or not, many people neglect this responsibility. However, like all other choices you make in life, there are often consequences of your choices that you cannot escape. So if you are trying to account for the years that you failed to file your taxes, it is important that you know what you can expect.

In terms of your federal taxes with the Internal Revenue Service, you can go back up to three years from the date that you were supposed to have filed by and still receive a full refund. If you are trying to obtain a federal refund any years farther back than three years ago, your efforts will not be successful. Also, if you try to e-file a federal tax return from a year in which the deadline for filing has already passed, you will be required to mail your return to the IRS instead of using an e-file service. Be prepared to wait 12 weeks or more for the IRS to process a late return. In other words, if you are expecting a refund, don’t count on receiving it anytime soon.

The three-year limit also applies to any amendments to years that you filed incorrectly the first time. However, keep in mind that amended returns are also not allowed to be filed using an online service. Instead, the only method that the IRS will accept for an amended return is by submitting Form 1040X in paper through the mail.

In terms of state taxes, though, your ability to receive a tax refund for past years that you neglected to file for depends on the state in which you reside. So if you are attempting to file your state taxes for past years and expecting a refund, you should check the laws for your state to see if a refund is still a possibility.

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What happens if I don’t file my taxes?

What happens if I don't file my taxes?

We’re now in June and the difficult time of April is long gone with all of its stresses for many, what with the mad rush to get those income taxes filed on time. In fact, there are many who don’t—according to statistics, more than 10 million people file for extensions every year. But what happens to those who simply don’t bother to file their taxes at all?

Filing Late Without an Extension
Those who fail to file their taxes by the April 15 deadline are subject to a “failure to file” penalty. This starts at 5 percent of whatever you owe, with a cap of 25 percent of the total tax bill. After 60 days, the penalty is $135 or 100 percent of whatever was owed.

If you’re owed a refund, there’s no failure to file penalty; however, you won’t get your refund either (obviously). Further, you’ll only have three years after that to claim the refund.

Filing Late With an Extension
While the extension will give you until October 15 to file, there are trade-offs. If you owe on your tax return, a late fee of 5 percent will begin to pile up, beginning on the first day that you’re late. If you’re hesitant to file because you owe, you’re better off filing anyway and setting up a payment plan.

Filing on Time, But Failing to Pay
If you file by April 15 but haven’t paid the full amount due, you’ll still be charged a late fee—but only at a quarter of a percent per month, as long as there’s a payment plan in place.

Failing to File
If you don’t file at all, you’ll be charged the 5 percent “failure to file” fee, plus .5 percent for every day you’re late, and an additional payment fee.

In short, if you’re thinking of ignoring tax day this year, you should reconsider. The benefits of filing on time far outweigh any inconvenience. In case of illness or some other trauma, consider hiring a CPA for assistance.

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Is It Possible To Purchase A Home Without Submitting Tax Returns?

Is It Possible To Purchase A Home Without Submitting Tax Returns?

The average mortgage applicant understands how the process works. When an application is submitted, lenders will verify information and consider the merits of the application. During this process, lenders perform background checks and analyze an applicant’s financial situation. Most lenders obtain tax transcripts from the IRS, but not everyone wants to, or can, submit tax returns in this situation.

A Different Situation For Each Applicant

Some applicants work for themselves and don’t receive a W-2. Others work with and get paid in cash rather than through checks or bank transfers. On top of that, some individuals simply don’t want to supply so much information to a lender. They might prefer to avoid disclosing their income and other financial information. These situations are somewhat rare. Still, solutions are available for individuals here.

No Doc and Low Doc Mortgage Loans

First and foremost, applicants should understand most major banks won’t accommodate these situations. Only smaller lenders or those that provide riskier loans will consider such an applicant. “No Doc” and “Low Doc” loans are sometimes available to prospective home buyers. With these loans, a given applicant can expect to receive a high-interest rate and a lower-than-normal maximum loan amount, among other downsides.

Excellent, and we mean excellent, credit is required to apply for these loans. A No Doc loan allows someone to avoid submitting tax returns or transcripts. However, they’ll still need to submit to a credit check and prove a source of income. Such loans don’t act as shortcuts for obtaining a mortgage loan. Many applicants might even find this option more difficult to receive approval for compared to traditional mortgage loans.

In the end, No Doc and Low Doc mortgage loans are excellent options for certain borrowers. Individuals in the right situation can receive loan approval when they otherwise wouldn’t through a traditional bank or financial institution. Someone that has an impeccable credit history and a high level of income should consider this solution for buying a home.


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