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.