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Statute of Limitations Varies for IRS Audit of Tax Returns and Foreign Income

Statute of Limitations Varies for IRS Audit of Tax Returns and Foreign Income

In general, the Internal Revenue Service has up to three years from the date a tax return was due to perform an audit and 10 years to collect any taxes owed. Interestingly, filing an amended return does not alter this time limit. Despite this, a number of exceptions may extend the statute of limitations. For example, a taxpayer who failed to report at least one-quarter of his or her income may be audited for up to six years. In addition, the audit timeframe is doubled for individuals who did not report over $5,000 in income that was earned overseas.


Normally, a taxpayer’s Report of Foreign Bank and Financial Accounts (“FBAR) may be reviewed for up to six years. If a taxpayer fails to file a return, however, there is no statute of limitations for an audit. In addition, the IRS may audit a taxpayer who fails to meet the reporting requirements for a controlled foreign corporation indefinitely. Under the tax code, a U.S. taxpayer who acts as an officer, shareholder, or director in certain foreign corporations must file Form 5471 or face a penalty of $10,000. An additional $10,000, up to a maximum of $50,000 per tax return, may be added for each month the failure continues, beginning 90 days after the taxpayer is notified of his or her delinquency.



Since 2009, the Offshore Voluntary Disclosure Program (“OVDP”) allows an American taxpayer to come into compliance with his or her overseas income reporting requirements without facing a future audit. Although the potential penalty is significantly lower, streamlined programs do not afford a taxpayer the same piece of mind. Instead, individuals who choose to utilize the streamlined filing procedures currently offered by the IRS must provide several years of federal tax returns and FBARs and certify that they did not attempt to evade their federal income tax obligations. In return, a domestic taxpayer faces a civil penalty of up to five percent of any unreported assets, while an overseas individual will generally incur no penalty aslong as the conduct was not willful. In contrast, a taxpayer who chooses to voluntarily come into compliance through the OVDP may pay a penalty of up to 27.5 percent of the value of his or her unreported assets.


Regardless of the potential audit time remaining, it is always a good idea for a taxpayer with unreported offshore income to voluntarily disclose this information to the IRS. If you have questions about your international income tax responsibilities, a skillful international tax lawyer may be able to help. William Hartsock is a certified tax law specialist with more than three decades of experience advising clients across Southern California about their international income and other tax issues. To discuss your situation with a veteran tax attorney, call Mr. Hartsock today at (858) 481-4844 or contact him online.


Additional Resources:

IRS Can Audit For Three Years, Six…Or Forever, Robert W. Wood, Forbes



Photo Credit: jppi, MorgueFile


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