Most people I talk to about their IRS problem have already built the worst-case scenario in their head. The reality is usually much more manageable. I'm Darrin Mish, and I've been representing taxpayers before the IRS for 32 years. Here's what actually tends to happen.
We all hate the dreaded IRS audit, right? And sometimes even though we have filed our tax return as accurately and honestly as we can our return might still be flagged for audit. The good news is the IRS has a statute of limitation it has to abide by, which means there is a time limit for them to audit your tax returns, after which they cannot question you on it anymore. Click here to read or watch more IRS Help resources.
So what is the time limit under the statute of limitation? Well, it depends. Under usual circumstances, it is three years. But under other circumstances (like when your taxes involve offshore accounts) the IRS has up to six years.
But, and here’s the horrifying thing, there are some technicalities that allow the IRS the opportunity to audit you indefinitely. So if you don’t want to be in the IRS’ radar screens forever, you must avoid these technical mistakes. Some of them are as follows:
- Not signing your tax return
By not signing your tax return form, you have not verified any of its contents, which makes it an invalid return. This gives the IRS reason to question you.
- Altering the penalties of perjury language
This is when you try to reduce you’re the amount of tax you have to pay by striking or altering the written declaration (the jurat) that verifies that your tax return, declaration, statement or other document is made under penalties of perjury. This will also invalidate your tax return.
- Failing to file any necessary extra filings
If your peculiar circumstances warrant extra forms to be filed and you fail to do so, this allows the IRS to audit you forever. For example, under FATCA (Foreign Account Tax Compliance Act) rules, if you own shares in a company abroad, it entails filing IRS Form 5471.
And do not think that you have to be taxable to be required to file Form 5471. This requirement to file still stands even though there is no tax due on the return. Furthermore, you will also be liable to a separate fine if your form is incomplete or wrongly filled.
If you do not file this form, it not only subjects you to a $10,000 fine, but also allows the IRS to audit you indefinitely on this matter. The IRS can make any adjustments to the entire tax return with no expiration until you have duly filed Form 5471. So filing Form 5471 is just as important as putting your signature that validates your return.
Also, even if you own stock amounting to just 10 percent equity in any foreign company, you too have to file IRS Form 5471. In other words, you do not have to be the majority shareholder. You must make sure you file complete forms with your tax returns.