{"id":2721,"date":"2018-08-06T13:41:52","date_gmt":"2018-08-06T17:41:52","guid":{"rendered":"http:\/\/keysolutions.us\/blog\/?p=2721"},"modified":"2018-08-06T13:41:52","modified_gmt":"2018-08-06T17:41:52","slug":"6-year-statute-of-limitations","status":"publish","type":"post","link":"https:\/\/keysolutions.us\/blog\/6-year-statute-of-limitations\/","title":{"rendered":"6-YEAR STATUTE OF LIMITATIONS"},"content":{"rendered":"

6-YEAR STATUTE OF LIMITATIONS<\/strong><\/span><\/h1>\n

How Long Does a Taxpayer Have to Maintain Tax Documentation to Support Tax Return?<\/strong><\/span><\/h2>\n

A question taxpayers often ask is \u201cHow long must I maintain my tax records?\u201d Unfortunately, there is not one answer, except, \u201cIt depends.\u201d In most cases, maintaining three years of tax records is sufficient. If you own assets that are used in your business, the statute of limitations (SOL) could be five, seven, 27.5, or 39 years.\u00a0 If a taxpayer is found to file a fraudulent tax return, then the SOL never expires.<\/p>\n

In the case of Manashi, U.S. Tax Court Docket No. 13034-13<\/em>, the taxpayer was introduced to the 6-year SOL rules.\u00a0 Robert Manashi owned 100% of his S Corp. and failed to report $800,164, $850,295, $810,490 and $175,717 of his S Corp. income for tax years 2006 through 2009, respectively.\u00a0 The IRS assessed taxes of $259,436, $271,079, $256,230, and $68,266, respectively, for these tax years. Plus, the IRS assessed $171,002 of penalties. The taxpayer\u2019s first mistake was to self-prepare his own return; and he compounded his tax problems with his second mistake, when he decided to represent himself in tax court.<\/p>\n

The most significant objection raised by the taxpayer was that the IRS\u2019s assessments for the tax years 2006 through 2008 were closed by the 3-year statute of limitations and the 6-year SOL did not apply. The 6-year SOL applies when a taxpayer omits more than 25% of his gross income. Mr. Manashi argued that the 6-year SOL should not apply because the Code provides that if adequate disclosure is made in the return that allows the IRS to ascertain the nature and amount of gross income omitted, the 6-year SOL does not apply.<\/p>\n

What was the adequate disclosure the taxpayer argued that he had made? The taxpayers contended that adequate disclosure occurred by virtue of the fact that the S corporation reported some amount<\/u> of gross receipts on its returns for each year<\/strong> and that the IRS\u00a0“through internal data”\u00a0would have had knowledge of the amounts deposited into the taxpayers\u2019 bank accounts and could have discovered that gross receipts were erroneously reported for each year<\/strong>. However, the court found that reporting some amount of gross receipts offered no clue that other gross receipts had been omitted and nothing on the S corporation\u2019s Form 1120S for each year reasonably alerted the IRS that gross receipts had been underreported.<\/p>\n

Further, the taxpayers argued that Forms 1099 were filed with the IRS by the banks at which they maintained their personal and business accounts and those forms should have alerted the IRS to the omitted income amounts on account of the significant discrepancies between the S Corp.\u2019s reported gross receipts and the amounts deposited into those accounts for each year. Moreover, the taxpayers asserted that the S Corp.\u2019s clients filed Forms 1099 with respect to the payments made to the S corporation and that those forms should have similarly alerted the IRS to the omitted income. However, there was no evidence of any Forms 1099 issued by the taxpayers\u2019 banks or the S corporation\u2019s clients and none attached to the returns filed by either the taxpayers or the S Corp. In addition, any information from Forms 1099, if they were in fact filed, would not have been disclosed in the return, or in a statement attached to the return, as required under\u00a0Code Sec. 6501(e)(1)(B)(ii). Therefore, the court held that the six-year period of applied with respect to the taxpayers\u2019 assessments of deficiencies for the tax years at issue and that the notices of deficiencies were timely made.<\/p>\n

What Can We Learn from this Case?<\/strong><\/span><\/h3>\n

IRS auditors are trained to look for tax fraud \u2013 a willful act done with the intent to defraud the IRS. Most IRS auditors realize that the tax laws are complex and expect to find a few errors in every tax return. Some are willing to give the taxpayer the benefit of the doubt and don\u2019t pursue fraud charges when honest mistakes are made. A careless mistake on a tax return may cost the taxpayer a 20% penalty. While 20% of the tax due is a costly penalty, it sure beats the cost of the IRS finding tax fraud \u2013 a 75% civil penalty. Hopefully the taxpayer in this case learned from his mistakes. If not, the IRS may impose the fraud penalty in the future.<\/p>\n

If you would like to discuss your business or personal tax planning<\/a>, tax preparation<\/a> and other financial concerns with an experienced tax professional, we invite you to call 610-594-2601<\/a> today to make an appointment at our Exton PA CPA office<\/a> to discuss your situation. You can also schedule a consultation at Click Here<\/a>.<\/p>\n

Copyright \u00a9 2018 Keystone Financial Solutions, P.C.\u00a0 All rights reserved.\u00a0 BE SURE TO READ THE DISCLAIMER PAGE: Content in this blog is for educational purposes only and should not be considered as the rendering of tax, legal or investment advice. The publisher of this blog makes no representations as to the accuracy or completeness of any information herein, will not be liable for any errors or omissions, and shall not assume liability for any losses, injuries, or damages from the display or use of this information.<\/strong><\/h5>\n

About F. Bryan Haarlander, EA, CTRS:<\/u><\/strong><\/span><\/p>\n

Bryan Haarlander is an IRS licensed Enrolled Agent and who owns and operates a specialized tax services firm serving clients in the western suburbs of Philadelphia, PA, which includes the cities of Chester Springs, Coatesville, Collegeville, Devon, Downingtown, Exton, Frazer, King of Prussia, Paoli, Philadelphia, Phoenixville, Pottstown, Radnor, Reading, Wayne, West Chester in Berks, Chester,\u00a0 Delaware, Montgomery and Philadelphia Counties, as well as clients in Delaware, New Jersey, New York and throughout the continental USA.<\/p>\n

A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

6-YEAR STATUTE OF LIMITATIONS How Long Does a Taxpayer Have to Maintain Tax Documentation to Support Tax Return? A question taxpayers often ask is \u201cHow long must I maintain my tax records?\u201d Unfortunately, there is not one answer, except, \u201cIt depends.\u201d In most cases, maintaining three years of tax records is sufficient. If you own […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[3],"tags":[142,69,73,63,33,136,34,21,64,71,31,135,72,66,23,41,65,32,40,39,67,68,38,70,134,37,36,35,42,28],"class_list":{"0":"post-2721","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-irs-tax-planning-ideas-tips-news","7":"tag-6-year-statute-of-limitations","8":"tag-audits","9":"tag-bankruptcy","10":"tag-bryan-haarlander","11":"tag-chester-county-cpa","12":"tag-civil-penalty","13":"tag-exton-accountant","14":"tag-exton-cpa","15":"tag-f-bryan-haarlander","16":"tag-first-time-abatement","17":"tag-frank-haarlander","18":"tag-fraud","19":"tag-innocent-spouse","20":"tag-installment-agreements","21":"tag-irs","22":"tag-irs-tax-debts","23":"tag-irs-tax-payments","24":"tag-keystone-financial-solutions","25":"tag-offer-in-compromise","26":"tag-oic","27":"tag-partial-installment-agreements","28":"tag-penalty-abatement","29":"tag-philadelphia-cpa","30":"tag-reasonable-cause","31":"tag-statute-of-limitations","32":"tag-tax-blog","33":"tag-tax-expert","34":"tag-tax-planning","35":"tag-tax-resolution","36":"tag-west-chester-cpa","37":"entry"},"aioseo_notices":[],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p9W9tf-HT","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/posts\/2721","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/comments?post=2721"}],"version-history":[{"count":10,"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/posts\/2721\/revisions"}],"predecessor-version":[{"id":2757,"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/posts\/2721\/revisions\/2757"}],"wp:attachment":[{"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/media?parent=2721"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/categories?post=2721"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/tags?post=2721"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}