Maybe you paid a baby sitter under the table, or "forgot" to declare income, or deducted personal expenses as business costs. Perhaps you didn't know a large tax or a form was due and found out only later. Maybe you never filed at all.
Whatever the misdeed, the approach of Tax Day is calling it to mind, raising an urgent question: When can you breathe easy? When is your offense so old and cold that the Internal Revenue Service won't care—or can't?
As is often true with taxes, the answer is complex and full of traps. So we asked experts how tax statutes of limitations work, both in theory and practice. Here is what they had to say:
For garden-variety civil tax issues, such as overstating an entertainment-expense deduction, the statute of limitations is typically three years. It runs either from the April due date or the actual date the return is filed, whichever is later. So if you filed on Jan. 30, the three-year statute begins with the April due date; if you got a six-month extension and filed on July 20, the statute runs from then.
Many exceptions to this rule give Uncle Sam wide latitude, however. If the tax issue involved income greater than 25% of the gross income on the return, the statute of limitations rises to six years. This applies only to unreported income, says Mark Matthews, a former top IRS official now with Caplin & Drysdale in Washington.
Click here to read the full article in Wall Street Journal.
