Receiving a notice of audit from the Internal Revenue Service is something that many Georgia residents have worried about at one time or another. The penalties for concealing income or inflating expenses can be severe, but the IRS is generally given only three years to audit income tax returns. While this may come as a relief for those with anxieties about mistakes or omissions that they may have made long ago, there are a number of exceptions to the three-year rule.
The statute of limitations for tax audits stretches to six years in cases where more than 25 percent of a taxpayer’s income has been omitted. This exception also applies when the basis for tax calculations, such as the original purchase price of an asset that was subsequently sold for a profit, has been overstated to a similar degree. The U.S. Supreme Court ruled in 2011 that overstating a basis was not the same as failing to report income, but Congress subsequently passed a law that overruled the nation’s highest court.
The IRS may also conduct audits for up to six years when foreign income of $5,000 or more was not reported, and there is no time limit on fraud investigations for years when the taxpayer involved did not file an income tax return. Taxpayers might be wise to pay particular attention to foreign income as the sanctions contained in money laundering legislation are often far more severe than tax evasion penalties.
Georgia residents who have received an audit notice from the IRS are often worried that they will not be able to substantiate all of the expenses that they have claimed over the years. Experienced tax law attorneys may help taxpayers to reconstruct their personal or business financial records even when the original paperwork has been misplaced or discarded. Attorneys could also provide assistance with other tax matters such as tax liens and wage garnishments.