Foreign Account Statute of Limitations: In most situations, the IRS has 3-years to audit your tax return (26 U.S. Code §?6501). But, when the audit involves foreign income generated from certain offshore accounts, assets or income, the statute of limitations may extend to 6-years. The two main situations that extends the statute of limitations are:
- Substantial underreporting: IRC § 6501(e)(1)(A)(i); and
- Over $5,000 of unreported foreign income: IRC 6501(e)(1)(A)(ii)
Foreign Account Income Statute of Limitations (IRC 6501(e)(1)(A) (ii))
This article will focus on the foreign account statute of limitations, in which a taxpayer may have income generated from accounts or assets and (generally) reported on international information reporting forms, such as: FBAR, FATCA Form 8938, and other related foreign assets.
A six (6) year statute of limitations can be a very dangerous proposition, especially if you have undisclosed foreign or offshore income generated from FBAR/FATCA assets, accounts, or investments.
What is a 6-Year IRS Statute of Limitations?
While the typical statue of limitations is 3-years from the date of filing (unless the filing is made prior to the April deadline in which the Statute commences from the April filing date, the IRS can extend the time to audit to 6-years.
And, when it comes to foreign income, the threshold requirements for extending the statute of limitations is relatively low.
6-Year Statute of Limitations
Substantial omission of items
Except as otherwise provided in subsection (c)—
(1) Income taxes: In the case of any tax imposed by subtitle A—
(A)General rule: If the taxpayer omits from gross income an amount properly includible therein and—
- such amount is in excess of 25 percent of the amount of gross income stated in the return, or
- (ii)such amount—
(I) is attributable to one or more assets with respect to which information is required to be reported under section 6038D (or would be so required if such section were applied without regard to the dollar threshold specified in subsection (a) thereof and without regard to any exceptions provided pursuant to subsection (h)(1) thereof), and
(II) is in excess of $5,000,
the tax may be assessed, or a proceeding in court for collection of such tax may be begun without assessment, at any time within 6 years after the return was filed.
6 Year Statute is More Complex
There are two main scenarios in which the IRS can go after you for 6 years:
-You underreported your income by more than 25% (It may be from underreporting income or over-reporting deductions which artificially reduced your income by more than 25%).
-You have foreign income or assets that generate income, and the income generated is in excess of $5,000. As you can see, the IRS is really gunning after individuals with unreported Foreign Income, so if you have unreported foreign income of more than $5,000, you must presume you may be audited for up to 6 years.
Even Worse…No Statute of Limitations
There are 3 main instances in which the IRS statute of limitations may have no limitation:
Willful Attempt to Evade Tax
In case of a willful attempt in any manner to defeat or evade tax imposed by this title (other than tax imposed by subtitle A or B), the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time.
In the case of failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time.
What Should You Do?
Everyone makes mistakes. If at some point you realize that you should have been reporting your foreign income, accounts, assets or investments, the prudent and least costly (but most effective) method for getting compliance is through one of the approved IRS offshore voluntary disclosure programs.
Golding & Golding (Board-Certified Tax Law Specialist)
We specialize exclusively in international tax, and specifically IRS offshore disclosure.
We have successfully represented clients in more than 1,000 streamlined and voluntary offshore disclosure submissions nationwide and in over 70-different countries. We have represented thousands of individuals and businesses with international tax problems.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.
- Learn more about the Board-Certified Tax Lawyer Specialist credential
- Learn more about the Enrolled Agent credential
- Learn more about Golding & Golding’s Case Accomplishments
- Learn more about Golding & Golding Testimonials from prior clients
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants and Financial Professionals worldwide.
Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Recent Golding & Golding Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced Offshore Counsel?
Generally, experienced attorneys in this field will have the following credentials/experience:
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
Interested in Learning More about Golding & Golding?
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.