6-Year Foreign Income Statute of Limitations IRC § 6501
6-Year Foreign Income 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)
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 the FinCEN 114 and 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 offshore 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.
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: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
Contact our firm today for assistance.