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From Orpheus to the IRS: how far can the taxman look back?

In the Greek myth of Orpheus and Eurydice, the musician Orpheus descends into the realm of the dead, trying to save Eurydice from a lethal snakebite.

He reclaims Eurydice and is on the verge of exiting the underworld - but then glances back for a glimpse of her beautiful face. But Pluto, the king of the underworld, had cautioned him not to look back. And with that one fateful look back, he lost his beloved forever.

IRS lookback provisions are seldom as dramatic as this. But for anyone who is facing IRS scrutiny, it is important to know how far back the taxman can go in trying to detect tax evasion, tax fraud or other compliance irregularities. In this post, we will discuss that issue.

As Robert W. Wood noted in a Forbes column, you don't have to be consciously trying to hide something from the IRS in order to be concerned about how far back into your tax records the agency can inquire. After all, given the complexity of the tax code, tax compliance is very difficult for many taxpayers.

The basic rule of thumb for the statute of limitations on tax audits is three years after the filing of a return. But there are exceptions to this. In particular, there is an exception when the IRS finds that a taxpayer appears to have omitted more than a quarter of his or her income.

It is also not uncommon for the IRS to ask that a statute of limitations for an audit be extended, so that it can gather needed information.

Of course, the ante goes up if the IRS alleges criminal tax evasion. There is generally a six-year statute of limitations in such cases.

But there are also often questions relating to this. There may be a question about exactly when the six-year period begins to run. There may also be questions about whether the limitation period may be suspended ("tolled") in certain cases, such as when a taxpayer becomes a fugitive from justice.

In short, as in the myth of Orpheus, looking back can be fraught with danger. But at least in tax law, there are limits on the authority of the IRS to do so.

Source: To learn more about lookback periods, please visit our statute of limitations page

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