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This came out of a discussion with someone over how long to keep returns and backup documentation...

As (layman) I understand it, in the first three years the IRS can go after a return for any reason. From then to six years, the IRS can only go after a return if there's an omission of more than 25% of gross income. And of course at any time (even after six years) the IRS can go after a return if there is a false/fraudulent return or a willful attempt to evade tax (all this from 26 USC 6501).

What I was wondering is where does the burden of proof lie?

Say it's been five years since the return was timely filed. Does the IRS have to have some sort of "probable cause" (I mean that sorta metaphorically and not in the literal, criminal procedure sense) to reopen the return? If so, what sorts of things would it have to be? And can you challenge the IRS's reopening of the return and perhaps block the reopening entirely?

Or can they just decide to audit you with no up-front cause to believe you understated gross income, but regardless of what other errors, lack of documentation, etc. they find, they can only assess additional tax if you turned out to have understated gross income by 25% or more?

Likewise for opening a return after six years. Can they just reopen a return and go fishing for tax fraud? Or do they have to have some reason to believe there was tax fraud before they can reopen the return? And if so, can you try to block them from even reopening the return?

Note that I'm not talking about real world practice -- I imagine that due to resource constraints they're not going to reopen an 8-year-old return unless they are pretty confident there is tax fraud involved -- rather, I'm wondering what the law allows them to do, whether or not they actually do it.

  • Link: 26 USC 6501 – Alex B Apr 27 '11 at 17:23
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    I've also wondered this. If I know I didn't commit fraud, can I throw away my 10 year old returns? What if the IRS comes back and says 10 years ago, you committed tax fraud. At this point, I have no records due to the IRS direction to ditch older files. – Alex B Apr 27 '11 at 17:25
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According to the US constitution ("due process") and the common law, the burden of proof is on IRS. The statute of limitations is 6 years in special cases, 3 years for all the other cases, for any older cases the IRS has to prove fraud. Saying "fraud" is not a proof. That's called "presumption of innocence".

I'm no lawyer, of course, so make sure to get a professional advice from a lawyer if you have any doubt.

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