Shyster1040
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 Posted:
Wed Nov 09, 2005 9:00 am Post subject:
Re: How far back can the IRS go on corporate returns? |
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Depends on what you mean by "finding errors" and on what the
IRS wants to do with those errors.
In the context of assessing additional tax based on
"errors," the question relates to the statute of
limitations, which is generally three years from the later
of the date the required return is due or the date on which
the return is actually filed (with some little niceties
concerning the "timely filed" rule and non-business days).
See IRC sec. 6501(a).
There are longer periods provided for under certain
circumstances, including no return filed and fraud, for
which there is no limit, and "substantial omissions," for
which the limit is 6 years instead of 3. There are also
other special rules for certain other taxes, credits and
carrybacks.
An amended return will not generally extend the limitation
period (unless filed within 60 days of the end of the period
as determined with respect to the initial return) and will
not, in the case of an initially fraudulent return, start a
limitation period (i.e., once a fraudulent return is filed,
that year is always open and cannot be closed by a later
amended return).
If the IRS finds that an error on a prior return created a
deficiency in tax, but the return is for a year that is
closed by the statute of limitations, the IRS may, under
certain circumstances, nonetheless assert that deficiency as
an offset to any refund claim being made by the taxpayer.
Keep in mind, this is only a very general description, so I
have not touched on all of the nuances concerning what the
IRS may or may not do with respect to an outstanding
deficiency from a closed year.
The foregoing is basically the Cook's Tour of the basic
statute of limitation on assessment procedures - the actual
result may be very different from that described above based
on the actual facts you're considering, so don't just rely
on what I've said.
Other than for assessment, if the IRS wants to go looking
for errors in closed years in order to reconstruct what the
actual state of affairs should be for an open year (e.g., in
1970 - almost certainly a closed year - your corporation
incorrectly took insufficient depreciation deductions on a
capital asset used in its trade, an asset that it stopped
using in its trade in 1971 when it still had plenty of
basis, as a result of which it reported less gain on the
sale of that asset in 2003 - an open year - the IRS can go
looking for the original depreciation error that ocurred in
1970 in order to determine what the proper amount of income
should be in 2003); or just for the sheer intellectual
enjoyment of it, they can go back as far as they want.
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