October 13, 2014
How long does the IRS have to investigate tax evasion?
There is a three-year statute of limitations for most tax matters. That may stretch out to six years if the income omission was significant. Failure to report a quarter of the income you received in a year could trigger the longer statute of limitations.
This is important for record keeping. The Internal Revenue Service recommends keeping records for a minimum of three years.
The statute of limitations came into play in the case against Texas business owners Sam Wyly and the estate of his deceased brother. At a sentencing, a judge assessed almost $400 million in fines related to the use of offshore trusts to avoid reporting requirements.
The brothers ran into trouble with the Securities and Exchange Commission for the potential use of illegal offshore tax shelters. The agency alleged that for more than a decade the brothers used a series of entities in the Isle of Man and the Cayman Islands to hide the sales of companies to avoid SEC disclosures. A jury found that the brothers were able to make approximately $500 million through the scheme and found them guilty of fraud.
Some had wondered why the IRS did not get involved and bring charges based on tax issues. It may have come down to the statute of limitations. The IRS may have decided that the statute of limitations period had expired.
Even through the threat of jail time and tax penalties did not come into play, the Wylys still received a staggering penalty. The District Judge assessed Sam Wyly with $123.8 million and the Estate of Charles Wyly with $63.9 million in civil fines plus interest.
Because a tax investigation may broaden out to include other agencies and charges, it is important to speak with a tax attorney at the first sign of an investigation.
Source: Forbes, “‘Staggering’ Sanctions Slapped On Wyly Brothers In Offshore Case,” Kelly Phillips Erb, Sept. 25, 2014