How Far Back Can the IRS Audit a Deceased Person?
When a person passes away, their estate may be subject to an audit by the Internal Revenue Service (IRS) to ensure that all taxes have been properly reported and paid. The IRS has the authority to examine tax returns and related documents for up to three years after they are filed. However, there are circumstances under which the IRS can extend this statute of limitations for auditing a deceased person.
Generally, the IRS has three years from the date a tax return is filed to audit a deceased person’s estate. This means that if a person passed away in 2018 and their final tax return was filed in 2019, the IRS has until 2022 to initiate an audit. However, there are a few exceptions to this rule that can extend the statute of limitations.
If the deceased person failed to report more than 25% of their gross income on their tax return, the IRS can audit the estate for up to six years after the return was filed. This is known as the “substantial omission of income” rule and is intended to prevent taxpayers from hiding significant amounts of income to evade taxes.
Additionally, if the deceased person filed a fraudulent tax return or failed to file a tax return altogether, there is no statute of limitations for the IRS to initiate an audit. In such cases, the IRS can audit the estate at any time.
Another circumstance that can extend the statute of limitations is when a deceased person has assets located in a foreign country. If the total value of foreign financial accounts exceeds $10,000 at any point during the tax year, the deceased person is required to file a Foreign Bank Account Report (FBAR). Failure to file an FBAR can result in an indefinite statute of limitations for auditing the estate.
1. Can the IRS audit a deceased person’s estate?
Yes, the IRS has the authority to audit a deceased person’s estate to ensure proper tax reporting and payment.
2. How long does the IRS have to audit a deceased person’s estate?
The IRS generally has three years from the date a tax return is filed to initiate an audit.
3. Can the statute of limitations for auditing a deceased person be extended?
Yes, the statute of limitations can be extended to six years if there is a substantial omission of income, or indefinitely if the deceased person filed a fraudulent return or failed to file altogether.
4. What is considered a substantial omission of income?
A substantial omission of income occurs when the deceased person fails to report more than 25% of their gross income on their tax return.
5. Are there any circumstances that can result in an indefinite statute of limitations?
Yes, if the deceased person had foreign financial accounts with a total value exceeding $10,000, the failure to file a Foreign Bank Account Report can result in an indefinite statute of limitations.
6. Can the IRS audit a deceased person’s estate for older tax years?
No, the IRS generally cannot audit tax returns that are more than three years old, unless certain exceptions apply.
7. Do beneficiaries of a deceased person’s estate have any responsibilities regarding audits?
Beneficiaries may be contacted by the IRS during an audit and may be required to provide information or documentation related to the estate.
8. Can an estate be audited more than once?
In some cases, an estate can be audited multiple times if new information or discrepancies are discovered during the initial audit.