IRS Audit limitation

[Guest MPITTS]

How many years can the IRS go back on an audit. We are trying to rewrite our record retintion policy. We currently keep files for 7 years. How many years does anyone else keep records for.

Any help is appreciated.

Thanks

[Harwood]

I once read that the statue of limitations for IRS purposes can extend to fifteen years:

3 years for the IRS to assess taxes

10 years for the IRS to collect

2 years for the taxpayer to claim a refund on the assessment

[mbozek]

Under IRC 6501(a) the IRS generally has 3 yeras to assess income tax after the filing date of the return. The s/l is extended to 6 yrs if the taxpayer omits an amount in excess of 25% of the gross income. The IRS has 10 years after assessment to collect the tax. while the IRS can audto plans as far back as it likes the it cannot impose any tax penalties for closed years. If a plan was disqualfied in 1995 but the IRS does not audit it unti 2003 the penalties could only pbe assessed back to the 2000 plan year, eg. denying deductions. As a practrical manner the plan should keep copies of the tax forms its files with the IRS forever, in case the IRS questions wther the forms were ever filed. The backup documents can be discarded after the s/l expires.

[Guest Pensions in Paradise]

mbozek - under what authority can the IRS audit plans as far back as it likes? This specific issue is of great concern to us because recently the IRS requested 12 year old information when we submitted a plan for 5310 approval. When we told the IRS the records were unavailable, we were informed that we had to withdraw our application and would likely be subject to audit.

I find it hard to believe that the IRS has unlimited authority to audit a plan's records as far back as it likes.

[rcline46]

If filing for a determination letter, the IRS can request all plan documents back to the last Letter of Determination, and they do.

So if your last letter was for TRA 86, they want all documents back to then, so you have to keep them.

[mbozek]

I think there is a difference between a request for documents pursuant to an audit of a plan's qualified status and the limitation on penalties that can be assessed after the applicable s/l expires. It never ceases to amaze me that IRS agents will request determinaton letters and plan documents for tax years that are closed under IRC 6501(a).

[Guest Harry O]

The IRS's position is that an uncorrected defect that occurred in a prior year makes the plan disqualified until it is corrected. Thus, prior year's activity is relevant to the determination of whether the plan is currently qualified. This is similar to other tax items that may have been in part generated in prior years -- NOLs, foreign tax credit carryforwards, basis, etc. For example, nothing can stop the IRS from taking the position that you have overstated basis in your home when you sell it for a profit in 2003 because the repairs you made in 1992 were not capital improvements.

That said, I'm not so sure the plan qualification rules are that similar to these general tax items. I believe a court or two has agreed with the IRS analysis, however.

[MGB]

Isn't there a separate rule that allows the IRS, in general, to go back any number of years in the case of fraud?

[Guest Pensions in Paradise]

So what I'm hearing is that we should be telling clients to retain operational records (allocation reports, census, distribution records) forever.