Have a Tax Question? Ask a Tax Expert
Hi from Just Answer. I'm PDtax, and can assist.
The IRS went to a policy of retaining only seven years of taxpayer records a few years ago. They have their reasons, but it makes issues like yours more and more frequent. And they can try to shift the burden of record keeping to taxpayers, but there are other issues that might get you out of the tax.
IRS typically has the years to audit a return, six years for substantial understatement, and an unlimited statute for assessment for fraud.
It is possible that IRS is to late to ask for these additional taxes. You didn't say when the tax bill was assessed (discussed above). Additionally, IRS has ten years to collect. If you filed an accurate return April 2004, IRS would have until April 2007 to assess more tax, and April 2017 to collect.
There are other factors that extend those periods, but a review of your tax transcript will show the IRS position of when things were done and their position of when certain statutory period expire. Fit example, the ASED is typically printed on page 1 of the transcript, available upon request from IRS. That is the assessment statute expiration date. If their assessment is after the ASED, the taxes are uncollectible. Same with the CSED, the collection statute expiration date.
We do quite a business in IRS representation in the bricks and mortar world. The IRS position that they don't have to produce documents is not one they win if taxpayers litigate, but the cost to taxpayers in legal and CPA time acts to discourage litigation. They will not yield, in my experience, just because they don't have the documents. And that is wrong.
I have used an Offer in compromise to negotiate settlement in cases like yours, but not in your case. If your CSED is expiring in a few months, allowing that to expire might be the best resolution. Even entering into an installment agreement that dues not extend the CSED could buy you the time to allow the statute to expire.
I hope this offers some hope on your dispute. A review of your case by a quality tax professional is warranted. Do not try to handle this yourself.
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