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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29558
Experience:  Taxes, Immigration, Labor Relations
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MY CLIENT IS BEING AUDITED FOR HER 2006 INCOME TAX YEAR. THE

Resolved Question:

MY CLIENT IS BEING AUDITED FOR HER 2006 INCOME TAX YEAR. THE IRS IS AUDITING THE SALE OF BUSINESS PROPERTY IN 2006. THE PROFIT CALCULATIONS INCLUDED A DEFERRED PROFIT FROM THE YEAR 2004 ON A 1031 EXCHANGE. THE 1031 EXCHANGE WAS REPORTED ON FORM 8824 IN 2004. WE HAVE SUBSTANTIATED ALL OF THE AMOUNTS REGARDING THE 2006 SALE BUT THE IRS NOW WANTS TO AUDIT THE SALE FROM 2004 TO DETERMINE IF THE DEFERRED GAIN CARRYING OVER TO 2006 IS THE CORRECT AMOUNT. MY QUESTION IS CAN THE IRS REQUIRE US TO SUBSTANTIATE THE 2004 AMOUNTS OR HAS THE STATUTE OF LIMITATIONS BARRED THIS?
Submitted: 7 years ago.
Category: Tax
Expert:  Lev replied 7 years ago.

The statute of limitation only prevents additional tax assessments for 2004 tax year (assuming that the tax return was filled on time).

The statute of limitation doesn't prevent the IRS from auditing and making corrections - thus - yes the IRS may make adjustments on 2004 tax return.

Thus if the IRS determines that your client owes additional tax from 2004 - such taxes generally may not be collected.

 

If such corrections result additional tax for 2006 - the IRS is still within statute of limitation to assess such liability.

 

Sorry if you expected a different answer.

 

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