Depending on the circumstances, there may be different time frames, or statutes of limitations, in which the Internal Revenue Service can audit your federal tax return and assess unpaid taxes, penalties and interest. Missouri taxpayers should understand these statutes of limitations and how they apply if the IRS suspects tax fraud.

As Forbes explains, the IRS generally has three years from filing to audit your federal income tax return. However, if you have substantially understated your reported taxable income by more than 25%, the statute of limitations doubles to six years. The statute of limitations may be further extended indefinitely if the IRS suspects tax evasion or fraud, depending on whether it pursues a civil or criminal tax fraud proceeding.

In a criminal case, the IRS has six years from the date of the alleged criminal conduct to prosecute the case. In contrast, a civil case may be subject to an unlimited statute of limitations in certain instances:

  • You did not file a tax return.
  • You filed a false tax return.
  • You engaged in a willful attempt to avoid taxes illegally.

In a criminal case, the IRS must prove tax fraud beyond a reasonable doubt. There is a lower standard in a civil case, where the IRS must establish clear and convincing proof of fraud. Because a civil action may allow the IRS to audit fraudulent returns for an unlimited period of time, significant penalties and interest may accrue.

It is important to understand how long the IRS may have to pursue unpaid taxes, penalties and interest if it flags your return for audit based on suspected tax fraud.