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I advise people to save their tax records anywhere from 3 to 7 years. Corporations and small businesses must hold onto their records longer, maybe indefinitely. That’s because typically the IRS has three full years if they are going to audit, and six years when the audit involves offshore accounts. The word to pay attention to is “typically.” Those parameters go out the window if certain mistakes are made on your tax returns. And the endless nightmare begins Failure To Sign Forgetting to sign your tax return is a mistake that completely invalidates your tax return. This simple mistake happens more often than you may think. Even though you have done everything else correctly and sent your returns in on time, without your signature, the IRS will not consider your return as being legitimate, which opens you up to being subject for audit. Missed Extra Filings Offshore accounts must be handled very carefully. For starters, they can set off requirements for extra filings. Miss one of those additional filings and the IRS can audit you forever. You never know when they are likely to call for an audit and you won’t know what year they are looking into. So it’s safe to say, if you have offshore accounts, hold onto your tax returns forever. Failure To Submit Form 5471 When a U.S. shareholder owns part of a foreign corporation, it can trigger reporting that includes the filing of an IRS Form 5471. This is a crucial form to remember since forgetting to file it means stiff penalties, generally $10,000 perform. If you are required to submit more than one Form 5471, a separate penalty can apply to each one filed late, incomplete or inaccurate. And to add an especially nightmarish turn, the penalty can apply even if no tax is due. If you fail to file a Form 5471 it’s is as if you’ve not filed your tax return at all. That leads to your tax return remaining open for audit indefinitely. A recent Forbes article adds a little more insight, “Forms 5471 are not only required of U.S. shareholders in controlled foreign corporations. They are also required when a U.S. shareholder acquires stock resulting in 10 percent ownership in any foreign company. The harsh statute of limitation rule for Form 5471 was enacted in 2010, part of the same law that brought us FATCA, the Foreign Account Tax Compliance Act.” (www.forbes.com/sites/janetnovack/2015/01/05/the-forbes-2015-tax-guide) Three years, six years or indefinitely, no matter how long you keep your tax records the thought that the IRS can audit because of oversights on the part of the taxpayer is a terrifying proposition. Besides holding your accountant or tax attorney accountable for filing the proper forms there’s little that can be done should any of the above mistakes be made. It’s important to keep in mind year to year that you’re not out of the woods for a tax audit on an annual basis. Just because you’ve submitted your tax returns and perhaps even received a tax refund does not mean you are not subject to an audit. You rarely know you’re getting into an IRS nightmare until you’re
