You haven’t filed your taxes in a while? This is how the IRS six-year compliance rule can help you

Filing tax returns is a complicated task for most of us. It’s time-consuming, stressful, unpleasant and even the simplest mistake can be costly. Which is why many people pay a professional to help.

There are occasions when you might miss filing a tax return - some people have fall behind with their taxes and not filed for several years. There are penalties for failing to file your tax return but the Internal Revenue Service (IRS) also has solutions available to help you get your books back in order.

What is the IRS six-year compliance rule?

The IRS six-year compliance rule applies to anyone who has missed several years of filing and wants to catch up. Basically the IRS can request taxpayers to provide returns dating back a maximum of six years.

For example, if you have not filed a tax return since 2015, under the six-year compliance rule, this year, you will only be asked to file for the last six years - 2019 to 2025, not all of the 10 missed years.

If you’ve omitted more than 25% of your gross income on your tax return, or it’s attributable to foreign financial assets and is more than $5,000, the IRS has the authority to delve into your financial records up to six years back.

However, there are exceptions when the IRS might want to do a complete audit of your finances going back further if they suspect criminal activity or fraud.

Which is why it’s important to keep records of transactions - receipts, canceled checks, and other documents that support an item of income, a deduction, or a credit appearing on a return as long as they may become material in the administration of any provision of the Internal Revenue Code, which generally will be until the period of limitations expires for that return.

Refunds can only be backdated three years

Bear in mind that that the six-year compliance rule only applies if you owe tax. For filing a claim for credit or refund, the maximum period to make the claim is three years from the date you filed the original return or two years from the date the tax was paid, whichever is later. If no return was filed, the period to file a claim is two years from the date the tax was paid.

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