(PresidentialWire.com)- Tax returns are a dreaded annual chore, but they are necessary. Individuals, businesses, and investment entities all benefit from them. Everyone must file one, or more, depending on the number of entities they have. You may also need to file state taxes. You may believe that your filing date is self-evident and that you will file before the deadline. The most well-known date is April 15. Of course, the due date may shift slightly, as it did for 2021.
So, what’s the big deal about filing? For one thing, there’s proof.
Because of the statute of limitations, it may be necessary to prove when you filed. After you file your tax return, the federal tax statute of limitations runs for three years. That clock starts on the day you filed.
The three-year period does not begin if you file early. If you file on October 15 and get an extension, your three-year period starts. However, if you file late and don’t get an extension, the statute runs for three years after your actual (late) filing date. California gets an extra year from filing tax returns, four years.
If you file with the IRS late—days, weeks, or even years late—you should calculate the IRS three years from the date of your actual filing. Your exact filing date can be crucial in tax audits and disputes. The tax case Seaview Trading LLC et al. v. Commissioner of Internal Revenue, No. 20-72416, before the Ninth Circuit, is a good example (9th Cir. May 11, 2022). This California-based partnership was hit with a $35.5 million IRS tax bill. Seaview sued the IRS in federal court, claiming that the IRS was out of time. The Tax Court, however, sided with the IRS. The IRS was thrown back on its heels by the Ninth Circuit on appeal.
It all came down to the deadline for filing tax returns. Seaview’s 2001 tax return was requested by the IRS in 2005, and the IRS received it in 2005. On the other hand, the IRS did not issue a tax bill until 2010, more than three years later.
The IRS claimed that handing over the return to an IRS auditor was not “filing.” Hey, you’re supposed to submit it to the IRS Service Center in your neighborhood. According to the IRS, that is the only thing that counts as “filing.”
Despite the IRS’s arguments, the Ninth Circuit found that the tax code and IRS regulations do not specify the procedures that a taxpayer must follow to properly file a late tax return. As a result, the Ninth Circuit decided to use the common meaning of the term “file.”
Seaview got a big win here.
You’d be surprised at how crucial such housekeeping details can be. Keep these items, as well as good copies of all your returns, in your permanent records. Never, ever throw them away. Maintain thorough records and copies of all IRS correspondence. It’s helpful to keep track of letters in which you confirm what the IRS told you to do. Even if the IRS does not send you a letter, you can use your own letter to the IRS to confirm your understanding. In some cases, it can have an estoppel effect.
Tax disputes can be costly, as you might expect. Make every effort to avoid them, and if they are unavoidable, make sure you have all of your ducks in a row.