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HOW LONG TO KEEP
by Julian Block
Just because you received a refund does not
mean you can forget about an audit. Hang on to receipts,
canceled checks, and whatever else might help support
income, deductions, exemptions and other items on your
Do that at least until the expiration of the statute of
limitations for an audit or for you to file a refund
claim, should you discover a mistake after filing. The
statute of limitations is the limited period of time
after which the Internal Revenue Service is no longer
able to come knocking and you cannot recover an
In most cases, the tax collectors have only three years
to audit your return after you file it. For instance, the
deadline is April 2007 for the government to start an
examination of a return for tax year 2003, with a filing
due date, for most persons, of April 2004.
There are two exceptions to the three-year test, though
they do not apply to most persons. The first exception
authorizes the IRS to double the audit deadline from
three to six years if the amount of income a person fails
to report on his or her return is greater than 25 percent
of the amount shown on it. Using the six-year test, the
deadline expires in April 2005 for returns for tax year
1998 that were submitted in 1999.
Under the second exception, there is no time limit on
when the IRS can come after someone who fails to file a
return or files one that is deemed false or fraudulent.
The audit, admonishes the IRS, can begin "at any
OF RETURNS. You should retain them indefinitely. They
take up little space and are always helpful as guides for
future returns or amending previously filed returns.
Moreover, copies of tax forms might prove helpful in case
the IRS claims you failed to file them.
REFUNDS. If you receive too much of a refund
because of an IRS computer goof, return the overpayment
immediately, rather than holding it until the feds
discover the error. Because you have the use of the
money, the law authorizes the IRS to charge you interest
on the overpayment.
EXAMPLE. Instead of an
expected refund of $600, you receive a check for $66,000.
Either return the $66,000 check in full or deposit it and
send your own check for $65,400.
TIP. One of my IRS
sources recommends that you send your own check and
deposit the government's. If you return the IRS check,
you will have to wait about eight to 10 weeks to get a
check for the correct amount. In addition, should your
check go astray, you can stop payment and send another
one. If you return the IRS check and that happens, it
might prove more difficult getting the matter
PAYMENTS. Make checks payable to the "United
States Treasury," not "Internal Revenue Service."
However, the feds still accept checks payable to the IRS.
Whichever payee designation you use, don't be casual
about what you write on the pay-to-the-order line of a
check going to the IRS. Your tax tab could double if you
merely make the check payable to "IRS," instead
of "Internal Revenue Service," and it winds up
in the wrong hands. That "IRS" can easily be
altered to "MRS" followed by a name, or altered
to a name by combining the initials "I.R." with
a last name for instance, "I.R. Smith."
And never send a check without filling in the payee line,
as some obliging taxpayers do.
TIP. The same "write-in-full"
advice applies to names specified by state or local tax
agencies. An example: Write "NY State Income Tax,"
instead of "NYS."
© Copyright 2004 Julian Block. All Rights Reserved.
Julian Block is a syndicated columnist,
attorney and former IRS investigator who has been cited
by the New York Times as a leading tax professional
and by the Wall Street Journal as an accomplished
writer on taxes. His Tax Tips For Freelance
Writers, Photographers And Artists explains
strategies to reduce taxes for this year and even gain a
head start for future years. Send $9.95 for an e-mailed
copy or $14.95 (in the U.S.) for a postpaid copy to: J.
Block, 3 Washington Square, #1-G, Larchmont, NY 10538-2032.
Contact him at firstname.lastname@example.org.
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