Tax Fraud Statutory Limitations for Enforcement (7 Key Facts)

Tax Fraud Statute of Limitations for Enforcement

While there are many different types of tax violations, one of the most serious types of violations that a taxpayer may face is tax fraud. That is because, with tax fraud, the IRS has an unlimited amount of time to go after the taxpayer. While in practice, the IRS tends to not go back more than six years as part of their investigation — with civil tax fraud, there is no limitation on how many years the IRS can go back to pursue an investigation. Likewise, the US government can also pursue criminal violations for tax fraud at the same time that a civil tax fraud investigation is pending (parallel investigations). There are many twists and turns involving civil tax fraud. Let’s take a look at five important facts involving tax fraud statute of limitations:

There Is No Statute of Limitations for Civil Fraud 

The primary reason why tax fraud is such a powerful weapon for the IRS to utilize is that there is no statute of limitations for civil tax fraud. While most civil tax violations have a 3- or 6-year statute of limitations (e.g., how many years the IRS can go back and pursue their case), civil tax fraud has no statutory limitation.

The IRS Tends to Look Back 6 Years

Despite the fact that the IRS has unlimited time to go back and investigate a taxpayer for civil fraud, there are general practical limitations. Generally, the IRS does not commence an action further back than six years. This is in part why the IRS Voluntary Disclosure Program goes back six years (in addition to the fact that the FBAR SOL is six years) instead of 8-years as in previous versions of the offshore program (aka OVDP).

The Government Can Also Pursue Criminal Charges

Even if the taxpayer is being investigated for civil tax fraud, the IRS can still investigate and/or refer the matter for criminal investigation for tax and related crimes. In other words, just because a civil tax fraud investigation is pending does not mean that the US government cannot also pursue a criminal investigation as well (although, unlike civil tax fraud, there are statutory limitations for criminal tax fraud).

Clear and Convincing Evidence

In most situations, the evidentiary standard with civil tax violations is to show the violation occurred by a preponderance of the evidence – which is generally thought of as +50%. This is the general standard for most civil tax violations (even willful FBAR) because the government claims the only issue is monetary sanctions and not incarceration. Nevertheless, when it comes to tax fraud, the evidentiary standard is clear and convincing evidence — which is generally thought of as +75%.

75% Penalty and Other Penalties (26 USC 6663)

The penalty for fraud can be very high, depending on the type of matter and whether it is civil or criminal fraud. Civil fraud under 6663 carries a 75% penalty, but there are related matters such as reportable transactions and willful FBAR that can result in significantly higher penalties depending on the nature of the fraud and if there are other violations as well — although the other civil and criminal violations would have a statutory cut-off and for criminal matters, the government must prove the crime happened ‘beyond a reasonable doubt.’

Can Be Used to Pursue Other Violations

Once a person is found to have violated the civil fraud statute by clear and convincing evidence, it sets the IRS up to pursue other types of violations. Civil FBAR violations can carry extensive fines and penalties – especially if the person is willful and/or is in a state that follows the ‘per account, per year’ rule.

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