How Long Are Investors on the Hook for a Tax Assessment?

Most of us real estate investors know the importance of keeping the Taxman happy. But he has time to determine if he’s happy. With the prevalence of IRS-related scams, we feel it’s important that real estate investors know when IRS maneuvers are legitimate. Uncle Sam uses a little thing called the tax assessment period. This is the time the IRS has to determine if you have accurately reported and paid any taxes owed to them. For the vast majority of us, the general rule is that the IRS will have three years from the filing date to assess taxes.

Those Who File Taxes Early or Late

If you filed your taxes ahead of April 15 of the tax year in question, the IRS still has three years from April 15 of that tax year. Unfortunately, you don’t get a shorter period for being responsible.

If you filed late, whether due to your own issues or with the consent of the IRS through an extension, the IRS has three years from the date of actual filing to assess taxes.

Those Who File an Amended Tax Return

An amended return is a document you use to make corrections to your tax filings. So if you know you made an error on your tax return, you would use an amended return to rectify that mistake and make the appropriate payments. An amended return would not normally affect the assessment period unless it is filed rather late. If you file within 60 days of the end of the three-year period the IRS has to assess your taxes, they may extend your assessment period by 60 days.

Other Considerations

There are some other situations that can affect the outcome of your tax assessment:

  • You underpaid. Specifically, if you underpaid by over 25% of your income, the IRS has six years to assess your taxes. You will also be expected to correct any statements about income received from your job and investments.
  • You filed three years late. First, you will forfeit any refund the Taxman may owe you. Next, you will be expected to pay both late fees and penalties on top of any taxes owed.

If either of these situations applies to you, it may be best to contact a CPA or tax attorney.

What Happens if the IRS Determines You Owe Taxes?

If you end up on the losing end of a tax assessment, the IRS has ten years to collect the balance owed. It is best to pay this off in a timely manner, but of course, it is never a bad idea to reach out to a professional to be certain you do what you’re supposed to.

We wish you a stress-free tax season. Feel free to contact Royal Legal Solutions with questions about the tax treatment of your real estate investments or other tax questions pertaining to your investments. If you wish to build an asset protection plan that minimizes your tax liabilities, take our tax discovery quiz and schedule your personalized consultation today.

Last Updated: 
December 27, 2018

Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.

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