Bryant - Course 4. Tax Planning. 14. Tax Compliance

Question 1

Module Introduction

As a financial planner, it is important that you are well versed in the laws regarding tax filing. Even though you might not be helping your clients prepare their tax forms, you will be providing them guidance in their financial matters, which may have an effect on how they file their tax returns.

The Tax Compliance module will explain the filing statuses and requirements of tax returns. The module will also review who can represent a client and what they need to provide to the Internal Revenue Service (IRS).

Answer 1

Upon completion of this module you should be able to:
* Outline the conditions for filing returns,
* Discuss the statute of limitations,
* List representatives of clients, and
* Define the responsibilities of the representatives towards the IRS.

Question 2

Section 1 - Filing Requirements

The IRS keeps records based on taxpayer identification numbers. Most individual taxpayers report information based on Social Security numbers, whereas self-employed workers and corporations use employer identification numbers (EINs). An individual taxpayer must file returns on or before the fifteenth day of the fourth month following the close of his or her tax year. The primary individual tax return is Form 1040.

Though the U.S. tax system is based on self-assessment and voluntary compliance, enforcement by the IRS is essential to maintain the integrity of the tax system. The IRS makes use of computers and experienced personnel to select returns for examination.

Answer 2

To ensure that you have an understanding of filing requirements, the following topics will be covered in this lesson:
* Due dates for filing
* Use of forms
* System of reporting income
* Selection of returns for audit
* Statute of limitations
* Interest
* Penalties
* Administrative appeal procedures

Upon completion of this lesson, you should be able to:
* State the due dates for filing,
* Explain the use of forms,
* Explain the method by which income is reported,
* Describe the system for the selection of returns for audits,
* Explain the rules governing the statute of limitations,
* Identify cases in which penalties are imposed, and
* Explain the procedures for appeal.

Question 3

An automatic six-month extension of time to file is given to taxpayers who file __ ____??____ __ by the due date for the return. This is an extension to file the return, not an extension of the time to pay the tax.

Answer 3

An automatic six-month extension of time to file is given to taxpayers who file Form 4868 by the due date for the return. This is an extension to file the return, not an extension of the time to pay the tax.

An individual taxpayer must file on or before the fifteenth day of the fourth month following the close of his or her tax year (for calendar-year taxpayers, April 15). If the due date falls on a Saturday, Sunday, or a legal holiday, the due date is the next day that is not a Saturday, Sunday, or holiday.

Question 4

List the basic forms that are needed and what amount determines need

Answer 4

Basic Form Type of Payment Required if Amount Equals or Exceeds
1099-R Pension and annuities $600
W-2 Salary and wages $600
1099-DIV Dividends $10
1099-INT Interest $600 for individuals; $10 for banks and corporations
1099-B Sale of a security All
1099-G Unemployment compensation, tax refunds, etc. $10
1099-MISC Direct sales $5,000
1099-R Total lump-sum distributions from retirement plans $600 All IRA distributions must be reported
1099-NEC Payments to nonemployees $600

Question 5

A computerized __ ____??____ __ is used to classify returns to be selected for audit.

Answer 5

A computerized Discriminant Function System (DIF) is used to classify returns to be selected for audit. The DIF system generates a “score” for a return based on the potential for the return to generate additional tax revenue. After returns are scored under the DIF system, experienced IRS personnel, who decide which of the returns warrant further examination, manually screen the returns. In the aggregate, less than 1% of all individual returns are selected for examination each year.

Some examples of situations where individuals are more likely to be audited include the following:
* Investments and trade or business expenses that produce significant tax losses.
* Itemized deductions exceeding an average amount for the person’s income level.
* Filing of a refund claim by a taxpayer who has been previously audited, where substantial tax deficiencies have been assessed.
* Individuals who are self-employed with substantial business income or income from a profession (for example, a medical doctor).

Question 6

The audits of most individuals are handled through an __ ____??____ __ procedure in an office of the IRS.

Answer 6

The audits of most individuals are handled through an office audit procedure in an office of the IRS. In most cases, an individual is asked to substantiate a particular deduction, credit, or income item, such as charitable contributions that appear to be excessive. The office audit procedure does not involve a complete audit of all items on the return.

Question 7

During an office audit, the individual is audited on all items included on the tax return.
* False
* True

Answer 7

False.

In most cases, an individual is asked to substantiate a particular deduction, credit, or income item, such as charitable contributions that appear to be excessive. The office audit procedure does not involve a complete audit of all items on the return.

Question 8

This time period is called the __ ____??____ __ and prevents either the taxpayer or the IRS from changing a filed tax return after the time period has expired.

Answer 8

Both the IRS and taxpayers can make corrections to returns after they have been originally filed. There is a limited time period in which to make such corrections. This time period is called the statute of limitations and prevents either the taxpayer or the IRS from changing a filed tax return after the time period has expired. The general rule for the statute of limitations is three years from the later of the date the tax return was actually filed or its due date. However, a six-year statute of limitations applies if the taxpayer omits items of gross income that in total exceed 25% of the gross income reported on the return. The statute of limitations remains open indefinitely if a fraudulent return is filed or if no return is filed.

Question 9

Statute of Limitations Example:

The IRS audits Betty, a calendar-year taxpayer, in February 2023 for the tax year 2021. During the course of the audit, the IRS proposes additional tax for 2012 because Betty failed to substantiate certain travel and entertainment expense deductions. During the course of the audit, the IRS discovers that Betty failed to file a tax return for 2016, and in 2018 an item of gross income amounting to $26,000 was not reported. Gross income reported on the 2018 return was $72,000. Assuming Betty’s 2021 return was filed on or before its due date (April 15, 2022),
* Which tax years may the IRS may assess a deficiency?

Answer 9

• The IRS may assess a deficiency for 2021 because the three-year statute of limitations will not expire until April 15, 2025.
• A deficiency also may be assessed for the 2018 return because a six-year statute of limitations applies since the omission is more than 25% of the gross income reported on the return.
• A deficiency also may be assessed for the year 2016 as there is no statute of limitations for fraud.

Question 10

What is the statute of limitations for refunds?

Answer 10

The three-year statute of limitations denies requests for refunds. Even if the IRS was overpaid, unless you seek your refund within the three years from the filing (or due date if later), it will be lost.

Question 11

The statute of limitations prevents the __ ____??____ __ from changing a filed tax return after the time period has expired.
I. taxpayer
II. IRS
* I only
* II only
* Both I and II
* Neither I nor II

Answer 11

Both I and II

The statute of limitations prevents both the taxpayer and the IRS from changing a filed tax return after the time period has expired.

Question 12

Interest Timeline Example:

Beverly, a calendar-year taxpayer, files her 2023 tax return on March 1, 2024, and requests a $500 refund. No interest accrues on the refund amount if the IRS sends the refund check to Beverly within 45 days of the due date, which would be April 15, 2023.

Answer 12

Interest accrues on both assessments of additional tax due and on refunds that the taxpayer receives from the government. No interest is paid on a tax refund if the IRS refunds the amount **within 45 days **of the day prescribed for filing the return, determined without regard to extensions. If a return is filed on or after the filing date, no interest is paid if the refund is made within 45 days of the date the return was filed.

Interest on late payments of tax is statutory and may not be abated by the IRS in the usual course.

Question 13

What is the penalty for failure to file a tax return?

Answer 13

A penalty of 5% per month (or fraction thereof) subject to a maximum of 25% for failure to file a tax return.

Question 14

What is the penalty for failure to pay the tax that is due?

Answer 14

A penalty of 0.5% per month (or fraction thereof) up to a maximum of 25% for failure to pay the tax that is due.

Question 15

What is the penalty for an accuracy-related penalty of the underpayment for items such as negligence or disregard of rules or regulations, any substantial understatement of income tax, or any substantial misstatement of valuation?

Answer 15

An accuracy-related penalty of 20% of the underpayment for items such as negligence or disregard of rules or regulations, any substantial understatement of income tax, or any substantial misstatement of valuation.

Question 16

What is the penalty for fraud?

Answer 16

A 75% penalty for fraud.

Question 17

What is the penalty for underpayment of estimated taxes?

Answer 17

A penalty based on the current interest rate for underpayment of estimated taxes.

Question 18

The government also assesses penalties for civil fraud and criminal fraud. What is the maximum penalty cash and prison sentence for criminal fraud?

Answer 18

In addition to the penalties listed above, the government also assesses penalties for civil fraud and criminal fraud. Criminal fraud carries a maximum penalty of $100,000, a prison sentence of up to five years, or both.

Question 19

If an IRS agent issues a deficiency assessment, what may the taxpayer do?

Answer 19

If an IRS agent issues a deficiency assessment, the taxpayer may make an appeal to the IRS Appeals Division. Some disputes involve a gray area, where some courts have held in favor of the IRS while other courts have held for the taxpayer on facts that are similar to the disputed issue.

In such a case, the taxpayer may be able to negotiate a compromise settlement with the Appeals Division based on the hazards of litigation, which is the probability of winning or losing the case if it is litigated. The settlement usually includes a percentage of the disputed tax amount plus interest and penalties. If no settlement can be reached with the Appeals Division, the taxpayer may seek redress through the courts.

Question 20

Section One Summary

There is a stipulated time limit for taxpayers to file their returns. There are different forms available for different categories of taxpayers.

The IRS keeps records based on taxpayer identification numbers. Though the U.S. tax system is based on self-assessment and voluntary compliance, enforcement by the IRS is essential to maintain the integrity of the tax system. The statute of limitations is three years, from the later of the date the tax return was actually filed or its due date. This limitation prevents both the taxpayer and the IRS from changing a filed tax return after the time period has elapsed.

Interest accrues on both assessments of additional tax due and on refunds that the taxpayer receives from the government. Penalties are imposed on the net tax due in case of failure to comply.

Answer 20

In this lesson, we have covered the following:
* Due dates for filing: For an individual taxpayer is on or before the fifteenth day of the fourth month following the close of the tax year. Calendar-year taxpayers have to pay before April 15.
* Use of forms: There are many forms that may be used when filing a tax return; the basic form is Form 1040.
* System for reporting income: There are different forms for reporting income depending on the type of income it is.
* Selection of returns for audits: The IRS uses both computers and experienced personnel to select returns for examination.
* Statute of limitations provision- compels the IRS to make changes in the taxpayer’s returns within three years from the later of the date the tax return was actually filed or its due date. There is no statute of limitations in the case of fraudulent returns.
* Interest accrues on both assessment of additional tax due and on refunds that the taxpayer receives from the government.
* Penalties: From 5% to 75% of the taxes owed can be imposed for failure to comply with the regulations while filing returns.
* Administrative appeals procedure allows taxpayers to dispute IRS rulings.

Question 21

If the IRS suspects fraud, what is the statute of limitations that the IRS must abide by?
* No statute of limitations applies. The IRS can review and make changes to any and all of your past tax returns.
* 3 years
* 6 years
* 9 years

Answer 21

No statute of limitations applies. The IRS can review and make changes to any and all of your past tax returns.

In the case of fraud, no statute of limitation applies.

Question 22

If an IRS agent issues a deficiency assessment, where should the taxpayer appeal?
* Circuit Court
* Appeals Court Division
* IRS Appeals Division
* Supreme Court

Answer 22

IRS Appeals Division

In such a case the taxpayer can make an appeal only to the IRS Appeals Division. There is no provision for the taxpayer to appeal in any other court until the taxpayer has appealed to the IRS Appeals Division.

Question 23

Section 2 - Representing Clients (Circular 230)

There are different rules stipulating who may represent clients before the IRS. In some special cases, there are provisions for self-representation. The IRS has stated its position regarding appropriate conduct (Circular 230). This is largely irrelevant since attorneys and accountants will be guided by the rules of conduct and advocacy established by their governing bodies, not the IRS. The IRS has long sought to limit representation by advocates for taxpayers and even to enlist such advocates in collecting taxes. Many of the rules in this section are IRS rules. We will clarify the actual practice of advocates as we discuss these IRS rules.

The IRS rules state that no attorney, certified public accountant, enrolled agent, or enrolled actuary can refuse to submit records or information in any matter if a duly authorized officer or employee of the IRS asks for it. If an attorney retained by a client knows that the client has not complied with the law, he or she is bound to advise the client promptly about the matter. Every attorney, certified public accountant, enrolled agent, or enrolled actuary is expected to exercise his functions diligently, accurately, and promptly. These are all practices that work to the benefit of the IRS.

Answer 23

To ensure that you have an understanding of representing clients, the following topics will be covered in this lesson:
* Who May Represent the Client
* Information Furnished to the Client
* Knowledge of Client’s Omission
* Diligence as to Accuracy
* Prompt Disposition of Pending Matters
* Ethics of the Profession
* Dangers of Tax Evasion

Upon completion of this lesson, you should be able to:
* Explain the provisions of representing clients,
* List the duties of an attorney, certified public accountant, enrolled agent, or enrolled actuary,
* Enumerate the duties of the representative of the client, and
* Explain the ethics of the profession.

Question 24

Who May Represent the Client

Some of the provisions for the representation of clients are:
* An individual may represent a member of his or her immediate family.
* A regular full-time employee of an individual employer may represent the employer.
* A general partner or a regular full-time employee of a partnership may represent the partnership.
* A bona fide officer or a regular full-time employee of a corporation, association, or organized group may represent the corporation, association, or organized group.
* A trustee, receiver, guardian, personal representative, administrator, executor, or regular full-time employee of a trust, receivership, guardianship, or estate may represent the trust, receivership, guardianship, or estate.
* An officer or a regular employee of a governmental unit, agency, or authority may represent the governmental unit, agency, or authority in the course of his or her official duties.
* An individual may represent any individual or entity before personnel of the IRS who are outside of the United States.
* An individual who prepares and signs a taxpayer’s return as the preparer, or who prepares a return but is not required to sign the return, may represent the taxpayer before officers and employees of the examination division of the IRS with respect to the tax liability of the taxpayer for the taxable year or period covered by that return.

Answer 24

Practitioner Advice: Actually, none of the above should represent a client before the IRS in any serious matter. An attorney, accountant, or an enrolled agent should always be used to negotiate with the IRS for the taxpayer.

Question 25

# Information Furnished to the IRS The IRS has established certain duties and restrictions relating to practice before the IRS, regarding information that is furnished. List 3.

Answer 25

* No attorney, certified public accountant, enrolled agent, or enrolled actuary can neglect or refuse promptly to submit records or information in any matter before the IRS, upon proper and lawful request by a duly authorized officer or employee of the IRS. In practice, any representative, especially an attorney, will largely disregard this rule. The agent's duty is to his or her client, not to the IRS. As a general guideline, the IRS has a right to all such records, except for privileged communications between attorney and client. **Nevertheless, an accountant or enrolled agent should seek counsel with the client or the client's attorney before handing sensitive documents to the IRS to determine whether any privilege exists**. * No attorney can interfere, or attempt to interfere, with any proper and lawful effort by the IRS or its officers or employees to obtain any such record or information, unless he believes in good faith and on reasonable grounds that such record or information is privileged or that the request for, or effort to obtain such record or information, is of doubtful legality. * It shall be the duty of an attorney or certified public accountant, who practices before the IRS, or enrolled agent, when requested by the Director of Practice, to provide the Director with any information he may have concerning violation of the regulations in this part by any person, and to testify thereto in any proceeding instituted under this part for the disbarment or suspension of an attorney, certified public accountant, enrolled agent, or enrolled actuary, unless he believes in good faith and on reasonable grounds that such information is privileged or that the request therefore is of doubtful legality. Violation of these rules could cause the IRS to suspend one's right to practice before them, but there may be negative consequences from following these rules unless a court subpoena has first been obtained by the IRS.

Question 26

Each attorney, certified public accountant, enrolled agent, or enrolled actuary who is retained by a client usually knows when the client has not complied with the revenue laws or has made an error in or omission from any return which is required by the revenue laws of the United States to be executed. * What are they morally obliged to do?

Answer 26

Knowledge of Client's Omission In such instances, **the concerned authority is morally obliged to advise the client promptly of the fact of such noncompliance, error, or omission**. Aside from any IRS rule, an agent has a requirement to inform his client about any information regarding his or her case.

Question 27

# Diligence as to Accuracy List 3 things every attorney, certified public accountant, enrolled agent, or enrolled actuary shall exercise due diligence in.

Answer 27

Every attorney, certified public accountant, enrolled agent, or enrolled actuary shall exercise due diligence: * In preparing or assisting in the preparation of, approving, and filing returns, documents, affidavits, and other papers relating to IRS matters. * In determining the correctness of oral or written representations made by him to the Department of the Treasury. * In determining the correctness of oral or written representations made by him to clients with reference to any matter administered by the IRS.

Question 28

No attorney, certified public accountant, enrolled agent, or enrolled actuary is allowed to: * Employ or accept assistance from any person who is under disbarment or suspension from practice before the IRS. * Accept employment as an associate, correspondent, or subagent from, or share fees with, any such person. * Accept assistance from any former government employee where the provisions of any regulations or any Federal law would be violated. * No partner of an officer or employee of the executive branch of the U.S. Government, of any independent agency of the United States, or of the District of Columbia, shall represent anyone in any case administered by the IRS in which such officer or employee of the Government participates or has participated personally and substantially. **These rules are an attempt to prevent a disbarred or suspended agent or person under a legal limitation from formally participating in a matter before the IRS.**

Answer 28

**The ethical issue for any representative or tax advisor is to avoid any participation in tax evasion or fraud**. Clients may wish to involve a tax planner in a scheme that constitutes tax evasion. **A tax planner must never participate in any way in such a scheme. The planner is not under any obligation to report any such scheme; but to the extent that he or she participates in it or assists in any way in its planning or execution, the planner has committed a crime**. **After the fact of such a scheme and after the tax return is filed, a planner may assist the taxpayer in defending himself before the IRS**. The one caution is that **the IRS, through the courts, can compel the disclosure of any communication between a taxpayer and his or her agent or planner, except when the agent or planner is an attorney**. A non-attorney agent or planner must be careful what a client discloses to them and should warn the client about this.

Question 29

Describe the following examples of transactions that may be viewed by the IRS as **tax avoidance schemes**: * **Sham Transaction Doctrine** * **Step Transaction Doctrine** * **Substance Over Form Doctrine**

Answer 29

* **Sham Transaction Doctrine**: IRS will ignore tax consequences if transactions are determined to be a “sham”. For example, in a **sale of property by one entity to another entity, where both entities are controlled by the same person(s)**, IRS will probably rule that the transaction was made to create a tax gain or loss, and as such, will be disallowed for income tax purposes. * **Step Transaction Doctrine**: For purposes of analyzing the total effect of a series of transactions, the courts may ignore each individual transaction (which is OK, individually) and **look at the “economic reality” of all the steps aggregated together**. For example, a taxpayer who contributes to a **non-deductible IRA and then immediately converts the funds to a Roth IRA could face an issue with the IRS**. * **Substance Over Form Doctrine**: The substance of a transaction, rather than just transactional form, will determine the transaction tax outcome. For example, **if two parties sell properties to each other (at losses), using the substance over form doctrine will cause the IRS to view the substance of this transaction to be a like-kind exchange**.

Question 30

What are the Dangers of Tax Evasion?

Answer 30

Tax evasion is a crime and people go to jail for tax evasion. **A planner must be very careful not to participate in tax evasion**. A client will freely implicate an advisor if the IRS threatens them with prosecution. **The IRS will quickly prosecute an advisor to discourage other planners and advisors from aggressive, but legal, tax planning**.

Question 31

# Section Two Summary There are different rules stipulating who may represent clients before the IRS. There are provisions for self-representation too. However, there are certain responsibilities attached to anyone representing clients before the IRS. A**ny person representing a client is expected to exercise his functions diligently, accurately, and promptly.** Certain conditions imposed on the client's representatives **ensure that basic ethics are maintained**. The **responsibility of the representative is to vigorously advocate for his or her client within the law**. In this lesson, we have covered the following: * Who may represent the client: There are strict provisions regarding who can represent clients before the IRS. **In any serious matter, the client should be represented by an attorney, accountant, or enrolled agent**. * Information furnished to the client: The IRS has established certain duties and restrictions relating to practice before the IRS regarding the information that is furnished.

Answer 31

* Knowledge of client's omission: Each attorney, certified public accountant, enrolled agent, or enrolled actuary who is retained by a client usually knows when the client has not complied with the revenue laws or has made an error in or omission from any return which is required by the revenue laws of the United States. In such instances, **the representative is morally obliged to advise the client promptly of the fact of such noncompliance, error, or omission**. * Diligence as to accuracy: Due diligence is required by professionals representing clients before the IRS. * Prompt disposition of pending matters is expected from the representatives of clients before the IRS. The agent must also balance this with their client's interest. * **Ethics of the profession requires that no unethical or illegal means be resorted to while representing clients before the IRS**. * Dangers of tax evasion: **No agent or planner should ever be a party to tax evasion**.

Question 32

# Module Summary This module covered the requirements of tax returns, who can represent a taxpayer before the IRS, and what representatives need to do to comply with IRS regulations. As a financial planner, you will assist your client in making financial decisions that will affect how they will file their return. It is **important that you are aware of all the tax implications of the different filing statuses and the different filing requirements**.

Answer 32

The key concepts to remember: * **Filing requirements**: Certain basic procedures are followed as far as tax returns are concerned. The statute of limitations limits the time that both the IRS and taxpayers are allowed to make corrections to tax returns after they have been filed. **In order to check violations, penalties are imposed on the net tax due for failure to comply**. * **Representing clients (Circular 230)**: There are certain guidelines as to who may represent clients before the IRS. There are certain duties and restrictions for representatives of clients regarding information to be furnished before the IRS. There are certain guidelines to ensure that ethics codes are not violated under any circumstances.

Question 33

The monthly penalty for failure to pay is ____. * 5.0% * 20% * 0.5% * 25%

Answer 33

0.5% A penalty of 0.5% per month (or fraction thereof) up to a maximum of 25% for failure to pay the tax that is due.

Question 34

The maximum penalty assessed by the IRS for criminal fraud is: I. $100,000 II. a prison sentence of up to five years * Neither I nor II * Both I and II * I only * II only

Answer 34

Both I and II The IRS assesses penalties for civil fraud and criminal fraud. Criminal fraud carries a maximum penalty of $100,000, a prison sentence of up to five years, or both.

Question 35

Taxpayers who file Form 4868 by the due date for the return receive an automatic __ ____??____ __ extension of time to file. * two-month * three-month * nine-month * six-month

Answer 35

six-month An automatic six-month extension of time to file is given to taxpayers who file Form 4868 by the due date for the return.

Question 36

Across every situation, the IRS, through the courts, can compel the disclosure of any communication between a taxpayer and his or her agent or planner. * False * True

Answer 36

False If the agent or planner is an attorney, the IRS cannot compel disclosure through the courts.

Question 37

The monthly penalty for failure to file is ____. * 0.5% * 20% * 5.0% * 25%

Answer 37

5.0% A penalty of 5% per month (or fraction thereof) subject to a maximum of 25% for failure to file a tax return.

Question 38

Disallowance of tax gain or loss on a sale of property by one entity to another entity, where both entities are controlled by the same person(s) is an example of which tax avoidance scheme? * Economic Substance Doctrine * Step Transaction Doctrine * Sham Transaction Doctrine * Substance Over Form Doctrine

Answer 38

Sham Transaction Doctrine IRS will ignore tax consequences if transactions are determined to be a “sham” according to the ‘Sham Transaction Doctrine.’ A sham-in-substance is a transaction that occurs but lacks economic substance beyond the generation of tax benefits. The example in this question is a transaction intended entirely to create tax benefit.

Question 39

While representing a client before the IRS, an attorney, CPA, Enrolled Agent, or Enrolled Actuary is morally obliged to __ ____??____ __ of any tax noncompliance, error(s), and/or omission(s) in their case. * advise the client promptly * advise the client’s financial planner * issue an itemized list of penalties * inform the IRS

Answer 39

advise the client promptly The concerned authority is morally obliged to advise the client promptly of the fact of such noncompliance, error, or omission.

Question 40

A 1099-NEC (Non-employee Compensation) must be filed if payment is equal to or exceeds __ ____??____ __. * $600 * $1,200 * $300 * $5,000

Answer 40

$600 Basic Form Type of Payment Required if Amount Equals or Exceeds 1099-NEC Payments to nonemployees $600

Question 41

A __ ____??____ __ is the most comprehensive of the types of tax audits and detailed IRS audit. * correspondence audit * office audit * taxpayer compliance measurement program (TCMP) audit * field audit

Answer 41

field audit A field audit procedure is often used for corporations and individuals engaged in a trade or business and is the most comprehensive of the tax audits. A field audit is usually conducted at the taxpayer's place of business or the office of his or her tax advisor.

Question 42

The statute of limitations is __ ____??____ __ if a fraudulent return is filed or if no return is filed. * one-year * kept open indefinitely * six-years * three-years

Answer 42

kept open indefinitely The **general rule for the statute of limitations is three years** from the later of the date the tax return was actually filed or its due date. However, **a six-year statute of limitations applies if the taxpayer omits items of gross income that in total exceed 25% of the gross income reported on the return**. **The statute of limitations remains open indefinitely if a fraudulent return is filed or if no return is filed**.