How Long They Can Come After You

Every exposure in the preceding section has an expiry date, and knowing it changes what you keep, what you disclose, and when you can stop worrying. IRC §6501, “Limitations on assessment and collection” gives the IRS three years from the later of the return’s due date or the date you actually filed it to assess additional tax. File early and the clock still starts on April 15; file late and it starts when the return lands.

Three extensions matter, and the middle one is the trap for this book’s reader:

Six years for a substantial omission

If you omit more than 25% of the gross income stated on the return, the period doubles to six years ( IRC §6501(e)(1)(A)(i)). Critically for anyone selling equity compensation, overstating basis is not an omission — Congress overrode Home Concrete in 2015, and IRC §6501(e)(1)(B)(ii) now provides that an overstatement of basis is an omission of gross income. Get the vest-date basis wrong by enough on a large sale and you are exposed for six years, not three. Unreported foreign income above $5,000 carries its own six-year rule.

Unlimited if you never filed, or filed falsely

There is no statute of limitations on a year for which no return was filed, or on a false or fraudulent return filed with intent to evade ( IRC §6501(c)(1)– (3)). An unfiled year stays open forever, which is the single strongest argument for filing on time even with nothing attached.

Unlimited for certain unreported foreign assets

Fail to file Form 8938, 5471, 3520, or several other international information returns and IRC §6501(c)(8) holds the assessment period open for the entire return — not just the foreign item — until three years after you finally file the missing form.

Collection runs on a separate ten-year clock from the date of assessment ( IRC §6502), which is why a balance you cannot pay is a waiting game rather than a life sentence — and why currently not collectible status in section “When You Cannot Pay” is more useful than it looks. Your own refund claims run the other direction and expire faster: three years from filing or two years from payment, whichever is later ( IRC §6511).

The practical rule follows directly. Keep the return, the substantiation, and the brokerage records for seven years — three plus a margin for the six-year rule — and keep indefinitely the small set of documents that establish basis or a carryforward: 83(b) elections, Forms 3921 and 3922, cost-basis records for anything still held, Form 8606 for nondeductible IRA basis, prior-year Forms 6251 supporting an unused AMT credit, and your NOL and capital-loss carryforward schedules. Those do not age out with the return that created them; they are live inputs to a return you have not filed yet. Do not sign a Form 872 extending the assessment period without asking your representative what the agency gets and what you get — declining is an option, though it usually prompts an immediate assessment you then contest.