Rental income nondisclosure

[dragonwalker]

Let's say you failed to report rental income and the IRS finds out. Obviously there will be penalties but how would the proper amount of tax be calculated if they found it years later? Would you still be able to add the deductions you would have had years ago?

[seattlecyclone]

In many cases they can only go back three years if you underreport your income. If you underreport a lot of income they can go back six years, or forever in certain particularly egregious cases.

I know of no reason you wouldn't be able to apply valid deductions to rental income in the event of an audit, but if you're saving your receipts for this purpose it sort of smells like you knew all along that you owed tax for this rental activity and you were planning to only pay it if you got caught.

If you know you owe it, pay it.

[BikeFanatic]

If they suspect fraud they can go back more years. If it was a mistake then I think the limitations is 3 years (don’t trust me look it up). Of course if you get audited then they can look at your bank statements. I would get a cpa or a lawyer if it is a lot of money.
I hate the feelings of hiding something, but I confess my cpa spouse said she filed my taxes 3 years ago and did not include my side income because the software would not tolerate it. We had to upgrade to the I forget what version that was 60 dollars more and we already paid 70 for the deluxe version.
I was nervous. But it is not a lot of money. Anyway earlier I was audited because I had discrepancies in income between feds and state income reporting. It was my mistake I had so many W2 s that I entered one twice on feds but not on state. The state thought I had under reported my income, but I had over reported! My spouse talked to the state and they figured it out together, and the state woman said hurry up and amend the Federal form you only have 3 years and then they will not let you amend!
Well I don’t know if her advice was accurate but we immediately amended and got like extra 700 back
And I told the spouse to buy something for herself since she figured it out and I made the mistake.

[secondcor521]

I don't know what the chances are, but you seem to be under the impression that you can just wait to see if you're caught, apologize, and pay some money to make things OK.

Let's say you failed to report rental income and the IRS finds out. Obviously there will be penalties but how would the proper amount of tax be calculated if they found it years later? Would you still be able to add the deductions you would have had years ago?

It may be difficult to do from a federal prison for up to 5 years, and the deductions to which you may have been entitled may be wiped out by the up to $100,000 fine and paying the government's legal bill to prosecute you, and paying your own tax defense attorney if you elect not to represent yourself:

https://www.law.cornell.edu/uscode/text/26/7201

And of course you'll be a convicted federal felon, which might make it hard to get a job later.

Oh, and you may also be assessed a fraud tax penalty of up to 75 percent of what you fraudulently didn't pay:

https://www.law.cornell.edu/uscode/text/26/6663

They have six years to catch you for tax fraud:

https://www.irs.gov/pub/irs-utl/tax_crimes_handbook.pdf -- page 31 of the PDF

Also, there is a whistleblower program where people who turned in tax frauds were entitled to 15% to 30% of whatever the IRS collected.  I could have turned in my ex-wife at one point but chose not to because of the children.  Anyone around you could be tempted to turn you in for the money:

https://www.irs.gov/compliance/whistleblower-office

Finally, if you're going to go the tax evasion / tax fraud route, you better hope that the IRS of the future doesn't check posts of yours like this (and your other thread) on message boards.  If they find these posts, then it will help prove their case that it's willful and not accidental.