6-Year Foreign Income Statute of Limitations and IRC § 6501

6-Year Statute of Limitations for Specified Foreign Assets (6038D)

6-Year IRC 6038D Statute of Limitations

In general, the Internal Revenue Service has three years to assess a taxpayer for their tax return. For example, if a taxpayer files a tax return on April 15, 2024, the IRS typically would get three years from that date to assess the taxpayer. In some situations, the IRS has more time than the typical three-year statute of limitations. Some scenarios allow the U.S. government to go after a taxpayer for six years instead of three years or even for an unlimited amount of time in situations in which the taxpayer did not file a tax return in that year or they are under investigation for civil tax fraud. When it comes to the six-year extended statute of limitations, one common scenario that catalyzes the six-year assessment statute is when a taxpayer has certain unreported income from specified foreign financial assets. It is important to note, that it does not include all foreign assets and there are minimum threshold requirements for the six-year statute to apply. Let’s take a look at Internal Revenue Code Section 6501(e) to see when this rule comes into play.

26 U.S.C. 6501(e)- Limitations on assessment and collection

(e) Substantial omission of items

Except as otherwise provided in subsection (c)—

• • • Income taxes –

      • In the case of any tax imposed by subtitle A—

    • General rule

      • If the taxpayer omits from gross income an amount properly includible therein and—

        • (i) such amount is in excess of 25 percent of the amount of gross income stated in the return, or

        • (ii) such amount—

          • (I) is attributable to one or more assets with respect to which information is required to be reported under section 6038D (or would be so required if such section were applied without regard to the dollar threshold specified in subsection (a) thereof and without regard to any exceptions provided pursuant to subsection (h)(1) thereof), and

          • (II) is in excess of $5,000, the tax may be assessed, or a proceeding in court for collection of such tax may be begun without assessment, at any time within 6 years after the return was filed.

  • Determination of gross income

    • For purposes of subparagraph (A)—

      • In the case of a trade or business, the term “gross income” means the total of the amounts received or accrued from the sale of goods or services (if such amounts are required to be shown on the return) prior to diminution by the cost of such sales or services; (

      • An understatement of gross income by reason of an overstatement of unrecovered cost or other basis is an omission from gross income; and

      • In determining the amount omitted from gross income (other than in the case of an overstatement of unrecovered cost or other basis), there shall not be taken into account any amount which is omitted from gross income stated in the return if such amount is disclosed in the return, or in a statement attached to the return, in a manner adequate to apprise the Secretary of the nature and amount of such item.

IRC 6038D and 6-Year Statute of Limitations Explained

IRC 6038D refers to the reporting of specified foreign financial assets, which are the kind that is reportable on Form 8938 in conjunction with FATCA. The way this rule comes into effect, is if the taxpayer omits from their gross income, more than $5000 of income that is attributable to assets that are reported under section 6038D. Equally important is the fact that even if the taxpayer is not required to report Form 8938 in conjunction with section 6038 — because the value of the specified foreign financial asset is below 603D(a), if the income is still attributable to a 6038D, then it still qualifies under 6501(e) and the six-year statute of limitations.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

This resource may help taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.