When Does the IRS Get to Audit Back 6 Years?

According to IRS regulations, the Service wants to audit your taxes for six years -- if you fail to disclose 25% or more of your gross income. But what exactly triggers the dragonian result is the subject of bitter litigation, which may end at the doorstep of the U.S. Supreme Court, according to a Forbes report .

In an example put forward by Forbes: You sell a piece of property for $3 million, claiming that your basis (what you have invested in the property) was $1.5 million. In fact, your basis was only $500,000. The effect of your basis overstatement was that you paid tax on $1.5 million of gain when you should have paid tax on $2.5 million. Your basis over-statement may trigger a six-year statutory audit.