Documenting the IRS Six Year Policy
Author: Brad Howland
First Posted: Dec. 30, 2008
We knew that U.S. citizens residing in Canada–who haven't been filing their U.S. returns to report world income–were allowed to catch up without penalty by filing the last six years, as long as their intentions weren't fraudulent (if tax is actually owed to the U.S. interest would be charged on overdue amounts).
This policy applied if the taxpayer filed their six years worth of returns voluntarily; if the IRS discovered and came after the taxpayer, penalty charges would not be waived.
Although this policy is mentioned in several books on the subject, I've never been able to find an official IRS reference to document it, until now...
From the Internal Revenue Manual (IRM), Section 5.1.11.6.1 (05-07-2002):
Enforcement Determination
Enforcement of filing requirements will normally be pursued for a six year period. Always request all (non-fraudulent) unfiled returns. The taxpayer may file for all open periods regardless of the age of the delinquency.
Exciting and heady stuff for us tax preparers!