How many years of tax returns should a CDFA professional review to discover hidden assets?

How many years of tax returns should a CDFA professional review to discover hidden assets?

• A. 2 years
• B. 3 years
• C. 5 years
• D. 10 years

Answer: (C)

The recommendation for a CDFA professional to review five years of tax returns is based on several key factors relevant to the identification of hidden assets. Tax returns provide a comprehensive view of a person’s financial situation, including reported income, deductions, and potential sources of untapped assets. Reviewing five years allows a deeper analysis of any inconsistencies or irregularities in income that could indicate undisclosed assets. Additionally, certain patterns, such as fluctuations in income or large deductions in specific years, may warrant further investigation. A five-year period also aligns with the IRS guidelines for audit purposes, as the IRS can generally audit returns filed within the last three years but can extend this to up to six years if substantial underreporting is suspected. Therefore, looking at five years of tax returns provides a broader context for understanding a client's financial history and potential areas where assets may not have been fully disclosed during divorce proceedings. In comparison, reviewing fewer years may not capture enough information to identify hidden assets effectively, as it may overlook key financial details that appear over a longer time frame.

The recommendation for a CDFA professional to review five years of tax returns is based on several key factors relevant to the identification of hidden assets. Tax returns provide a comprehensive view of a person’s financial situation, including reported income, deductions, and potential sources of untapped assets. Reviewing five years allows a deeper analysis of any inconsistencies or irregularities in income that could indicate undisclosed assets.

Additionally, certain patterns, such as fluctuations in income or large deductions in specific years, may warrant further investigation. A five-year period also aligns with the IRS guidelines for audit purposes, as the IRS can generally audit returns filed within the last three years but can extend this to up to six years if substantial underreporting is suspected. Therefore, looking at five years of tax returns provides a broader context for understanding a client's financial history and potential areas where assets may not have been fully disclosed during divorce proceedings.

In comparison, reviewing fewer years may not capture enough information to identify hidden assets effectively, as it may overlook key financial details that appear over a longer time frame.