How Many Years Can an IRS Audit Go Back?

If the Internal Revenue Service (IRS) detects an error or discrepancy on a taxpayer’s tax return, or if the taxpayer fails to file one or more tax returns, the IRS is likely to initiate an audit, or examination of the taxpayer’s records and financial transactions. Depending on the results of the audit and whether the taxpayer appeals, the IRS may impose various penalties, or even refer the matter to prosecutors within the Department of Justice. However, there are certain limitations to the IRS’ auditing powers. For example, a time limit known as the “statute of limitations” restricts the amount of time in which the IRS may initiate an audit after the filing, or due date, of a tax return, though some exceptions apply. With tax returns due April 17 this year, the IRS is poised to launch a wave of audits of taxpayers who make filing errors. Therefore, it is prudent for at-risk taxpayers to understand some basic information about the statute of limitations on IRS audits.

How Long Can the IRS Audit Me, and Are There Exceptions?

In most cases, the statute of limitations grants the IRS a period of up to three years in which to initiate an audit of a taxpayer. The three-year clock begins counting down from the latter of the following dates:

  1. The date on which the return was originally due. In most cases, this is April 15, though the 2018 deadline is two days later.
  2. The date on which the return was originally filed. If the taxpayer obtained a filing extension, which may be done by filing Form 4868 (Application for Automatic Extension of Time to File U.S. Individual Income Tax Return), the filing date may have been up to six months later than the original April due date without the return being considered delinquent. Form 4868 grants taxpayers until October 15 (or, this year, October 17) to file without incurring failure-to-file penalties.

Though the three-year statute of limitations applies in many cases, there are also a few exceptions which may affect certain taxpayers. In other words, there are some tax situations where the statute of limitations is extended, granting the IRS additional time to audit taxpayers who meet certain criteria. For taxpayers who meet these criteria, the risk of an audit is heightened.

Some major exceptions to the three-year IRS audit statute of limitations are listed below. If any of these exceptions seem applicable to your situation, you should contact an experienced IRS tax audit attorney immediately for further guidance. If you are chosen to be audited, it is essential to begin developing a strategy as soon as possible.

  • Up to Six Years – The IRS may have up to six years in which to conduct an audit in cases where a tax return indicates a “substantial understatement of income,” which in most cases, means an understatement of approximately 25% or more. Taxpayers must report and pay taxes on taxable income, making the willful failure to report income an offense punishable by fines, restitution, and prison time.
  • No Time Limit – In some situations, no statute of limitations applies, giving the IRS unlimited time in which to conduct an audit. This is a worst-case scenario for any taxpayer, making aggressive legal representation imperative. The IRS may audit taxpayers with no time limit in the following scenarios:
    • The taxpayer does not file a tax return. If a taxpayer is not ready to file by Tax Day, the appropriate response is to obtain a time extension and consult with an experienced tax attorney. A tax professional can help you get caught up on back taxes and delinquent returns while working to manage your failure-to-file penalties.
    • The taxpayer files a fraudulent tax return. Filing a fraudulent tax return is a felony violation of 26 U.S. Code § 7206(1). Taxpayers who commit this offense may be fined up to $100,000 and/or imprisoned for up to three years.
  • Voluntary Extensions – Depending on the circumstances, the IRS may ask the taxpayer to voluntarily grant a time extension on a case-by-case basis using Form 872 (Consent to Extend the Time to Assess Tax). Keep in mind that, with some exceptions, extensions are generally permanent if granted. It is crucial to consult with a tax lawyer before consenting to a voluntary extension of time to assess tax.

If you are concerned about a tax audit, you may be interested in the following for further reading:

IRS Tax Audit Attorneys Offering Reduced-Rate Consultations

While educating yourself is a useful first step, it is critical to discuss your matter with an experienced tax professional – ideally an attorney with a long record of resolving civil audits and defending criminal cases successfully. At the Tax Law Offices of David W. Klasing, our tax team is comprised of criminal tax defense attorneys, employment tax audit attorneys, foreign account audit attorneys, and other accounting and tax professionals, bringing decades of combined legal and financial experience to a wide range of tax issues facing business entities and individual taxpayers.

Whether a tax audit concerns the inaccurate reporting of income, the division of property in a divorce, capital gains realized from Bitcoin and other cryptocurrencies, or the misclassification of employees as independent contractors by a small business owner, our tax firm is ready to approach the matter with enthusiasm and efficiency. For a reduced-rate tax consultation about how we can assist with your audit-related tax matter, contact the Tax Law Offices of David W. Klasing online, or call us today at (800) 681-1295.

Also, we’ve expanded our offices! In addition to our offices in Irvine and Los Angeles, the Tax Law Offices of David W. Klasing now have offices in San BernardinoSanta BarbaraPanorama City, and Oxnard! You can find information on all of our offices here.

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Here is a link to our practice overview video on warning signs that an audit has gone criminal.

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https://www.youtube.com/watch?v=7qixPqWTtvA

So, you cheated on your taxes and you are under a tax audit…

https://www.youtube.com/watch?v=FZce4jqQJpI

Why should I hire a tax attorney to represent me in a tax audit?

https://www.youtube.com/watch?v=NDwc4GUfBX8

Foreign income and information non-compliance

https://www.youtube.com/watch?v=g2UlIE8oxPA

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