What Is the IRS Statute of Limitations on Audits?

The term “tax audit” can put fear into the bravest of hearts. Everyone is afraid of it, and when it does happen, taxpayers are naturally inclined to panic. However, just because the IRS has a lot of power doesn’t mean that they have all of it.

The IRS has a statute of limitations they must follow in terms of audits. Let’s examine the IRS statute of limitations so you know your rights if and when you find yourself dealing with an audit.

Statute of Limitations on Audits

The IRS has three years to conduct an audit, which is measured from the return due date or filing date (whichever is later) of the tax year in question. However, it’s not always that simple. For example, the three years can get doubled to six years if the IRS alleges you omitted 25 percent or more of your income. The problem gets worse if you never filed a tax return. In that case, the IRS does not have a time limit in which they may conduct an audit, and similar rules apply when it comes to fraud.

IRS Audits Related to Fraud

Since an audit is defined as an official inspection of your records and accounts, you are, at this point, under no admission of guilt. Consider this situation comparable to when you go to court for a civil or criminal case. Another party may allege that you broke these rules, but until they are proven in a court of law, you are innocent.

Therefore, just because you are getting audited by the IRS does not make you guilty. An audit also does not restrict you from the rights you have at your disposal. The statute of limitations is a great example of these rights. But what if the IRS alleges you committed fraud to extend the statute of limitations for more than three years? Then it gets complicated.

The Three-Year Rule

The good news is that it is not easy for the IRS to prove that someone committed fraud. While the agency may attempt to extend the statute of limitations in a case because of fraudulence, there is a high burden of proof that must be submitted to have a valid case.

As a result, the general rule is that for most audits, the IRS has three years to inspect your taxes.

The timeline begins from the due date of the tax return in question, not the actual date you filed. If you had requested an extension for the tax year in question, the timeline is bumped up to three years from October 15. Generally, as long as you did not commit fraud and filed your taxes on time, you cannot get audited by the IRS after three years.

The Six-Year Rule

Under certain statutes of limitations, the IRS is allowed to conduct an audit six years after the due date of the tax year in question. This privilege is granted if you left out a substantial amount of your income on your tax return.

In most cases, this means the IRS alleges you failed to report 25 percent or more of your gross income. Whether this was done intentionally or unintentionally, the IRS can get this six-year grace period for a myriad of reasons, so you should get a strong audit defense if you believe you are being mistreated by the IRS.

No Time Limit

If you never filed a tax return or the IRS claims it is fraudulent, there are no time restrictions related to you getting audited. Unfortunately, the IRS sometimes finds questionable ways to work around the statute of limitations, such as claiming that since you didn’t sign your return, it was “fraudulent.” 

They may also reach out around the two and a half-year time period and requesting that you extend the statute of limitations. Tax professionals have different opinions on what you should do here, but the important thing to remember is to reach out to an expert if you are unsure.

Get the Right Audit Defense

We at Levy Tax & Associates want to help defend your statute of limitations with the IRS.  We’ll make sure that you know and can exercise your rights in the case of an audit. Contact us today for an initial free, no-obligation appointment. You can reach us at 800-TAX-LEVY, or visit www.www.levytaxhelp.com.

Contact Levy & Associates for Dependable Tax Audit Services

Levy & Associates is available for free initial consultations. We’re happy to answer any questions you have about the audit process or address any concerns about your specific situation.

There’s never a good time to be audited, and the time-consuming process will take away from your business or family if you try to face it alone. Let us handle and coordinate communication, so you can return to your daily life.