admin Generally, the IRS can include returns filed within the last three years in an audit. Additional years can be added if a substantial error is identified. Generally, if a substantial error is identified, the IRS will not go back more than the last six years.
The IRS tries to audit tax returns as soon as possible after they are filed. Accordingly most audits will be of returns filed within the last two years.
If an audit is for an older year, you may be requested to extend the statute of limitations for assessment of your tax return. The statute of limitations limits the time allowed to assess additional tax. The statute of limitations is generally three years after a return is due or was filed, whichever is later. There is also a statute of limitations for making refunds.
If the audit is not resolved and the statute of limitations date is nearing, you may be asked to extend the statute of limitations date. This will allow you additional time to provide further documentation to support your position, request an appeal if you do not agree with the audit results, or to claim a tax refund or credit. It also allows the IRS time to complete the audit and provides time to process the audit results.
You do not have to agree to extend the statute of limitations date. However, if you do not agree, the examiner will be forced to make a determination based upon the information they currently have. Therefore, the examiner may not be able to consider additional adjustments, such as expenses, that could lower the amount of tax due.
The statute of limitations is extended to 6 years if the taxpayer omits gross income in excess of 25% of the amount of gross income stated in the return filed with the IRS. There is no statute of limitations in the case of a false tax return or fraudulent tax return filed with the IRS with the intent to evade any tax.
Below are the three different time frames in which the IRS can audit.
3 Year Period: This is the standard amount of time that the IRS has to legally audit most tax returns. This time period applies if you do not fall into any of the two following categories.
6 Year Period: If the income on the tax return was understated by 25% or more, the statute of limitations to audit the return can be extended by another 3 years.
Unlimited Time Period: If the tax return was filed with intent to commit fraud, then the statute of limitations can be extended indefinitely. There is a fine line between fraud and negligence and this time period only applies to tax fraud. The IRS must prove fraud in these types of cases and typically will only pursue this route if substantial sums of money are involved or if it is a high-profile tax case.
