If you’re currently dealing with an audit, you may wonder how far back the IRS is allowed to go in reviewing your tax returns and assessing additional taxes and fees.
The Simple Answer is that the IRS Can Go Back Three Years
But there are a lot of exceptions. In some cases, it can go back six years or there may not be a statute of limitations at all.
Here’s a look at some things that affect your statute of limitations.
If You File Before or on the Due Date (Typically April 15th)
If you file your taxes before or on the due date, the IRS generally has three years from the due date to audit the return. If your return is due April 15th, but you file early, the statue runs from the due date, not the filing date.
So, let’s say you file your taxes on March 1, 2019. The IRS then has three years to audit that tax return, starting on April 15, 2019.
If You File After The Due Date (Typically April 15th)
Suppose you filed your taxes late without getting an extension. When that’s the case, the clock on the statute of limitations starts on the date you filed the return, not the due date.
If you got an extension, your new due date is typically October 15th. When that’s the case, the three-year statute of limitations starts on the extended due date.
If You Amend Your Return
Once you file your tax return, you’re allowed to make changes if you discover a mistake. This is called amending your return.
In general, if you want to amend a tax return, you have three years from the date you filed your original return or two years from when you paid your taxes on that return, whichever is later, to claim a refund.
Amending the return doesn’t restart the clock on your statute of limitations, unless you submitted the amendment within 60 days before the statute of limitations expires. When that’s the case, the IRS can take an additional 60 days to audit the return.
If You Under-Reported Your Gross Income by More Than 25%
When this is the case, the IRS can audit your tax returns going back six years. This seems straightforward, but there are complications. Some of those involve what is and isn’t considered “income.”
The IRS has made the argument that if you make misstatements on your tax returns that result in a 25% understatement of your finances, even if it’s not specifically income that you’re omitting, it should also be able to go back six years. In some cases, however, that argument hasn’t held up in court.
There are other situations that the IRS may consider an omission of gross income, but that don’t actually involve omitting income. One example involves overstating your basis in an asset (the amount you paid for the asset) that you sold, so it looks like you made less on the sale than you actually did.
If the IRS wants to prove that you “omitted income” by overstating your business deductions or tax credits, it has to prove its case in court for each year it seeks to examine.
If You Never Filed a Return
If you never filed a tax return at all, the IRS can assess you and charge additional taxes and fees for the year you didn’t file at any time.
The same is true if it thinks you committed fraud, but it has to prove that in court before it can audit your tax returns without a statute of limitations.
The 10-Year Statute of Limitations for Collection
Once the IRS has audited you, the Service generally has ten years to collect additional taxes and fees. But—like with everything else to do with the IRS—there are complications.
In our next article, we’ll address some of those.
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