What Is the Statute of Limitations for IRS Audits?
If you’re concerned about an issue with an old tax return, you should know that there’s a strict statute of limitations during which the Internal Revenue Service (IRS) can initiate an audit.
The IRS processes over half a million audits every year, and most of them involve recent tax returns filed within the last two years. The more time that passes, the less likely you are to be audited for a specific return. However, there are a lot of nuances to U.S. tax law, and older returns do occasionally get flagged for one reason or another.
The IRS Audit Statute of Limitations
Under normal circumstances, the IRS can audit the most recent three years’ worth of tax returns. More specifically, the statute of limitations is three years from the day the tax return was due or filed (whichever is later). So if we’re in the middle of 2023 and you submitted your 2022 return by the tax deadline, the IRS can lawfully examine your returns for 2022, 2021, and 2020 as part of their tax audit.
There are exceptions to the rule. If the IRS finds a major error, they may go back as far as six years. For instance, if you fail to report foreign income valued at more than $5,000, the statute of limitations is automatically extended to six years. If you report less than 25% of your total gross income, this can also extend the statute to six years.
Only in very extreme circumstances (such as in instances of prolonged, systematic tax fraud) will the IRS go back further than six years. The three-year statute of limitations is upheld for the vast majority of tax audits.
The IRS audit statute of limitations should not be confused with the collection statute expiration date (CSED), which is the length of time the IRS has to collect your outstanding tax debt. The CSED is typically 10 years from the date in which the return was assessed.
The IRS Statute of Limitations May Be Extended
In some cases, the IRS might ask you—the taxpayer—to extend the statute of limitations so that they can take a more complete look at your tax history and make a more informed decision based on the evidence available. You have the right to decline the IRS’s extension request, but this isn’t always in your best interest.
If you’re being audited, an extension affords you additional time to request appeals, convene with a tax audit specialist, gather additional documentation, make your case to the IRS, and request a refund (as refunds are also subject to the statute of limitations). If you decline to extend the statute of limitations, the auditor will have to make their ruling based on whatever information they have at their disposal. And that might not always work out in your favor.
What Are Your Rights as a Taxpayer During an Audit?
You have certain rights and protections during an IRS tax audit. In addition to maintaining the right to accept or decline requests for a statute of limitations extension, you’re also guaranteed the following:
The right to professional treatment by IRS employees
The right to confidentiality
The right to transparency from the IRS (why you’re being audited, how the IRS will use the information provided, and what you can expect throughout the proceedings)
The right to representation; you can represent yourself or hire an official tax audit representative
The right to appeal any decisions by the IRS
If you have any questions about your rights or are concerned about a tax audit, you can reach out to the tax professionals at Golden Apple Agency. We’re based in Jacksonville, Florida, but we help taxpayers nationwide to navigate the complexities of IRS audits. We can help you get through it with your head held high.
What to Expect During an IRS Audit
The typical IRS audit takes a few weeks, although more complex audits can take up to a year or longer. The length of the audit period depends on certain key factors, such as the complexity of your tax issues, how difficult it is to access the information requested, and whether or not you decide to appeal the IRS’s decision.
You—or your tax representative—will meet with an IRS agent to go over your tax information (within the statute of limitations). You’ll usually be asked to provide additional documentation to verify the accuracy of your returns. When it’s all said and done, the audit may conclude in one of three ways:
The IRS is happy with the information you’ve provided and concludes the audit with no changes requested to your return.
The IRS proposes changes to your tax return and you agree with the changes.
The IRS proposes changes to your tax return and you disagree with the changes.
If the audit doesn’t work out in your favor, it’s important to understand what happens when the IRS finds you guilty.
An IRS Audit Isn’t the End of the World
Some IRS audits happen at random. Others are the result of common IRS audit triggers. Whatever the case, it’s important to have a game plan in effect. Know your rights, call on an expert, and be ready to defend yourself.
If you’re concerned about a tax return from four years ago, it’s unlikely that you’ll be audited for it in the first place. But even with the statute of limitations in place, it always pays to be prepared. So keep all of your tax records and documentation for at least six years, and know that you’re always ready for any unexpected inquiries from the Internal Revenue Service.
