Tax Audits: How Far Back Can the IRS Audit? - Robert Hoffman

Tax Audits: How Far Back Can the IRS Audit?

An IRS tax audit is something that many people fear. Some have heard horror stories in the news or perhaps they have heard first-hand accounts of the disastrous consequences of an audit from a friend or relative. Whatever the case, people probable not only fear the actual results of the audit, but also the entire process. People often fear that a minor mistake made years earlier that they may only have scant recollection of may result in unpaid tax and significant penalties and interest. However, in many cases, people’s fears are compounded by a lack of awareness regarding how long the IRS can look back in an audit. 

If you have audit concerns, Robert Hoffman of the Hoffman Law Offices can assist. He can review your files and assess your likelihood of facing one. If you have already been contacted about an IRS audit or examination, Mr. Hoffman can help you prepare and meet the challenges of the audit. To discuss how he can help you or your small business, call 800-897-3915 or contact us online.

The General Rule for How Many Years the IRS Can Audit

While the actual length of time the IRS can audit can vary based on the conduct of the taxpayer there is a general rule for how far back an auditor can examine your records. To begin, in a standard audit the IRS is permitted to look back for a maximum of three years. However, taxpayers should typically retain their records for a longer time period. Typically, taxpayers should maintain at least six  years of tax records.

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If you are wondering why taxpayers should retain additional years of records, it is because the IRS can look back at additional years when certain exceptions apply. One of those exceptions is one or more substantial errors committed by the taxpayer.

The IRS Can Look Back for Up to Six Years When Substantial Error Is Identified

Section 6501 — Limitations on assessment and collection — sets forth a six-year statute of limitations when certain errors, mistakes, or intentional concealment occurs. Exceptions identified under §6501  the substantial omission of items. For instance, a taxpayer who fails to include gross income as reflected on a 1099, W-2 or other statement of income when certain other conditions are true can face a six year assessment period. These other factors are:

  • The amount the taxpayer failed to include was greater than 25 percent of the total gross income reported in the return.
  • Alternatively, if the amount that was not reported is in excess of $5,000 or required to be reported under 6038D.

Other situations where the six year assessment period can apply are when the failure to report includes certain scenarios with constructive dividends (§951(a)), estate and gift taxes, excise taxes, and personal holding companies. However, the six year lookback period is not the maximum amount of time that the IRS can audit a taxpayer.

No IRS Audit Time Limit Can Apply in Certain Cases

For certain serious acts and omissions, there is the possibility of a third statute of limitations. This statute of limitations is open-ended and without end. In other words, there is no statute of limitation. For instance, in the case of a false or fraudulent return, no time limit on how long the IRS has to bring charges exists. False or fraudulent returns could include a return that contains significant misstatements or fails to include significant amounts of income. Another scenario where no statute of limitations applies is when the taxpayer engages in willful attempts to evade taxes or conceal income. Instances of behavior of this type includes the use of offshore tax shelters and trusts to conceal income. Finally, the failure to file taxes at all can also give rise to an open-ended IRS audit.

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Rely on an Experienced Tax Attorney for Tax Concerns

As you can probably already see, the relevant statute of limitations for your audit is based on your behavior when conducting your finances and filing your taxes. For most taxpayers, you probably only have a three-year statute of limitations to worry about. However, taxpayers who made serious errors on their taxes may have to worry about a six-year lookback period. Finally, taxpayers who may have engaged in fraud or other types of serious wrongdoing can face an audit or examination that stretches back as far as the IRS needs.

If you have concerns over serious tax problems, the Hoffman Law Offices can help. To schedule a free and confidential tax consultation with Mr. Hoffman call 800-897-3915 or contact an experienced tax lawyer online.

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