What is the Statute of Limitations for an IRS Audit?
The statute of limitations for audits conducted by the Internal Revenue Service (IRS) is the window of time during which the IRS can conduct an audit. Once the window closes, the IRS cannot initiate an audit of your taxes. The duration of that window, though, depends on the situation. However, the same duration applies to every type of U.S. taxpayer – individuals, partnerships, corporations, and other business entities.
Using an expired statute of limitations is one of the most potent ways to defend yourself or your company from IRS scrutiny. The IRS audit defense lawyers at the national defense firm Oberheiden P.C. use it whenever possible to protect their clients’ interests.
The General Statute of Limitations for IRS Audits is 3 Years
Generally speaking, the IRS has 3 years to initiate an audit of your taxes under 26 U.S.C. § 6501. This also means that an IRS audit can look back at 3 years of your tax filings.
Those 3 years begin at the later of the:
- Date you filed your taxes, or
- Due date for your taxes.
If your taxes are due on April 15, but you file them early, the 3-year period during which the IRS can audit that filing begins on April 15. If you get an extension to file your taxes, the statute of limitations starts to run on the due date of that extension. However, if you file your taxes late, after the applicable due date, the 3-year window for the IRS to audit it would begin on the date that you actually filed your taxes. This prevents you from circumventing the statute of limitations by delaying the filing of your taxes.
With that said, the IRS claims that it tries to initiate audits as soon as it can after receiving a tax filing. The agency claims that most audits are of tax returns that were filed within the last 2 years.
However, like nearly all legal rules, there are several exceptions that can extend the statute of limitations that the IRS has for conducting an audit.
Substantial Errors Can Extend the Statute of Limitations to 6 Years
If there are “substantial” errors on a tax filing, it can trigger exceptions that gives the IRS up to 6 years to conduct an audit. This means that the IRS will have longer to do an audit, and that audit can examine older returns.
Under 26 U.S.C. § 6501(e), errors on an income tax filing are deemed “substantial” enough to extend the statute of limitations if they omit from their gross income:
- An amount over 25 percent of what is included on the return, or
- Was something that had to be reported as a foreign financial asset under 26 U.S.C. § 6038D and totaled over $5,000.
Paradoxically, though, determining whether the omission was “substantial” enough to warrant an extension of the statute of limitations so that the IRS could conduct an investigation itself involves an IRS investigation into your filing.
Tax Fraud Extends the Statute of Limitations in Perpetuity
Finally, 26 U.S.C. § 6501(c) lists a handful of exceptions to the statute of limitations that covers the IRS’ ability to audit your taxes. Several of these are for tax fraud or for completely failing to file your taxes, including:
- Filing a false or fraudulent return with the intention of committing tax evasion
- Any other willful attempt to evade paying taxes
- Not filing a tax return at all
In any of these cases, the IRS can initiate an audit or a collection assessment at any time. It can be a year, 10 years, or 25 years down the road; the statute of limitations will not bar the IRS from acting.
Consensual Extensions of the Statute of Limitations
In addition to these legal limitations on when the IRS can conduct an audit of your tax filings, you and the IRS can also agree to extend the limitations period. These agreements, known as “consents” because you are consenting to the extension, can apply to all types of taxes except for estate tax. There are 2 types of these consent agreements:
- Fixed-date consents, which set a specific date as the expiration of the extension, and
- Open-ended consents, which extend the statute of limitations for an indefinite amount of time.
The consent agreements can also restrict which auditing or appealing activities can still be performed in spite of the statute of limitations. For example, if you have a pending IRS appeal regarding the amount of your tax obligation, but the statute of limitations is approaching, you and the IRS can agree to extend the statute of limitations, but only for the sake of resolving your appeal.
Consensual extensions can be necessary to pursue your claims with the IRS for a refund. However, if they will likely run against your interests, you should refuse to consent to one and invoke the statute of limitations instead.
An experienced tax audit attorney can let you know how things will likely play out if you consent to extending the statute of limitations for the IRS.
The Statute of Limitations Exists for a Reason: Defense Lawyers at Oberheiden P.C. Can Invoke Your Rights
One of the strongest defenses available to taxpayers who have attracted the scrutiny of the IRS is that the statute of limitations has expired. Once the time has run, the IRS cannot audit you. This is not a meaningless “technicality,” no matter how strongly law enforcement agents insist that it is one: The statute of limitations guarantees you the right and the ability to move on with your life. It requires the IRS to act swiftly, while the evidence is still fresh. It gives you the ability to stop worrying about keeping records of your tax filings after a certain number of years have passed. It lets you repose in the assurance that what happened cannot be resuscitated and brought back into your life, again.
The tax lawyers at Oberheiden P.C. vigorously enforce the statute of limitations against the IRS. Contact us online or call the central hotline for our national law offices at (888) 680-1745.
Dr. Nick Oberheiden, founder of Oberheiden P.C., focuses his litigation practice on white-collar criminal defense, government investigations, SEC & FCPA enforcement, and commercial litigation.