IRS Statute of Limitations: How Far Back Can The IRS Audit You?
Estimated reading time: 4 minutes.
You have received an IRS audit letter via certified mail. You’ve never been audited before. And, you are worried about what this means for you or your business.
After the initial shock wears off, you will no doubt start thinking about what an IRS audit actually is. No doubt you grabbed your smartphone or laptop and started researching. And here we are.
How Far Back Can The IRS Audit You?
The IRS will need access to your financial records but this doesn’t necessarily mean your entire financial history is up for examination. Like any legal issue, there are statute of limitations or periods of time for which investigation are valid.
Let’s take a look at the various statutes of limitations that apply to the IRS.
IRS Statute of Limitations:
Standard Statute of Limitations: 3 Years
By the standard statute of limitations the IRS can only audit your last 3 years of tax returns. This is the most common type of IRS audit. If an error is found in your filings, you can pay the amount owed and your case will be closed. However, if the error is substantial, a more thorough audit may be performed.
Large filing discrepancies: 6 Years
If there is a discrepancy of 25% or more in your tax filings, the IRS may extend the term by which they are allowed to audit by an additional 3 years (6 years total). This is a more serious tax audit case than the more common 3 year IRS audit.
All historical financial records and tax filings: Unlimited
In the most extreme cases, the IRS will determine if your errors in your tax filings are due to negligence or fraud. If your case is determined to be fraudulent, then the IRS will be granted access to 100% of your financial records. It is a precarious position to be in and should be taken with the utmost seriousness.
What is the difference between Tax Negligence and Tax Fraud?
Tax negligence means you were careless when submitting (or failing to submit) your tax returns. This is not a valid reason to eliminate the IRS statute of limitations and allow full access to your entire financial history.
However, fraud, the purposeful and intentional evasion of taxes, will allow the IRS to examine your entire financial history with high scrutiny. It is critical if this happens to you or your business that you partner with tax attorneys who specialize in tax resolution. Find out how people like us can help people like you.
Can You Appeal an IRS Audit?
Once the audit is complete, you may dispute the findings and submit your appeal to the Office of Appeals. Your appeal can then be assessed and you may be required to go to Tax Court to defend your claim.
Notice of Deficiency
If your audit finds an additional tax is due to the United States Government, a notice of deficiency will be sent to you by mail. You will then have 90 days (150 days if you are outside of the US) to either agree or disagree to the deficiency.
What do I do if I disagree with a Notice of Deficiency?
If you agree to the notice of deficiency, you must pay the determined taxes. However, if you disagree with the determination, you may file a petition to the United States Tax Court for a redetermination of the deficiency.
What to Do if You are Audited by the IRS
An IRS tax audit can be an extremely complicated, frustrating, and scary event. There are hosts of forms, publications, actions, laws, and regulations to know and understand.
The first thing you should do is not panic. Next, takes steps to resolve your tax issues. Review resources available online from IRS.gov and consider partnering with tax and account experts that can resolve your IRS audit quickly and efficiently with your best interests in mind.
About Boxelder Consulting
Boxelder Consulting represents clients in all fifty states and has resolved thousands of tax compliance cases. We have advised clients in all areas of taxes, accounting, and business consulting. Boxelder Consulting also has an A+ rating with the Better Business Bureau.
Boxelder Consulting hires talented attorneys, certified public accountants, and enrolled agents. Our firm has decades of combined experience with accounting, tax resolution and business consulting.
We work with our clients by first performing a comprehensive analysis and strategy development for your current tax situation.
We work tirelessly to help get your life or business on the desired path. Through the removal of state and federal tax liens, abatement of IRS tax penalties or by maintaining a long-term service and consulting relationship, we will ensure together, you do not repeat past mistakes.
Additional Resources from the IRS