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Statute of Limitations for IRS Audits

IRS tax audit

The Three Year Rule

The IRS generally has three years from the date a return is filed or due to issue a Notice of Deficiency. If this period has expired, the IRS can’t assess additional tax against your return, which should alleviate any of your worries about an IRS tax audit.

Before you breathe a sigh of relief, you should know that there are exceptions to this rule. Depending on the circumstances, the IRS could have a longer period to assess tax, and sometimes there is an unlimited period for tax assessment.

Substantial Errors

If your return contains a substantial error, the IRS has six years to audit your return and assess tax. A substantial error is any error that results in an understatement of income of 25% or more.

There is also a six-year statute of limitations for the reporting of income related to certain foreign assets. A failure to report this type of income can lead to Foreign Bank Account Report (FBAR) violations, which come with some serious penalties.

Tax Fraud

If you file a false or fraudulent return, the IRS has an unlimited ability to conduct a tax audit and assess additional tax. This requires an intentional violation of a known legal duty and is a fairly high standard for the IRS to meet.

The Clock Starts Ticking….

The three-year period doesn’t begin until a return is filed or the due date of the return, whichever is later. This means that if you don’t file a return when you are required to do so, you effectively give the IRS unlimited time to send you a Notice of Deficiency for that return.

Statute of Limitations Extension

A final way that the IRS can get more time to assess tax is by getting you to agree to an extension of the statute of limitations. The IRS may tell you that giving them an extension could benefit you because it gives them more time to investigate before assessing tax against you. You may want to talk to a tax attorney before signing this type of agreement.

Notice of Deficiency

If the IRS sends you a Notice of Deficiency after the statute of limitations has expired, you may be able to avoid paying the tax liability that you would otherwise be responsible for. Consult with a tax attorney to determine if the IRS has sent all notices within the time periods required by law.

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Venar Ayar, Esq.

Venar Ayar, Esq.

Attorney-at-Law, Master of Laws in Taxation
Principal and founder, Ayar Law

Venar is an award-winning tax attorney ranked as a Top Lawyer in the field of Tax Law. Mr. Ayar has a Master of Laws in Taxation – the highest degree available in tax, held by only a small number of the country’s attorneys.