How long does the IRS have to conduct a tax audit?

On Behalf of | Aug 19, 2021 | Tax Audits

One of the first things a taxpayer who gets a mailing from the Internal Revenue Service (IRS) stating they are the subject of a tax audit should do is check to see which taxes the IRS is auditing. The rules and regulations that come with taxes apply to the IRS, just like taxpayers. In some cases, these rules can work against the feds. This is potentially one of those cases.

Tax law requires the IRS move forward with a tax audit within a certain period of time — referred to by tax law as the statute of limitations. This time period can vary depending on a number of different circumstances, but in most cases is set at three years. Some exceptions that give the IRS even more time to dig through your old tax returns include:

  • Substantial understatement of income. The IRS can double this time period and look back for up to six years if the feds can prove that the taxpayer misstated their income by 25% or more.
  • Foreign income. Forgot to claim more than $5,000 in income in a foreign country? That will also double the IRS’ time to look back through tax returns. There are many rules that come with reporting foreign income and a failure to follow them can result in a complete removal of the statute of limitations. This means the IRS could potentially look through all of your records.
  • Fraud. The feds also get this freedom to look back as far as they want if they can establish that you filed a fraudulent tax return. Basically fraud negates any protections that could be present by a statute of limitations.

These are just the federal rules. Additional rules apply for state and local taxing authorities. Because this is such a behemoth of a problem, it is important for taxpayers who receive notification of an impending audit to reach out to legal counsel experienced with this niche area of the law. The attorneys at Goldburd and McCone have experience with the audit process and can review your situation and discuss your various options for relief.