Tax Audit Statute of Limitations

tax audit statute

How far back can the IRS audit taxes? It’s a question that many of us ask. Keep reading to learn more about how your past tax returns are audited and find out what to do if you’re worried about a previous infraction or an upcoming audit. Our tax attorney can provide guidance.


How Far Back Can the IRS Go with Audits?

Here’s some good news to begin with. There is a statute of limitations on tax evasion in the USA, and it might be shorter than you think. Most audits can only occur on tax returns submitted in the past three years.

However, more serious offenses extend the statute of limitations for a possible audit. If you withhold more than 25% of your gross income, the IRS can audit tax returns going back six years. The IRS typically needs more time to investigate these offenses to carry out a detailed audit.

Note, however, that the statute of limitations doesn’t start until you file the return. With unfiled returns, the IRS can go back an unlimited amount of time.”

Other Factors

The statute runs for longer depending on certain conditions. For example, if you attempt to flee the country or hide from an audit, the timer on the statute of limitations is paused. The time limit will be paused until the IRS can investigate you properly and carry out a thorough audit.

That means if you’re worried about an oversight or mistake from more than a few years ago, you can relax a little. You won’t go to jail for a minor issue from long ago, so it’s no use worrying too much about the past. Usually, if the IRS discovers a small mistake, they’ll correct it and send you a CP2000 notice. Even if it comes up in an audit, you’re unlikely to go to prison.

Will I Go to Jail for Financial Offenses?

People can and do go to jail for financial crimes. But this isn’t likely to happen due to a simple mistake. Even if there are substantial errors in your tax return, the IRS isn’t likely to initiate a criminal investigation right away.

The average audit might uncover some major infractions, but even then, you’re unlikely to face severe action. In an average year, the IRS prosecutes fewer than 1,000 people. From that group, only a small number will face sentencing.

Escalating Action

The IRS won’t jump straight to prosecuting you over a mistake or a missed due date. Instead, special agents will first act like debt collectors, trying to force you to pay back the tax debt you owe. If you refuse to engage, they will act like a repo company, trying to directly seize your assets in order to make up for the lost income.

That means you’re only likely to do prison time for two reasons. Either you’ve committed major tax fraud deliberately over the course of several years, or you’ve failed to pay back the money you owe to the government.

Common Offenses Against the IRS

Offenses against the IRS can vary quite a bit, so it’s well worth looking at the different offenses a person can commit. If you’re facing an audit, you ought to know what the IRS might be looking for.

No one likes working on their tax return. It’s confusing, and there are all kinds of complicated forms that may need to be filled out. That’s why many financial offenses are committed accidentally.

Submitting a Fraudulent Return

Deliberately concealing income on your tax return is a serious offense. A few things left off a return can be easily written off as a mistake, even if they are found in an audit. But the IRS will be interested in significant amounts of deliberately concealed income.

If the IRS finds a clearly fraudulent invoice, they will likely initiate an audit. This could extend to your previous filings too.

For example, the IRS knows that there were a lot of fraudulent ERC claims so the agency is auditing these returns at high rates and applying penalties.

Evasion of Assessment

It is every citizen’s legal duty to allow the IRS to complete an audit of their records. Trying to avoid the IRS or misleading agents is a federal crime.

If you receive notice from the IRS that an audit is incoming, do your best to provide accurate information. Failure to do so could get you into further trouble with the IRS.

How Far Back Can IRS Audit Taxes?

If you’ve filed a tax return in the last three years, the IRS can audit this. Generally speaking, the federal tax statute prevents agents from digging into filings filed more than three years ago.

The audit period can be conducted on returns going back further than the standard time limit if an IRS agent suspects you may have committed a deliberate, long-term pattern of fraud.

Generally, the audit period starts on the later of the return due date or the filing date. However, for payroll tax returns, the three-year statute of limitations doesn’t start until April 15th of the year following the year the returns were due. However, in some cases, the IRS can extend the audit period — for example, the IRS extended the time period to audit ERC claims from Q3 and Q4 2021 from three years to five years.

A Note on Timing

The clock only starts ticking for the IRS once you file your tax return. The time period when you received the money doesn’t actually matter. Always keep your filing’s due date in mind when considering a prospective audit. And if you’re facing an audit, consider hiring tax audit representation.

Does Foreign Income Need to be Included in Tax Returns?

The US is unique in that its citizens are taxed on foreign income. Even if you are a US citizen living outside the US for many years, the IRS makes sure foreign taxpayers still pay income tax.

This is an issue that often confuses citizens of the US who may have been born in a foreign country or dual citizens. For example, a Canadian citizen living and working in the US would not have to pay funds to the Canadian authorities. But an American living and working in Canada would need to pay income taxes in both Canada and the United States.

Is Income From Abroad Subject to Audit?

Income accrued overseas should show up on your tax return. That means this income can and will show up in an audit.

Mistakes With Income From Foreign Sources

Unreported foreign income is a major cause of discrepancies in tax returns. Returns filed by taxpayers from foreign countries are often of extra interest to the IRS.

If you’re one of the many American taxpayers living and working abroad, be sure to file your return at the end of each tax year. When you’re out of the country, it can be easy to miss the filing date if you’re not careful. The IRS website features a list of accredited accountants who can help you to assess taxes.

About IRS Audits

We all know a little bit about how the IRS operates. But most people aren’t aware of the role they play with regard to audits of historic filings.

Internal revenue service agents conduct investigations and audits into people from all backgrounds. But you can expect the IRS to go digging into your tax records if there is some discrepancy in your more recent filings.

An audit of one year’s filings can quickly turn into an audit of past years.

The Audit Process

The audit process can vary quite a bit depending on the case. Normally, there will be an in-person audit conducted face-to-face by an IRS employee at an IRS office.

This may take place in an IRS audit, and you could be asked all kinds of questions about your background, finances, and business records.

The IRS conducts some audits remotely. This is known as a correspondence audit. An IRS manager will collect financial information and other details remotely. It’s best to cooperate fully with the IRS and provide any requested information. In all cases, the audit will start with an official IRS notice that you receive in the mail.

Wrapping Up

Most audits don’t last too long, perhaps three to six months in duration. You should receive the audit results soon after completion.

The examination report should also let you know if you need to take further action, like paying additional back taxes.

If you discover you are being audited by the IRS because of your tax issues and you need help, be sure to consult with a tax lawyer or other expert. There are lots of professionals who can help you with your tax problems.

Extending the Statute of Limitations

As mentioned, the statute of limitations in relation to these offenses is different depending on the nature of the offense and several other factors.

An IRS audit on historic tax returns is more likely to occur if you have a recent history of financial violations. If this happens, your previous tax filings may be subject to IRS audits.

What to Do When the Statute of Limitations has Passed

Once the statute of limitations has passed, you may no longer need to worry that an IRS tax audit will take place on your returns.

You should still maintain organized records in case the IRS comes knocking in the future. But once these time limits run out, you probably don’t need to keep every last receipt.

What Not to Do When the Statute of Limitations has Passed

Don’t commit offenses and rely on the statute of limitations to save you. The average IRS agent knows all about these limitations and will go out of their way to beat the clock.

Remember all the factors that can possibly cause a statute of limitations to be extended. Remember, you may not be in the clear just yet and should consult with an expert to check that you are truly safe.

Avoiding Errors With Your Tax Return

Tax laws and tax forms are confusing. So, it’s no wonder many people make mistakes when filing taxes. But remember, acting incautiously could result in you facing an IRS audit.

Remember, there are so many reasons you may need to pay additional tax. Your tax liability may change drastically from year to year.

Small business owners and self-employed people often find themselves facing an IRS audit thanks to a few errors.

Getting the Right Advice

Consulting with a tax attorney is one of the best ways to deal with any thorny issues in your tax returns. Simple tax matters like unreported income and upcoming audits can be solved with expertise in your corner.

If you don’t want to deal with an attorney, talking with an expert is a good way to resolve things. Professionals can help you file an amended tax return and deal with the IRS. Even if you’ve made a substantial error, it may be fixable.

How Experts Can Help

Advisors can help you to assess additional tax and make plans for anyone served with an IRS notice. They can even help you find out if you might be due a tax refund due to overpayments.

If you need tax advice or want more information on how far back the IRS can go, Seattle Legal Services, PLLC can help. Call us today at 206-895-7268 to learn more.