A tax audit is one of those legal realities that most people want to avoid at all costs. Like jury duty or facing a civil lawsuit, a tax audit is time-consuming and potentially quite costly. A tax audit can also be complex.
Some of the questions most frequently asked about IRS tax audits involve the statute of limitations. What is a statute of limitations? What does it mean in the context of tax audits? Is there any way to get this time extended? If you have been notified that you’re being audited, it is important to understand the basics of the statute of limitations.
What is a statute of limitations?
The legal concept of a statute of limitations is that, after a fixed an amount of time has elapsed since a wrongdoing was committed, those harmed by the wrongdoing can no longer bring a legal claim. There are numerous reasons for statutes of limitations, including the need for peace of mind and the promotion of bringing legal claims quickly and efficiently.
At any rate, a statute of limitations means there is a time limit for certain types of claims or charges.
What is the statute of limitations for audits?
In the context of IRS tax audits, the statute of limitations is three years, generally, according to the IRS’s website.
This means that when conducting an audit, the IRS will only look back three years. However, there are some important nuances regarding this three-year limitation:
- The timing: The limitation begins running from either the date the return was due or the date that it was filed, whichever is later. This makes it particularly important to know point from which the IRS began counting, so you know when the statute of limitations has run.
- The three-year limit is not set in stone: In some cases, the IRS can look back further than the three years when auditing. This only happens when the IRS identifies “substantial error,” and the IRS rarely looks back further than six years total.
- It works both ways: There are also limitations in time available to request refunds and refute alleged errors from the IRS.
From the time of filing or the time when the filing was due, you generally have three years before the statute of limitations will run, with some noted exceptions.
Extending the statute of limitations
As mentioned above, there are situations in which the statute or limitations can be extended. An extension can be requested from the IRS or from you, and can be used to provide addition time:
- For you to provide further documentation
- For you to request an appeal
- For the IRS to complete the examination
- For the IRS to make additional assessments or reductions in previously assessed liability
The process of requesting or consenting to an extension is complex and requires legal analysis in each case to determine how to best proceed.
For the purposes of any individual or corporate tax-paying entity, it is critical to work with experienced legal counsel to walk you through the process and make sure your rights are protected throughout an IRS audit.