How Far Back Can the IRS Audit / What is the IRS Audit Statute of Limitations?

The general rule is that the IRS has 3 years to assert changes to your tax liability through an audit. The starting event for the running of the IRS statute of limitations is the filing of your return, or the due date for your return (typically April 15), whichever is later. If you have not filed your return, there is no statute of limitations on the time the IRS has to assess your taxes.

The IRS’s manual provides that, in general, the filing of an amended return by a taxpayer does not extend the statute of limitations on assessment. If an amended return is received within 60 days from when the Assessment Statute Expiration Date would otherwise expire, a period of 60 days from the received date is allowed for the assessment of the additional amount of tax on that return imposed by Subtitle A (income tax). Even where the audit period has run following such an amended return, however, the IRS still may have another remedy via the “erroneous refund” procedures. Under those procedures, the IRS would have two years from the issuance of a refund by check or deposit to seek return of an erroneous refund via a suit in federal court.

The satisfying event for an IRS examination is called a “notice of deficiency.” As long as this notice, which asserts the proposed additional tax assessments, is issued to you within the three year period, the IRS has complied with the statute of limitations. If you don’t petition the IRS’s asserted changes to U.S. Tax Court within 90 days of the date of that letter, the IRS may assess its proposed taxes.

There is no statute of limitations for assessing taxes where the understatement on the return is due to fraud. The Tax Court has held that fraud on the return can include fraud by the return preparer, as opposed to the taxpayer, but many practitioners disagree with that conclusion.

The statute of limitations is 6 years where there is more than a 25% omission of gross income or gross receipts from the tax return, but not due to fraud.