How Far Back Can the IRS Audit You: Common FAQs

How Far Back Can the IRS Audit You For Past Tax Returns?

How Many Years Back Can IRS Audit You?

How Far Back Can the IRS Audit You? A common question we receive is, “How far back can the IRS audit you?” The answer depends on the facts of your case. Tax audits can be for either 3-years, 6-years, or forever, but it depends on the facts of your case. The typical audit statute is for 3 years. In some circumstances such as foreign income or substantial underreporting, the IRS can audit you for 6 years. When the matter involves an unfiled tax return or civil tax fraud, the IRS can audit you, indefinitely. In other words, under the latter two scenarios, the statute of limitations would not expire.

In reality, not all audits are bad, and some even result in a NC (No Change) or a refund because the IRS made a mistake.

We will summarize just how far back the IRS can audit you.

How Far Back Can the IRS Audit Prior Tax Returns?

Just how far back the IRS can audit you will depend on several different factors.

Generally, the IRS has 3-years to audit you, sometimes, the IRS may have up to 6-Years to audit you (especially in situations involving offshore and foreign international tax issues):

And, in some situations, the IRS may have an unlimited time to audit you.

As provided by the IRS:

• • • “Generally, the IRS can include returns filed within the last three years in an audit. If we identify a substantial error, we may add additional years.

    • We usually don’t go back more than the last six years. The IRS tries to audit tax returns as soon as possible after they are filed”

The IRS has various different time limits when it comes to how far back they IRS can audit you, and they are required to follow the different statutes, depending on the facts and circumstances of each person’s tax situation.

Common Questions & Answers About IRS Audits

The IRS Tax rules for audits are different than the time to assess tax and collect tax

Common questions we receive, include:

How Many Years in a Row can the IRS Audit You?

The IRS can audit you for several years in a row, and unfortunately, some people (generally self-employed and those with prior year liabilities) may get hit with multiple years of audits.

If you have been audited on the same issue multiple times in a row, and won (aka “no change letter”) the IRS will be limited regarding continually auditing you on that same issue.

Can the IRS audit you 2 years in a row?

Yes. There is no rule preventing the IRS from auditing you two years in a row.

Can the IRS audit you after 3 years?

That depends. While the general time to audit is 3 years, that time can be extended to 6 years, and even longer if you never filed or are subject to a civil tax fraud audit, examination, or investigation.

Can the IRS come after you after 10 years?

That also depends. If the IRS reduced the tax debt to a judgment, then the judgment may be up for renewal every 10 years, and enforceable in different states by the IRS seeking a “sister state judgment.”

How Many Tax Returns?

The number of years the IRS can audit will vary, for example:

Federal Tax Statute of Limitations

Here are the common IRS Statute lengths of time to audit.

3-Year Audit

In most situations, the IRS can go back three years. That means if your 2016 tax return was due April 2017, the IRS has three years from April 2017 to audit you (if you file the return timely, either before or on the April due date). 

If you never filed your tax return or file the late coming to statute of limitations does not begin to run until the returns filed. Therefore, if you wait until the day before the three-year statue limitations expires to file your tax return the IRS still has three more years to audit you.

6-Year Audit

The IRS may have an extended amount of time to audit you, even if there is no fraud or criminal issues at hand come. Most of the time, this is due to having significant amounts of unreported income and/or you have certain unreported foreign income (or significantly embellished your deductions).

In these types of situations, the IRS may go back six years in order to audit you to determine whether or not you have been compliant during that time-period.

Unlimited Statute of Limitations

There’re two main situations in which the IRS has an unlimited amount of time to audit.

Unfiled Tax Return

The first situation is when a person has not filed a tax return. When a person has not filed a tax return for a particular year, the statute limitations for that year has not yet commenced. Therefore, until the tax return is filed the IRS has unlimited time to audit.

Fraud/Evasion

The second situation occurs when the IRS has knowledge and information that a person may have acted fraudulently.  When a person acts fraudulently, the IRS is able to go back as far as it wants to audit the person.

The idea is the concept is that if a person acts fraudulently with criminal intent, then the IRS has the right to get to the bottom of the matter and is authorized to go back as far as the IRS Agent needs to obtain that information.

** An additional situation is on in which a person has a Passive Foreign Investment Company and has not filed a timely form 8621. At least to the portion of the tax return involving the foreign investments, the return remains open.

What Happens During an IRS Exam

An IRS audit is essentially a question-and-answer session with the IRS.  Depending on the size of your case, and which department at the IRS your matter is assigned to, it might be an in-person audit or examination, or it may be a correspondence audit in which everything is done through paper documents.

There are various pros and cons to each particular type of audit, but if you ask most people, they would probably prefer to not have to step foot in the IRS Office or even worse…have the IRS Agent visit them at their place of work.

Some IRS Audits are Simple

Some IRS Audits are little more than a few hour question and answer session about your income, deductions, or related (non-threatening) issues. There is no cause for concern because you are not trying to “hide” anything.

Some Audits are More Serious

Unfortunately, depending on your specific facts and circumstances the IRS may have an extended period of time to audit you.

Your typical IRS audit for an individual who did nothing wrong other than possibly making some mistakes on their tax return is usually not that bad.  It may feel overwhelming and stressful at the time, but in the end, the worst-case scenario is that the IRS issues some additional tax and possibly some relatively small fines and penalties.

On the other hand, if the IRS believes that you have committed a crime and/or have knowledge that you have committed a serious infraction, these audits are of course much more serious.

The Audits typically go by two different names, an Eggshell IRS audit and a reverse Eggshell audit.

Eggshell & Reverse Eggshell IRS Audits

With an Eggshell Audit, you have information that you do not want the IRS to know about — typically it includes fraudulent or invasive type of activities. While you do not want to make any intentional misrepresentations to the IRS agent, at the same time you do not want to incriminate yourself.

Conversely, the Reverse Eggshell Audit is even worse.  In this particular situation, the IRS already has incriminating information but has not told you yet. Therefore you have to be very careful not to make any intentional or willful omissions or misrepresentations to the auditor.

Otherwise, the matter may be referred to the special agents for criminal investigation.

What are the Chances of the IRS Auditing Your Tax Returns?

The chance of an IRS audit is relatively low. While the chance of an audit is generally low, it does increase for people who are in higher tax brackets.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure. 

Contact our firm today for assistance with getting compliant.