IRS auditor examining taxes on desk

How Far Back Can the IRS Audit You?

Tax season can be a stressful time for business owners, especially when the threat of a potential  Internal Revenue Service (IRS) audit is lurking.

If you own a business and are concerned about a tax audit, it’s important to keep in mind that there are statutes of limitations on audits—and while there are always exceptions, most cases fall under the following rules. For guidance on your unique business situation, schedule a consultation with an experienced accountant.

What Is an IRS Audit?

An IRS tax audit is the process of the IRS examining the accounts, tax returns, and information of an individual or organization. The purpose of the review is to confirm that the business or taxpayer is complying with tax laws, sharing accurate financial information with the IRS, and verifying that the reported tax is correct.

There is no limit to how many times you or your business can be audited by the IRS. While most IRS audits take less than two years, the length of time varies considerably based on the complexity of the case and the logistics of scheduling meetings and sharing information with the organization.

How Far Back Can the IRS Audit?

Generally, IRS audits include tax returns filed within the last three years. However, if the IRS uncovers a substantial issue or error during the audit process, they may audit additional prior years up to six years. While reaching back more than six years is rare, it is not impossible.

Due to the audit period, tax law requires individuals, businesses, and organizations to keep all records used during the preparation of your tax return for at least three years after the tax return was filed.

Accountants and tax professionals typically recommend keeping records and tax returns on file for seven years.

What Is the IRS Statute of Limitations for Tax Audits?

The IRS tax audit statute of limitations is the period during which the IRS can audit and resolve tax-related issues. In most cases, the statute of limitations for tax audits is three years after a tax return is due or filed, whichever date is later.
There are many exceptions to the three-year limit that can extend the IRS statute of limitations to six years or more. Exceptions include returns that fail to include significant foreign income, inheritances, or gifts; returns that significantly understate taxable income; returns that are not signed; or returns filed by taxpayers who have never filed returns or have filed fraudulent returns in the past. In any of these situations (or other extreme circumstances), the statute of limitations may be extended.

If the IRS has not completed their examination within the stated time period, they may request an extension from the taxpaying individual or organization. This extension will give the IRS more time to finish the audit and process the results as well as give the taxpayer additional opportunities to provide further documentation or request an appeal.

After the statute of limitations has expired, the IRS can no longer assess a tax return.

Who Can Help Your Business Deal with an Audit?

If you or your business are facing an audit, we recommend talking to a trustworthy certified public accountant (CPA) with experience in tax planning, as well as a local tax attorney. These professionals have experience in managing business tax burdens, can guide you through the audit process, and will suggest ways to reduce your audit risk in the future.Seek advice from tax experts as soon as possible after receiving an audit notice from the IRS, and consider working with an accountant year round to ensure your bookkeeping and accounting records are always prepared for tax season.

Contact the Expert Tax Professionals at Fisher, P.A.

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