In most cases the IRS has 3 years from the last day of the date your return was filed OR your return was due. However, this time limit, also known as the statute of limitations, can be extended under certain circumstances.
The statute of limitations can be extended for any of the following reasons:
- If substantial errors or omissions are found.
If the IRS identifies a substantial error (defined as an omission of income that exceeds 25% of the gross income reported on the return) on your tax return, they may have up to six years from the date the return was filed to initiate an audit.
- If no return was filed or a fraudulent return was filed.
If you did not file a tax return or filed a fraudulent return with the intent to evade taxes, there is no statute of limitations. The IRS can initiate an audit at any time.
- Extended agreements.
If you and the IRS enter into an agreement to extend the statute of limitations, such as for a specific issue under review, the timeframe for audit can be extended.
- Financial Reasons.
The statute of limitations can also be affected by certain actions that put a hold on IRS collections activities. Examples include a submission of an Offer In Compromise, Bankruptcy Filing, Consideration of an Installment Agreement by the IRS to name a few.
It’s a good idea to have a tax professional review your information if there is a question as to when the stature of limitation for audits and or the assessment of additional tax will be reached.