Most taxpayers are familiar with the three-year statute of limitations on IRS audits. Filing an amended return does not extend that three-year limit. However, there are times when the time is greatly extended. Tax attorney Rob Wood discusses the rule and the exceptions in this report, based on his Forbes article “How Long Can IRS Audit? It All Depends On You.” The subject is also discussed in an earlier report by Wood.
Wood points out that the time deadline for audits is a matter of concern for all taxpayers, who dread getting mail from the IRS. The good news, Wood says, is that the three-year statute applies in most cases. If it has been three years since you filed your return and paid your taxes, “it’s usually too late for the IRS to collect” if they send a notice wanting to perform an audit.
Wood notes that there are times when the IRS will ask a taxpayer for more time to complete an audit, and he is inclined to grant those requests. “It’s a little counter-intuitive” to grant such a request. The reason to grant the request, Wood explains, is that failure to agree will probably cause the IRS to send the taxpayer a bill, which will escalate the dispute. The taxpayer would then have the burden of proving that the bill was unreasonable.
Wood says that the income is more than three years in certain specific circumstances. For example, a taxpayer omits more than 25% of income or has certain types of foreign accounts, the statute of limitations is more than three years. If a taxpayer has a foreign company and does not file the right kind of form, there is an unlimited amount of time for the audit.
And a separate issue taxpayers should be aware of is the statute of limitations for collections. If the IRS has sent a bill, they have ten years in which to collect. For more by Rob Wood on the subject, see his Forbes article “IRS Can Audit For Three Years, Six...Or Forever.”
For more information on the subject, please refer to Mr. Wood’s article in Forbes. Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel, an affiliate of The Legal Broadcast Network. The Legal Broadcast Network is a featured network of the Sequence Media Group.