Tax Tips: Is There A Statues of Limitations on IRS Audits? | Tax Law

Tax Audit Tips: How Long Does the IRS Have to Audit and How Can I Avoid One?

picture of the word AUDIT on a tablet to accompany an article about IRS audit limitationsThe mere mention of the word audit mortifies most American taxpayers. So let’s talk about the statute of limitations on audits, plus a few tips to prevent them.

What Is the IRS Audit Window?

Can the Internal Revenue Service audit returns from twenty years ago? How far back can it dig?

In most cases, the IRS has three years to audit returns. Exceptions, however, exist. For example:

  • Not Filing: If you don’t file tax returns, the IRS can audit you any time in the future: 10, 20, or 40 years from the missed filing year.
  • Omissions: Failing to report more than 25% of your income increases the audit window to six years. Forgetting to submit forms — including 5471 (CFC stockholders), 3520 (gifts or foreign inheritance), and 8938 (overseas assets reporting) — also tacks on years.
  • Foreign Income: Did you forget to include $5,000 or more in foreign income on your U.S. tax return? The mistake can increase the IRS’ audit statute of limitations to six years. If you don’t report foreign income, six years mushrooms into infinity.

Overstating v. Omitting

Another tactic that ensnares taxpayers is “overstating.”

Let’s say you bought a property for $500,000, but claim you paid $1.5 million. A few years later, you sell the property for $3 million and pay taxes on the $1.5 million gain. However, you should’ve paid taxes on a $2.5 million profit. This discrepancy is known as “overstating.” It’s not the same as omitting income, but engaging in the practice can tack another three years onto your audit window.

How Long Can the IRS Hound You For Past Due Amounts?

Typically, the Internal Revenue Service has ten years to collect or take action regarding past tax debts.

Tips for Keeping Audits at Bay

The best way to survive a tax audit is to avoid a tax audit. How?

  • File taxes on time or formally file for extensions;
  • Report all income and disclose every cent;
  • Enlist a professional to prepare your returns;
  • Comply with FBAR requirements (if you have $10,000 or more in overseas accounts);
  • Be careful with tax shelters and listed transactions; and
  • Don’t forget to sign your return!

Connect with a Tax Audit Defense Attorney

Is the IRS breathing down your neck? Have federal or state authorities targeted you for an audit? No problem, we’re here to make it better. Our team of tax law attorneys has carried countless individuals and businesses through both complicated and straightforward audits. We assume the stress and secure the best possible outcomes.

Get in touch today. Learn why clients rate us 10 out of 10, and Super Lawyers has awarded our firm top honors for several years running.

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