October 2, 2023


Law for politics

Statute of Limitations on Audits: How Long Does the IRS Have to Audit a Return?

Contrary to popular belief, the Internal Revenue Service is subject to statutory limitations with regard to examining a taxpayer’s return and the IRS is not allowed an indefinite period to audit returns. Generally, the IRS is limited to a three-year statute of limitations from the date the return is filed. However, there are other circumstances when the IRS can go beyond the three-year statute. For example, when the taxpayer omits an item of income that is greater than twenty five percent from his return.

The six-year statute of limitations also applies where a taxpayer does not disclose a foreign asset that generates five thousand dollars or more of income. The important thing to note is that these statutes of limitations, whether three or six years, start running when the return is filed (not the year the tax return in for). In the case where no return is filed, the IRS has an indefinite amount of time to audit a year in cases where they believe fraud is likely.

The statute of limitations is also indefinite when the taxpayer files a false or fraudulent return. Official information from the IRS on the statute of limitations can be found at http://www.irs.gov/irm/part25/irm_25-006-001r.html.

There is an additional exception. Taxpayers may elect to extend the statute of limitations to allow for more time to examine a return. Although there are nine IRS forms that allow for the extension of the statute, only two are specific to individual taxpayers. There are two that the taxpayer must complete for consideration of an extension:

• Form 872 Consent to Extend the Time to Assess Tax
• Form 872-A Special Consent to Extend the Time to Assess Tax

First, the purpose of Form 872 is to extend the assessment time to a specified date. However, lastly, the purpose of Form 872-A is to extend “the period of limitations on assessment for an indefinite period of time” (MBBP). The taxpayer’s consent given on Form 872-A may be revoked; the taxpayer must file Form 872-T to revoke consent. The filing of the form begins the running of the 90-day period. This period is specific to either the assessment of tax or the issuance of a notice of deficiency.

There is indeed another type of consent, which is called “restricted consent.” Restricted consent is where the statute of limitations on the period of assessment is only extended with respect to specific and restricted issues. The taxpayer consents together with the IRS to hold open only certain issues and to let the statute of limitations expire on everything else. This decision is made during the course of an audit within the guidelines of the issues that are under examination.

In conclusion, knowing the statutory period is important because it allows a taxpayer to have closure after a return is filed. Once the statute of limitations has run, the IRS can no longer audit a return and the taxpayer is safe from audit. For more information on this and other audit topics, please visit http://www.sambrotman.com