How Far Back Can The IRS Audit Your Tax Return(s)?

No one enjoys the thought of an IRS audit, but it’s important to understand how far back the IRS can go when reviewing your tax returns. Knowing the timeframe can help you maintain proper records and ensure compliance with tax regulations.

Here’s what you need to know about the IRS audit time limits and how to be prepared.

The Standard Audit Timeframe: 3 Years

In most cases, the IRS has three years from the date you file your tax return to initiate an audit. This three-year period, known as the statute of limitations, starts from the date you file your return or from the due date of the return, whichever is later. For instance, if you filed your 2020 tax return on April 15, 2022, the IRS has until April 15, 2025, to audit that return.

The three-year rule applies to most individual and business tax returns and covers the majority of tax audits. This timeframe is based on the assumption that your return does not contain any major errors or omissions.

Extended Timeframe: 6 Years for Substantial Understatement of Income

The audit window extends to six years if the IRS finds that you substantially understated your income by 25% or more. For example, if you reported $100,000 in income but the IRS discovers you earned $130,000, this discrepancy would allow the IRS to audit your returns for up to six years.

This extended period gives the IRS more time to identify and address significant misstatements that could impact tax liabilities. Suppose you are self-employed or have complex income sources. In that case, it’s especially important to keep thorough and accurate records, as these situations are more prone to errors that could trigger the extended audit period.

No Time Limit for Fraud or Unfiled Returns

If the IRS suspects tax fraud or intentional evasion, the statute of limitations does not apply. In cases of fraud, the IRS can go back as far as necessary to investigate and recover unpaid taxes. Similarly, if you never filed a tax return, the IRS has no time limit to conduct an audit. This means that failure to file or deliberately misrepresent your income can expose you to an audit at any time, regardless of how many years have passed.

To avoid these scenarios, filing all required returns accurately and on time is crucial. Maintaining honesty and transparency in your tax filings will help keep the IRS statute of limitations within the standard range.

What to Keep in Mind When It Comes to Record Keeping

Given the potential for audits, maintaining proper records is essential. The IRS recommends keeping tax documents for at least three years, but six years is often advised if your income fluctuates or you run a business.

Records you should keep include income statements, receipts for deductions, expense reports, and any other documents that substantiate the information on your tax return.

For those in industries with a higher likelihood of errors or audits, consider holding on to records even longer. If you’re ever unsure about which documents to keep or for how long, consulting with a tax professional can help ensure you’re adequately prepared.

How Far Back The IRS Audit Your Tax Return(s)

The IRS typically has three years to audit your tax returns, but this period can extend to six years if substantial income is unreported. There’s no time limit in cases of fraud or unfiled returns.

If you’re concerned about the possibility of an audit or want to make sure your records are in order, consider working with a tax professional. They can guide you on what records to maintain, how to file your returns accurately, and what steps to take if you ever face an audit.

Ready to get your books up to date or prepare for an audit? Get in touch with the ModVentures team today!