We know that the burning question on all of your minds is: How long does the IRS have to audit me?
So here’s the burning answer: Three years.
Though sometimes longer. Like four or five years.
Okay, okay, up to six years.
But no longer than six, I promise.
You’d think the buttoned-up IRS would be a little more specific with its answer to this very simple question. The IRS claims that it aims to audit tax returns “as soon as possible after they are filed,” which means that most audits apply to returns that were filed within the last two years.
But it seems the agency likes to keep its options open for those particularly baaaaad taxpayers whose initial audit leads investigators on a paper trail into the past. In that case, they might follow the clues back up to six years, but rarely go beyond that.
“Generally, the IRS can include returns filed within the last three years in an audit,” says the IRS. “If we identify a substantial error, we may add additional years. We usually don’t go back more than the last six years.”
The good news is that the vast majority of us law-abiding folk are generally held to the three-year limit. This is why you always hear advice that you should keep your tax returns for at least three years.
What is a statute of limitations?
To keep the IRS to a reasonable timetable for tax investigations, Congress has laid out deadlines that the agency must keep to for assessing taxes and making tax refunds — called statutes of limitations. This is what limits the IRS to generally only looking at tax returns that were filed in the last three years. Statutes of limitations also apply to taxpayers — you only have so much time to file a claim for a tax credit or refund.
There is one way to get around a statute of limitations — you can request to extend the statutory period for assessment. The IRS looks to see which returns under examination are about to run out of time and then requests that the taxpayer extend the assessment statute of limitations. This is usually in your interest, since the extra time lets you offer more documentation to support your case, request an appeal if you disagree with the findings, or claim a tax refund or credit.
You can always say no to extending the statute of limitations, but that will leave the IRS agent to make a determination with whatever information is available. If you have more information you’d like to furnish, refusing the extend the statute can be a losing proposition.
Read more about extending a statute of limitations in Publication 1035, Extending the Tax Assessment Period.
What is a consent?
When you and the IRS come to an agreement to extend the statutory period, you must do so via a written agreement called a consent. The IRS provides a form for this purpose — called, unsurprisingly, a consent form.
Consents typically apply to all taxes except estate tax. They come in two varieties: the fixed-date consent and the open-ended consent. As you may be able to guess, a fixed-date consent extends the statute to a specific date, while the open-ended consent does not put an end date on the extension. The IRS will only request a consent that extends the examination period for as long as is necessary for your case.
What should I do if I’m asked to sign a consent?
You don’t have to agree to an extension of your statutory period. If the IRS asks you to sign a consent, you can choose one of three options.
- You can sign an unconditional consent, which simply extends the rules of the original examination period to a later date or an undefined date.
- You can negotiate consent terms, coming to an agreement with the IRS about the tax issues that the consent will cover and how long the extension will last.
- You can refuse to sign, in which case the IRS will take actions to enable assessment of any tax that the agency determines that you owe.
How long does an audit last?
The IRS refuses to give a definite answer on how long it takes to do an audit, reserving the right to take a long time if needed. The agency says, “the length varies depending on the type of audit; the complexity of the issues; the availability of information requested; the availability of both parties for scheduling meetings; and your agreement or disagreement with the findings.”
You may not have realized you can disagree with the findings of an audit. If you’d like to do so, you can request to have a conference with an IRS manager, enter mediation — also called Alternative Dispute Resolution (ADR) — or file an appeal if there’s still enough time in the IRS audit window.
How do you know if there’s enough time? It’s all about that statute of limitations.