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IRS audits and the statute of limitations

On Behalf of | Aug 25, 2022 | IRS Audits

Although someone might submit a timely and accurate tax return, the Internal Revenue Service may launch an audit. An audit letter may arrive asking the taxpayer to support deductions or address another issue of the IRS’s concern. That said, Georgia taxpayers may not realize the IRS must follow specific rules. With audits, the statute of limitations may apply.

The statute of limitations and IRS audits

In general, the IRS has three years to audit a tax return based on when the taxpayer filed the return. If the taxpayer filed a return on April 15, 2021, the IRS would typically have three years from that date to audit the return. For taxpayers who file past the yearly tax due date, the three-year statute of limitations commences on the day the return was filed.

Exceptions exist, such as when the IRS seeks an additional tax assessment on a return that underreported income by 25%. In that situation, the statute of limitations increases to six years. Issues surrounding undisclosed foreign financial assets and false/fraudulent tax returns might also change the duration of the statute of limitations.

Be aware the IRS has ten years to collect taxes. Audits and tax collection activities are two different actions.

Dealing with an IRS audit

Although the IRS may select a particular taxpayer for an audit, it may end up not assessing or collecting any tax. The IRS might accept the taxpayer’s response if they provide the necessary information and evidence to support a deduction.

If the agency does not accept the taxpayer’s response to the audit, it may be possible to file an appeal. The appeal decision might reverse the one initially unfavorable to the taxpayer.

Other options could exist, such as fighting adverse audit decisions and assessment in tax court. Suing in federal court may be an option as well.