One question I get asked frequently is, “How long does the IRS have to do a tax audit on my returns? Can they go back forever?”

Generally speaking the amount of any tax must be assessed within three years of the filing of a return. That is, in most circumstances, the length of time the IRS has to do a tax audit on your return is limited to three years from the date the return was filed. This time period is known as the statute of limitations for assessment.

However, this time period is extended indefinitely if there is fraud or tax evasion involved.

IRS Must Prove Fraud

A case decided by the US Tax Court in 2013 shows the IRS has an uphill battle if the statute of limitations for assessment has run out on a tax year. This case shows that the IRS has to prove fraud to collect back taxes.

A couple was audited by the IRS, which found evidence of some unreported income and personal expenses being claimed as business expenses. Unfortunately for the IRS, its examiners let the statute of limitations lapse, so the IRS alleged fraud.

The Tax Court said that the couple’s actions were negligent, but they did not amount to fraud. Their books were detailed, and they cooperated with IRS agents.

The take-away from this is that you do not have to have perfect records, although that should always be your goal. But, you do need to conduct your activities in a manner that does not conceal income or overstate expenses, which are indicia of fraud, and you must maintain properly detailed records. In addition, you should keep those records for at least seven years after the date you file your return. Do not be too hasty to clean out your records.

Contact Us Today for a Consultation

If you have any questions or concerns about your tax situation or if the IRS  is doing a tax audit, contact my office to arrange a confidential consultation.