IRS Civil Tax Audits – Statute of Limitations

IRS civil tax audits generally have a 3 year statute of limitations which commences the later of:

1. Tax Return due date or,

2. Date of Tax Return Filing (evidenced by either electronic filing acceptance, or certified mail return receipt).

The 3 year statute of limitations is extended to 6 years if 25% or more of gross income received by the Taxpayer is omitted from the tax return. For this tax issue (i.e. omission of gross income), the Burden of Proof is on the IRS, but if their burden is satisfied all deductions are also subject to the IRS audit (not just the omitted income).

There is no Statute of Limitations if a tax return is not filed. There is no Statute of Limitations if Taxpayer commits tax fraud (however, the burden of proof is on the IRS).

The IRS often requests a statute extension if the statute will soon expire. If the statute is not extended the IRS will assess tax which can be a bad result (i.e. the tax is due) but have a good benefit ( i.e. the audit is then terminated with no further tax disallowance issues to be raised by the auditor) with the taxpayer entitled to file a Notice of Protest and seek an IRS administrative appeal (to a separate division of the IRS/Appeals) without paying tax and no IRS tax lien filed or IRS collection instituted on the assessed tax (ie. no IRS levy).

The only exception would be a jeopardy assessment if the IRS considers tax collection to be “at risk” (i.e. the Taxpayer hides assets, flees the US et al.) the IRS may seize the Taxpayer assets under a levy, “freezing these assets” pending resolution of the audit assessment.

Taxpayers who elect to file amended tax returns face the following statute of limitations issues:

1. The amended tax return/claim for refund must filed within 3 years of the filing of the original tax returns

2. If the amended tax return increases tax and is filed within 60 days of the statute expiration date, the IRS gets an additional 60 days to assess from the date of the amended tax return filing;

3. For unfilled tax returns the Taxpayer has 2 years from the date the tax was paid to file a tax refund claim.

If the amended tax return does not increase the tax due, the Statute of Limitations is not extended. For Taxpayers who wish to file a tax refund claim, it may be advisable to file the claim within 60 days before the statute expiration which may preclude IRS review and audit before the expiration of the Statute of Limitations so the Taxpayer receives an uncontested tax refund.


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