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How Far Back Can the IRS Audit You? Summary of IRS Audit Statutes

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How Far Back Can the IRS Audit You? Summary of IRS Audit Statutes - Golding & Golding

How Far Back Can the IRS Audit You? Summary of IRS Audit Statutes – Golding & Golding

How Far Back Can the IRS Audit You? Summary of IRS Audit Statutes

How Far Back Can the IRS Audit You: Tax Attorneys summarize How Far Back Can the IRS Audit You, & the basics of IRS Audit Statutes & Amnesty.

Common Questions about How Far Back Can the IRS Audit You?

Some of the more common questions we receive, include:

How Many Years in a Row can the IRS Audit You?

The IRS can audit you for several years in a row, and unfortunately some people (generally self-employed and those with prior year liabilities) may get hit with multiple years of audits.

If you have been audited on the same issue multiple times in a row, and won (aka “no change letter”) the IRS will be limited regarding continually auditing you on that same issue.

Can the IRS audit you 2 years in a row?

Yes. There is no rule preventing the IRS from auditing you two years in a row.

Can the IRS audit you after 3 years?

That depends. While the general time to audit is 3-years, that time can be extended to 6-years, and even longer if you never filed or are subject to a civil tax fraud audit, examination or investigation.

Can the IRS come after you after 10 years?

That also depends. If the IRS reduced the tax debt to a judgment, then the judgment may be up for renewal every 10-years, and enforceable in different states by the IRS seeking a “sister state judgment.”

How Far Back Can the IRS Audit You? (Detailed Summary)

The following is a more detailed question and answer post about the time allotted for the IRS to audit you.

What is the Statute of Limitations for an IRS Audit?

An IRS statute of limitation is the length of time the IRS has to audit you on various tax issues.

There are different IRS Statutes of Limitations for an IRS Audit, depending on the facts and circumstances.

How Many Years Can the IRS Audit?

The number of years the IRS can audit will vary, for example:

3-Year Audit

In most situations, the IRS can go back three years. That means if your 2016 tax return was due April 2017, the IRS has three years from April 2017 to audit you (if you file the return timely, either before or on the April due date). 

If you never filed your tax return or file the late coming to statute of limitations does not begin to run until the returns filed. Therefore, if you wait until the day before the three-year statue limitations expires to file your tax return the IRS still has three more years to audit you.

6-Year Audit

The IRS may have an extended amount of time to audit you, even if there is no fraud or criminal issues at hand come. Most of the time, this is due to having significant amounts of unreported income and/or you have certain unreported foreign income (or significantly embellished your deductions).

In these types of situations, the IRS may go back six years in order to audit you to determine whether or not you have been compliant during that time-period.

Unlimited Statute of Limitations

There’re two main situations in which the IRS has an unlimited amount of time to audit.

Unfiled Tax Return

The first situation is when a person has not filed a tax return. When a person has not filed a tax return for a particular year, the statute limitations for that year has not yet commenced. Therefore, until the tax return is filed the IRS has unlimited time to audit.

Fraud/Evasion

The second situation occurs when the IRS has knowledge and information that a person may have acted fraudulently.  When a person acts fraudulently, the IRS is able to go back as far as it wants to audit the person.

The idea is the concept is that if a person acts fraudulently with criminal intent, then the IRS has the right to get to the bottom of the matter and is authorized to go back as far as the IRS Agent needs to obtain that information.

** An additional situation is on in which a person has a Passive Foreign Investment Company and has not filed a timely form 8621. At least to the portion of the tax return involving the foreign investments, the return remains open.

Can the IRS Audit You Two (2) Years in a Row?

Yes, but the IRS can be limited after two years. For example, if the IRS audits you on the same issue multiple times, and you prove that your taxes were correct and received an NC (No Change), then the IRS may be prevented from auditing you on the same issue in the future.

What Happens when the IRS Audits You?

An IRS audit is essentially a question and answer session with the IRS.  Depending on the size of your case, and which department at the IRS your matter is assigned to, it might be an in-person audit or examination, or it may be a correspondence audit in which everything is done through paper documents.

There are various pros and cons to each particular type of audit, but if you ask most people, they would probably prefer to not have to step foot in the IRS Office or even worse…have the IRS Agent visit them at their place of work.

IRS Audits are Usually Not that Bad

The Internal Revenue Service agents are usually not scary, and while you should always have counsel, they generally resolve pretty quickly. 

When it comes to the IRS and audits, one of the main questions we receive is “How Far Back Can the IRS Audit You.”  In other words when am I in the clear, and at what point does the time for the IRS to audit me expire —

*The time to audit you varies based on various facts and circumstances.

Common Questions we receive about audits, include:

  • Can the IRS Audit me for 3-years?
  • Can the IRS Audit me for 6-years?
  • What is an Audit?
  • Is an Audit serious?
  • Will I get hit with penalties?

Some IRS Audits are Simple

Some IRS Audits are little more than a few hour question and answer session about your income, deductions, or related (non-threatening) issues. There is no cause for concern, because you are not trying to “hide” anything.

Some Audits are More Serious

Unfortunately, depending on your specific facts and circumstances the IRS may have an extended period of time to audit you.

Your typical IRS audit for an individual who did nothing wrong other than possibly making some mistakes on their tax return is usually not that bad.  It may feel overwhelming and stressful at the time, but in the end, the worst-case scenario is that the IRS issues some additional tax and possibly some relatively small fines and penalties.

On the other hand, if the IRS believes that you have committed a crime come and/or have knowledge that you have committed a serious infraction, these audits are of course much more serious.

The Audits typically go by two different names: Eggshell IRS audit and a reverse Eggshell audit.

Eggshell & Reverse Eggshell IRS Audits

With an Eggshell Audit, you have information that you do not want the IRS to know about — typically it includes fraudulent or invasive type of activities. While you do not want to make any intentional misrepresentations to the IRS agent, at the same time you do not want to incriminate yourself.

Conversely, the Reverse Eggshell Audit is even worse.  In this particular situation, the IRS already has incriminating information but has not told you yet. Therefore you have to be very careful not to make any intentional or willful omissions or misrepresentations to the auditor.

Otherwise, the matter maybe referred to the special agents for criminal investigation.

What are the Chances of Getting Audited by the IRS?

The chance of an IRS audit is relatively low. While the chance of audit is generally low, it does increase for people who are in higher tax brackets.

Avoiding the Audit with IRS Voluntary Disclosure

If a person has undisclosed domestic or offshore money, they may be able to get into compliance and avoid an unnecessary audit an significantly higher fines and penalties, by entering one of the IRS voluntary disclosure programs.

We Specialize in Safely Disclosing Foreign Money

We have successfully handled a diverse range of IRS Voluntary Disclosure and International Tax Investigation/Examination cases involving FBAR, FATCA, and high-stakes matters for clients around the globe (In over 65 countries!)

Whether it is a simple or complex case, safely getting clients into compliance is our passion, and we take it very seriously.

Who Decides to Disclose Unreported Money?

What Types of Clients Do we Represent?

We represent Attorneys, CPAs, Doctors, Investors, Engineers, Business Owners, Entrepreneurs, Professors, Athletes, Actors, Entry-Level staff, Students, Former/Current IRS Agents and more.

You are not alone, and you are not the only one to find himself or herself in this situation.

Sean M. Golding, JD, LL.M., EA (Board Certified Tax Law Specialist)

Our Managing Partner, Sean M. Golding, JD, LLM, EA  earned an LL.M. (Master’s in Tax Law) from the University of Denver and is also an Enrolled Agent (the highest credential awarded by the IRS, and authorizes him to represent clients nationwide.)

Mr. Golding and his team have successfully handled several hundred IRS Offshore/Voluntary Disclosure Procedure cases. Whether it is a simple or complex case, safely getting clients into compliance is our passion, and we take it very seriously.

He is frequently called upon to lecture and write on issues involving IRS Voluntary Disclosure.

Less than 1% of Tax Attorneys Nationwide are Board Certified Tax Law Specialists 

The Board Certified Tax Law Specialist exam is offered in many states, and is widely regarded as one of (if not) the hardest tax exam given in the United States for practicing Attorneys. Certification also requires the completion of significant ethics and experience requirements.

In California alone, out of more than 200,000 practicing attorneys (with thousands of attorneys practicing in some area of tax law), less than 350 attorneys are Board Certified Tax Law Specialists.

Beware of Copycat Law Firms

Unlike other attorneys who call themselves specialists or experts in Voluntary Disclosure but are not “Board Certified,” handle 5-10 different areas of tax law, purchase multiple keyword specific domain names, and even practice outside of tax, we are absolutely dedicated to Offshore Voluntary Disclosure.

*Click here to learn the benefits of retaining a Board Certified Tax Law Specialist with advanced tax credentials.

IRS Penalty List

The following is a list of potential IRS penalties for unreported and undisclosed foreign accounts and assets:

Failure to File

If you do not file by the deadline, you might face a failure-to-file penalty. If you do not pay by the due date, you could face a failure-to-pay penalty. The failure-to-file penalty is generally more than the failure-to-pay penalty.

The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.

Failure to Pay

f you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty.

However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.

Civil Tax Fraud

If any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.

A Penalty for failing to file FBARs

The civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign financial account per violation. See 31 U.S.C. § 5321(a)(5). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.

A Penalty for failing to file Form 8938

The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.

A Penalty for failing to file Form 3520

The penalty for failing to file each one of these information returns, or for filing an incomplete return, is the greater of $10,000 or 35 percent of the gross reportable amount, except for returns reporting gifts, where the penalty is five percent of the gift per month, up to a maximum penalty of 25 percent of the gift.

A Penalty for failing to file Form 3520-A

The penalty for failing to file each one of these information returns or for filing an incomplete return, is the greater of $10,000 or 5 percent of the gross value of trust assets determined to be owned by the United States person.

A Penalty for failing to file Form 5471

The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.

A Penalty for failing to file Form 5472

The penalty for failing to file each one of these information returns, or to keep certain records regarding reportable transactions, is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency.

A Penalty for failing to file Form 926

The penalty for failing to file each one of these information returns is ten percent of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional.

A Penalty for failing to file Form 8865

Penalties include $10,000 for failure to file each return, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return, and ten percent of the value of any transferred property that is not reported, subject to a $100,000 limit.

Fraud penalties imposed under IRC §§ 6651(f) or 6663

Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that, although calculated differently, essentially amount to 75 percent of the unpaid tax.

A Penalty for failing to file a tax return imposed under IRC § 6651(a)(1)

Generally, taxpayers are required to file income tax returns. If a taxpayer fails to do so, a penalty of 5 percent of the balance due, plus an additional 5 percent for each month or fraction thereof during which the failure continues may be imposed. The penalty shall not exceed 25 percent.

A Penalty for failing to pay the amount of tax shown on the return under IRC § 6651(a)(2)

If a taxpayer fails to pay the amount of tax shown on the return, he or she may be liable for a penalty of .5 percent of the amount of tax shown on the return, plus an additional .5 percent for each additional month or fraction thereof that the amount remains unpaid, not exceeding 25 percent.

An Accuracy-Related Penalty on underpayments imposed under IRC § 6662

Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20 percent or 40 percent penalty

Possible Criminal Charges related to tax matters include tax evasion (IRC § 7201)

Filing a false return (IRC § 7206(1)) and failure to file an income tax return (IRC § 7203). Willfully failing to file an FBAR and willfully filing a false FBAR are both violations that are subject to criminal penalties under 31 U.S.C. § 5322.  Additional possible criminal charges include conspiracy to defraud the government with respect to claims (18 U.S.C. § 286) and conspiracy to commit offense or to defraud the United States (18 U.S.C. § 371).

A person convicted of tax evasion

Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000.  A person convicted of conspiracy to defraud the government with respect to claims is subject to a prison term of up to not more than 10 years or a fine of up to $250,000.  A person convicted of conspiracy to commit offense or to defraud the United States is subject to a prison term of not more than five years and a fine of up to $250,000.

4 Types of IRS Voluntary Disclosure Programs

There are typically four types of IRS Voluntary Disclosure programs, and they include:

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International Tax Lawyers - Golding & Golding, A PLC

International Tax Lawyers - Golding & Golding, A PLC

Golding & Golding: Our International Tax Lawyers practice exclusively in the area of IRS Offshore & Voluntary Disclosure. We represent clients in 70 different countries. Managing Partner, Sean M. Golding, JD, LL.M., EA and his team have represented thousands of clients in all aspects of IRS offshore disclosure and compliance during his 20-year career as an Attorney. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo and various Law Journals nationwide.

Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver, and has also earned the prestigious Enrolled Agent credential. Mr. Golding is also a Board Certified Tax Law Specialist Attorney (A designation earned by Less than 1% of Attorneys nationwide.)
International Tax Lawyers - Golding & Golding, A PLC