Tax Audits: How Far Back Can The IRS Go?

How far back the IRS can go to audit your taxes is a common question. Generally, it just depends on the context of your case. The standard statute is 3 years, but if there are foreign assets involved or extreme instances of underreporting income or assets, the IRS is within their rights to audit you for up to 6 years. Civil tax fraud, or a failure to file your standard tax forms, means the IRS can audit you indefinitely. Remember: “audit” is not synonymous with “bad,” and in certain scenarios, the audit could result in a No Charge or substantial refund due to an IRS short-coming. Let’s see how far back the IRS can audit you as a taxpayer.

Generally, the IRS “[won’t] go back more than the last six years. The IRS tries to audit tax returns as soon as possible after they are filed.” This means that once a tax return is filed, the IRS does its due diligence to ensure that the return was filed properly, based on data and insight from your prior tax returns, and their filing will be thorough and fair. However, they still have the right to audit within the standard 3 years, or in extenuating circumstances, within 6 years or all time. Of course, the IRS is held to high standards and is required to follow certain guidelines and statutes based on your unique financial situation.

In regards to the quantity of potential audits, the IRS can audit you many years in a row. Those that are self-employed or hold prior-year liabilities may be subject to multiple audits over their lifetime. If you have been audited for the same issue many times, and received a “no change letter” stating your audit has been concluded with no necessary alterations to your return, the IRS’ ability to continually issue audits on the same grounds will be limited.

The IRS can issue audits 2 years in a row, and you can be audited up to 6 years after initial filing within certain circumstances (or even longer, especially if you are subject to a civil tax fraud investigation, or have never filed previously). If your tax debt has been minimized to a judgment, this judgment could be up for renewal every decade (10 years).

The typical IRS Statute time periods to audit are:

• 3 years
  • Let’s say your 2021 tax return was due April 2021 (assuming this was a standard tax year outside of a pandemic). This gives the IRS three years from 2021 to issue an audit.
• 6 years
  • A 6-year audit is typically triggered by a substantial amount of unreported income, undisclosed foreign income, or embellished deductions. The IRS will usually go back as far as 6 years in these instances, to identify how long the discrepancies existed. 

The IRS could have an uncapped amount of time to audit if:

• The taxpayer has not filed a tax return. This means the statute of limitations for that year has not begun. Until the return is filed, the IRS has an unlimited timeline for auditing.
• The taxpayer has committed fraud. If the IRS has legitimate reason to believe you have committed wrong-doing, they can go back as far as they wish.
• The taxpayer has a Passive Foreign Investment Company and the required Form 8621 has not been filed in a timely manner. 

Audits vary in severity, depending on the situation and the taxpayer’s history. Some audits, usually in the case of innocent self-employed US citizens, are simple questions about your income, expenses, and write-offs. Other audits are more involved and lengthy, however, if the worst element of your situation is a potential mistake on your federal return, the audit will be simple and straight-forward, and the biggest consequence will be a small fine or penalty. 

There are two types of standard IRS audits. An Eggshell Audit means that you have information that you wish to keep from the IRS (i.e. fraudulent activities or dramatic under-reporting of income). This puts the taxpayer in quite a bind; they do not want to intentionally misrepresent themselves, but they also don’t want to face charges or jail time for their wrong-doing. The Reverse Eggshell Audit is indeed the opposite; the IRS have incriminating insight into your tax practices, but have not informed you of their knowledge. In these situations, the taxpayer must exercise great caution and not make any intentional omissions in their disclosure of financial information. Generally, the odds you will be audited are low, but your chances do increase as you enter higher tax brackets. 

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