In general, the IRS can include in an audit returns filed within the last three years. If we identify a substantial error, we can add additional years. We usually don't go back any further than the last six years. The IRS tries to audit tax returns as soon as possible after filing them.
Home Concrete & Supply, LLC, 132 S. The Supreme Court held that three years was enough time for the IRS to audit, but Congress overturned the Supreme Court's decision and gave the IRS six years in that case, which is the current law. Six years can be a long time. This override of the standard three-year or six-year IRS statute of limitations is widespread.
Not only does the IRS have an indefinite period to examine and evaluate taxes on items related to Form 5471 that are missing, but it can also make any adjustments to the entire tax return, without expiring until the required Form 5471 is filed. If you file your return electronically, keep all electronic data, plus a printed copy of your return. When it comes to withholding records, many people feel safe destroying receipts and supporting data after six or seven years; but they never destroy old tax returns. Also, do not destroy old receipts if they are related to the base of an asset.
For example, receipts for a 15-year-old home remodel are still relevant, as long as you own the home. You may need to demonstrate your foundation when you sell it later on, and you'll want to request a base increase for the remodel 15 years ago. For all these reasons, be careful and keep good records. If you were recently audited and the IRS is trying to review your records again in a later tax year, one step you can take is to request that the IRS suspend the auditing.
Understanding how the IRS identifies a fortunate beneficiary of the audit can go a long way in helping you avoid that experience. The basic rule is that the IRS can audit for three years after filing the application, but there are many exceptions that give the IRS six years or more. If you file in January and your return is due on April 15, the audit clock starts running on April 15. However, if the IRS adjusts your federal return, you are required to file an amended return in California to match what the Feds did. If you've been audited once and the IRS is still attacking you, there's not much you can do except cooperate and give them what they need.
Stay away from tax shelters and things that the IRS considers “listed transactions” that can cause problems. However, if your amended tax return shows an increase in taxes and if you file the amended return within 60 days before the three-year law takes effect, the IRS has only 60 days after receiving the amended return to conduct an evaluation. There is usually a three-year limit on how long it can take for the IRS to audit your return, but if there are suspicions of fraud or tax evasion, that statute of limitations does not apply. Some states have the same three- and six-year statutes as the IRS, but set their own hours, giving them more time to apply additional taxes.
As just one example, consider what happens when an IRS notification is sent to a corporation, but not to its individual partners. If they decide that they want to audit it every year for the rest of their life, that's in their power, since they don't have it, and it shows that a dishonest IRS agent has a personal vendetta against them. Whether you're interested in avoiding a future audit or need help with an ongoing one, Levy & Associates Tax Consultants can help. Another situation in which the IRS law toll applies is when the taxpayer is outside the United States.
You could avoid an audit if you can show that you verified the item that the IRS is questioning in a previous audit. The only real limitation in this case is that a tax return for a given year cannot be audited more than once. .