How Long Does the IRS Have to Audit You?

Some people love surprises, like when you get that perfect gift for Christmas or your birthday that you weren’t expecting in a million years. Some surprises can be a great, like getting more back in your tax return than you were expecting, or receiving a raise at work that you didn’t even ask for. However, not all surprises are pleasant, and in some cases they can be just plain awful, like when you find out the IRS has chosen you for an audit. In fact, what makes that surprise so bad is that it can come at just about any time, especially when you least expect it.

Not Out of the Woods Yet

Did you know that when you file your tax return, and even though the IRS accepts it, it could still be audited up to three years after you file your return? What’s more, in certain situations, the IRS has even longer than three years to stick you with an audit. That’s a surprise no one wants to get. The good news is that typically if the IRS comes knocking after three years they are probably out of luck, but in some cases, they can still demand an audit.

From Three to Six

For example, if you are guilty of forgetting to report, or purposefully leaving out, more than a quarter of your income then the time period doubles from three years all the way to six years. Likewise, if you misreport more than $5,000 of your foreign income then the time limit will also double to six years. If you decide to skip filing a return altogether, then the IRS has no time limit on how long it can seek an audit.

Foreign Accounts Open Longer

Let’s take a look at closer at foreign accounts. When you us a Foreign Bank Account Report (FBAR) to disclose your overseas accounts that usually means the IRS has up to six years to perform an audit. However, if you fail to file a return, or you are guilty of fraud or criminal violations then the time limit can be extended. Some returns with FBARs can actually have no limit at all.

Which Kind of Disclosure?

Although some taxpayers might believe that editing their FBAR or tax return to mend errors would protect them from longer audit-limit times, that depends on which type of disclosure options you choose. Most taxpayers use the Offshore Voluntary Disclosure Program (OVDP) to disclose their offshore accounts. When using the OVDP your case is truly closed after you have signed an agreement with the IRS and the possibility of an audit no longer exists. However for those who choose the streamlined program there is no closing agreement, which means audits are still possible.

Be Honest and Be Prepared

The bottom line is if you want to avoid an audit the best thing you can do is file an honest and accurate tax return every year. Although that won’t guarantee that you will never be audited, it decreases your chances of an audit greatly. Therefore, the next time you file a tax return and receive your refund or pay a penalty, just remember, that doesn’t mean you’re 100 percent off the hook. After all, the IRS can be really good at surprises.

Contact GROCO

If you need help with your taxes to make sure they are accurate, then contact GROCO. Or, if you do ever get notified of an audit, we can help you with that as well. Just call us at 1-877-CPA-2006 or click here to contact us online.