In most cases, the IRS has three years to audit taxpayers, after which time they are usually safe. But not always, as tax lawyer Rob Wood points out in his Forbes article, “IRS Can Only Go Back 3 Years, Right? How About 10 Years Or Forever.”
Forever is an awfully long time, as Wood notes. The statute of limitation is generally three years from the filing of a return. There are a couple of exceptions that should be noted. One is the six-year statute that can apply in several situations. One of them is the taxpayer that has foreign accounts. Another one relates to a “substantial understatement” of income, generally more than 25% of income.
Another situation that arises is a request by the IRS for an extension of time to begin the audit. Wood says this is an important point because the rules can be varied by agreement. Most tax advisors, included Wood, suggest the taxpayer should generally agree. However, there are situations where the taxpayer should try to limit the extension. This should not be done without the advice of a tax expert. It’s important for the taxpayer to keep copies of any agreements made with the IRS.
For more information on the subject, please refer to Mr. Wood’s article in Forbes. Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel, an affiliate of The Legal Broadcast Network. The Legal Broadcast Network is a featured network of the Sequence Media Group.