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Time limits on tax audits, part 1: How far back can the IRS go?

"Don't look back" is a memorable line in literature. It is the title, for example, of a notable documentary from the 1960s about a high-profile British concert tour by the enigmatic singer Bob Dylan.

We may all agree that, in general, it is best to focus on the future. But if you have potentially unresolved tax issues in the past, it is only prudent to be informed about how far back the IRS can look in auditing your returns.

In this two-part post, we will address the question of limitations on the IRS's authority to go back into the past to audit you. We will also discuss the role that a tax attorney can play in helping you respond to IRS questions about your past taxes.

As the IRS explains in an FAQ on tax audits, generally the agency is allowed to audit returns from the last three years. If a significant error is detected, the IRS could go back further, looking at your returns for the past six years.

So the IRS does not have a blank check to look into your past when it comes to audits. There is a limitation period. As a general rule, this is three years after you either filed your taxes or when they were due. This means that the IRS is not supposed to be able to impose additional taxes once that time has passed.

But here's the rub: the IRS may ask you to voluntarily extend the limitations period. The agency may do this because it says more documentation is needed to evaluate or support your position.

This is the type of situation where the counsel of an experienced tax attorney is very important. In part two of this post, we will discuss steps your attorney can take so that you don't have to keep looking back.

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