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How far back can the IRS audit?


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Answered 2012-02-14 14:39:54

In British Columbia, Canada our Revenue Canada is quite lenient, but they want their money. They make every effort to let the person pay back taxes in installments, but, should that person goof off and not make any attempt they will find their butts in court.

They can go back 7 years (Statute of Limitations). Some 8 plus years ago I watched a program on the IRS. They were so cold-blooded many people turned to suicide because they lost everything and many people ended up out on the street. The poor really got the worst of it. Since then (and thanks to the Senate) the IRS has since had their hands slapped and an investigation was done and some employees are higher ups fired, but don't be fooled ... if you owe back taxes you WILL have to pay them, but you shouldn't have to lose everything over it. If you are running a business or just a private citizen and want to really be protected get a good accountant (CGA) to do your taxes and save yourself the headaches. Taxation is constantly changing and it's complex for most individuals and not worth stomach ulcers.

Like anything with taxes the question is more complex than one may initially think. There is a difference between how far back a tax authority, including the IRS, (there are many others), can audit compared to how far back they can assess for a deficiency.

Moreover, how far back they can bust your chops, (to redefine the Q probably to what you mean), depends on several other factors: The type of tax and when the returns for it were filed. NOTE: IN virtually all circumstances the statute of limitations (SOL, whatever it may be for that tax) only starts running once the properly completed return is filed. Hence, if you don't file, you are perpetually open to audit and assessment (and criminal action).

Even once you have filed, several things effect the running of the SOL: Certain actions "toll" the time counting...notices sent giving a period of time to respond etc., can for example. So the period can grow substantially. It better have been a properly filed return to start the period. Counting frequently starts at the next month or accounting period and ends at the end of the last one. If the tax suspected of being underpaid is more than 25% of what was due, (not uncommon in fraud/intentional cases), there basically is no SOL restrictions. Many items in returns are based on prior years activities...those activities then remain open to audit.

Virtually all tax jurisdictions have the legal right to impose a "jeopardy assessment". That is, if they have not completed an audit by the SOL time, and want to, they can issue an assessment of just about any amount they want. So if your under audit, and the SOL will expire (frequent;y happens in Corp situations where audits can take years themselves, or when someone under audit thinks they can outsmart the Gov't and delay things until the SOL runs), and the taxpayer fails/refuses to sign an agreement to extend the SOL they automatically issue an assessment. For a number of complex reasons, arguing an assessment that has been issued is much worse than arguing about what it should be before hand.

For personal income taxes, the Assessment Statute of Limitations is 3 years from the date the tax was originally assessed (usually when the taxes were filed), except in cases of fraud. If they can prove fraud, there is no limitation.

In other words, they have 3 years from the date the taxes were originally assessed to make an additional assessment against you, via an audit or automatic adjustment.

The just above seems circular...the SOL on assessment is 3 years from assessment?

See the italicized portion and answer above it...which probably addresses your main Q's...and I cannot stress enough, having learned from previous inquiries.....virtually all counting starts with filing...if you do not file the period is always open for audit and assessment.

Normally within 3 years unless there are special situations or fraud involved.

An example of "special situations" is if you under report your income by over 25%.

They go back either 3 years or 6 years, plus the current year. So it ends up being either 4 or 7 years.

You should think of it in terms of the number of tax returns they go back, rather than in time. After all, in an audit, they want that many years worth of data, which comes in 12 month chunks (April 16 of last year to April 15 of the current year). They want 3 chunks of data, plus the current year's information, for your standard audit. The 6+1 if they find a problem.

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